Soft RV Market Impacts Patrick Industries Inc.’s Q2 Report

RV Business

ELKHART, Ind., – Patrick Industries, Inc. (NASDAQ: PATK), a leading component solutions provider for the Leisure Lifestyle and Housing markets, today (July 27) reported financial results for the second quarter ended July 2.

Second Quarter 2023 Highlights (compared to Second Quarter 2022 unless otherwise noted)

Net sales of $921 million decreased 38%, primarily due to a 44% reduction in RV industry wholesale unit shipments
Gross profit of $210 million decreased 36%, gross margin increased 60 basis points to 22.8%
Operating income of $76 million decreased 57%, operating margin decreased 360 basis points to 8.2%
Net income of $42 million decreased 64%
Diluted earnings per share of $1.94 decreased 59%
Adjusted EBITDA of $114 million decreased 46%, adjusted EBITDA margin decreased 200 basis points to 12.4%
Inventory reduction of $113 million from year-end 2022 and $184 million from the second quarter of 2022
Cash provided by operations of $179 million improved compared to cash provided by operations of $97 million in the second quarter of 2022
On a trailing twelve-month basis, free cash flow through the second quarter of 2023 was $444 million, an increase of 169% compared to $165 million through the second quarter of 2022
Returned $18 million to shareholders in the quarter, including $8 million through common share repurchases and $10 million through dividends

Net sales in the second quarter of 2023 were $921 million, a decrease of 38% from a record $1.48 billion in the second quarter of 2022. The decline in sales was primarily driven by a 44% decrease in RV wholesale unit shipments. In addition, sales were negatively impacted by 30% and 11% declines in estimated wholesale manufactured housing unit shipments and residential housing starts, respectively, as a result of macroeconomic factors including higher interest rates.

Operating income of $76 million in the second quarter of 2023 decreased $98 million from $174 million in the second quarter of 2022, and operating margin of 8.2% in the second quarter of 2023 decreased 360 basis points compared to 11.8% in the same period a year ago, primarily as a result of lower fixed cost absorption on a 38% decrease in revenues.

Net income decreased 64% to $42 million from $117 million in the second quarter of 2022. Diluted earnings per share of $1.94 decreased 59% compared to $4.79 for the second quarter of 2022.

“We are incredibly proud of our team’s second-quarter efforts, particularly our working capital discipline in alignment with aggressive dealer inventory management by OEMs in the RV industry and our other markets calibrating to the challenging macroeconomic environment,” said Andy Nemeth, Chief Executive Officer. “Our results are a reflection of our team’s nimbleness, resilience and ability to adapt to dynamic market conditions while also noting that last year’s second-quarter earnings were the highest quarterly earnings in our company’s history. Our performance continues to reflect the benefits of our strategic diversification initiatives helping to stabilize our margins while positioning us to quickly pivot and leverage our highly variable cost structure when our markets rebound. Through continued prudent balance sheet management, we have reduced our inventories by $113 million from the end of 2022, and $184 million from the second quarter of 2022, generating significant cash flow and further enabling us to execute our strategy.”

Jeff Rodino, President, said, “In partnership with our customers, our dedicated team members have strengthened Patrick’s ability to meet the challenges of the current environment without losing sight of the future. We continue to invest in the long-term development of our organization through the deployment of capital toward our goals of strategic diversification, operational excellence and organic growth. We made further progress during the quarter through the acquisition of BTI Transport, which launched our Patrick Marine Transport brand, expanding our capabilities as a transportation provider to the Leisure Lifestyle markets.”

Second Quarter 2023 Revenue by Market Sector
(compared to Second Quarter 2022 unless otherwise noted)

RV (42% of Revenue)

Revenue of $384 million decreased 54% while wholesale RV industry unit shipments declined 44%.
Content per wholesale RV unit (on a trailing twelve-month basis) increased 6% to $5,051.

Marine (29% of Revenue)

Revenue of $268 million decreased 8% while estimated wholesale powerboat industry unit shipments decreased 19%.
Estimated content per wholesale powerboat unit (on a trailing twelve-month basis) increased 15% to $5,330.

Housing (29% of Revenue, comprised of Manufactured Housing (“MH”) and Industrial)

Revenue of $269 million decreased 23%; estimated wholesale MH industry unit shipments decreased 30%; total housing starts decreased 11%, with single-family housing starts decreasing 14% and multifamily housing starts decreasing 6%.
Estimated MH content per wholesale MH unit (on a trailing twelve-month basis) increased 11% to $6,411.

Balance Sheet, Cash Flow and Capital Allocation

Cash provided by operations of $178 million in the first six months of 2023 improved by $104 million from $74 million in the first half of 2022 due to an improvement of more than $250 million in working capital monetization, partially offset by a $157 million reduction in net income. Purchases of property, plant and equipment totaled $16 million in the second quarter of 2023, reflecting continued investments in alignment with our strategic initiatives. On a trailing twelve-month basis, free cash flow through the second quarter of 2023 was $444 million, an increase of 169% compared to $165 million through the second quarter of 2022. Our long-term debt decreased approximately $117 million during the second quarter of 2023, principally due to net repayments on our revolving credit facility of $115 million.

We remained disciplined in allocating and deploying capital, returning approximately $18 million to shareholders in the second quarter of 2023, consisting of $8 million of opportunistic repurchases of approximately 125,200 common shares and $10 million of dividends.

Our total debt at the end of the second quarter was approximately $1.24 billion, resulting in a total net leverage ratio of 2.6x (as calculated in accordance with our credit agreement). Available net liquidity, comprised of borrowing availability under our credit facility and cash on hand, was approximately $607 million.

Business Outlook and Summary

“Our proven business model, strategic diversification across the leisure lifestyle and housing markets, disciplined inventory management, strong cash flow and solid balance sheet continue to position us to navigate the current macroeconomic environment and drive long-term value for our stakeholders,” continued Mr. Nemeth. “While we acknowledge the current macroeconomic challenges and their impact on our business, we are optimistic about the future of the leisure lifestyle and housing markets. With implied RV dealer inventory levels continuing to decline in the second quarter, we are beginning to detect potential tailwinds building on the horizon in the RV industry. Strategically, we remain proactive, and our significant liquidity supports our ability to capitalize on emerging opportunities to enhance Patrick’s platform for growth.”

Conference Call Webcast

Patrick Industries will host an online webcast of its second quarter 2023 earnings conference call that can be accessed on the Company’s website, www.patrickind.com, under “For Investors,” on Thursday, July 27, 2023 at 10:00 a.m. Eastern Time. In addition, a supplemental earnings presentation can be accessed on the Company’s website, www.patrickind.com under “For Investors.”

Source: https://rvbusiness.com/soft-rv-market-impacts-patrick-industries-inc-s-q2-report/