Nemeth: Patrick Gains as RV Industry ‘Recalibrates Inventory’

ELKHART, Ind. – Following the Thursday (Oct. 27) release of its third quarter financial report, Patrick Industries officials said the company was able to “drive improved performance despite ongoing recalibration in the RV industry.”

In a conference call with investment analysts, Patrick CEO Andy Nemeth, President Jeff Rodino and CFO Jake Petkovich touted the company’s Q3 performance – highlighted by $1.1 billion in Q3 revenue, a 5% year-over-year increase – as well as offered a their perspective on the the current market conditions and how business might play out over the course of the next year.

Andy Nemeth

“We achieved year-over-year growth in revenue, gross profit and net income despite a 40% decline in RV wholesale production from both the 2021 third quarter and sequentially from the second quarter of 2022,” said Nemeth, noting that Patrick’s consolidated sales increased 5% despite a 17% decrease in sales in the RV market.

“Following the year-over-year production increases experienced through the first half of 2022 at an annualized run rate of more than 640,000 units, as we anticipated, RV OEMs recalibrated production starting in June, leading the industry to a more optimal dealer inventory scenario that we see today, alongside post pandemic consumer demand,” Nemeth added. “We applaud the discipline and scalability displayed by our OEM partners and believe their actions are appropriate and reflect the realities in the market and better position the industry for long term health and growth.”

Looking specifically at the company’s RV business activity, Rodino noted that Patrick’s revenues decreased 17% to $524 million, representing 47% of the consolidated sales. RV wholesale unit shipments of 91,800 decreased 40%, he added, as the industry recalibrates inventory levels and retail wholesale velocity and demand slows from last year and the first half of this year’s record basis.

Despite all that, Rodino pointed out that Patrick’s RV content per unit increased 36% on a TTM basis to $5,071 per unit, which he attributed to market share gains, pricing and acquisitions.

RV retail unit shipments were estimated to have decreased by approximately 20% during the quarter, he added, totaling approximately 119,000 units and implying a net reduction of approximately 27,000 units from dealer inventory in the quarter.

Jeff Rodino

“Our estimates indicate that TTM dealer inventory weeks-on-hand at the end of the third quarter are at an approximately 18 to 20 weeks. This is down approximately two weeks from the 20 to 22 weeks from our estimates at the end of the second quarter of 2022 and below historical pre-COVID levels of approximately 26 to 30 weeks,” Rodino said.

What follows is an edited account of the remainder of the conference call:

On the current state of RV production:

Rodino: The OEMs have really monitored what they’ve been doing over the last several months. We see them normalizing from where they were in September. We still see the shutdowns of a week or a day here or there – really to manage where they are at versus the retail that’s going on out there. We feel comfortable as they continue to manage and monitor those on a daily and weekly basis and we’re adjusting to those production levels as needed.

On whether they expect dealers to continue to be rebalancing inventories through the first half of 2023:

Nemeth: When we look at the inventory that’s out there today in the channel, we absolutely believe we’re at discounted levels from where it’s historically run. What we see today is a ‘mix change’ happening out in the marketplace as it relates to dealers fine tuning their mix balance that they prefer going into next year.

So, as we look at things, we’re anticipating – at least in our OE partners, and I’m certainly don’t want to speak for them – but we think that there’s rebalancing of the mix through the back part of the year with very disciplined production, pullbacks, which we think is very, very rational and then kind of positioning for a strong fiscal 2023 as it relates to one-to-one retail and wholesale.

On the company’s content-per-unit growth and how it might continue:

Nemeth: As we look at content, we’re seeing a supply chain constraint perspective on the RV side of the business.

For sure, we feel like we’re in a great position today. We’ve been able to leverage our brands and really be able to put ourselves in a position to not have any supply chain constraints, and also we’re seeing some commodities come down. So, we’re certainly going to partner and give back that pricing in line with our customers, the same way we did on the way up.

The other side of it is that our scalability and flexibility and the ability to leverage brands over the course of not only the last quarter, but really the last 18 months when supply chain has been so significant, we’ve picked up between $125 million and $150 million in additional analyzed business in the RV side of the business.