Edited Transcript of MPX earnings conference call or presentation 23-Jan-19 1:00pm GMT

We also announced this morning that our Board of Directors yesterday declared a regular quarterly dividend of $0.12 per share, a 20% increase compared to our regular quarterly dividend of $0.10 per share in the fourth quarter of 2018. Also, during the fourth quarter, we repurchased 168,366 shares of common stock from the open market.

With that overview, I will turn it over to our CFO, Ben Palmer.

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [4]

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Thank you, Rick. Net sales for the fourth quarter of 2018 were $62.1 million, again a decrease of 5.4% compared to the fourth quarter of '17. Although unit sales decreased, especially sales to our international markets, average selling prices increased due to the popularity of a number of our larger models.

Gross profit in the fourth quarter was $13 million, a decrease of 9.4% compared to the fourth quarter of '17. Gross margin during the quarter declined slightly to 21% compared with 21.9% in the fourth quarter of '17, due to manufacturing cost inefficiencies, primarily labor.

Selling, general and administrative expenses were $7 million in the fourth quarter of '18, relatively unchanged compared with $6.9 million in the fourth quarter of last year. As a percentage of net sales, SG&A expenses increased to 11.3% in the fourth quarter of '18 from 10.5% in the fourth quarter of last year. SG&A for the full year of 2018 was 10.4% of net sales.

Net income and earnings per share for 2018 include the benefit of lower corporate tax rates due to tax reform. For the quarter ended December 31, 2018, we reported net income of $4.7 million, a decrease of $313,000 or 6.2% compared to net income excluding the impact of tax reform of $5 million in the fourth quarter of 2017. Diluted earnings per share of $0.14 decreased by $0.01 compared to diluted earnings per share excluding the impact of tax reform of $0.15 during the fourth quarter of 2017.

Our effective tax rate during the fourth quarter of 2018 was 22%, which is also our estimated full year effective rate for 2019.

International sales represented 3.2% of net sales during the fourth quarter compared to 6.7% of net sales in the fourth quarter of last year. International sales decreased significantly during the third and fourth quarters of 2018 due to the trade tariffs, most notably for us, in Canada, the European Union and Mexico.

Our cash and marketable securities balance at the end of the fourth quarter was $16.4 million, a decrease of $4.3 million compared to the end of '17. Our cash and marketable securities balance decreased because of higher working capital as well as higher dividends and increased cost of share repurchases during 2018 as compared with '17.

As of December 31, 2018, dealer inventories were essentially unchanged compared to the prior year, which is positive given our full year sales growth. Backlog at the end of the year was higher than at the same time last year, reflecting our dealers confidence about the remainder of the 2019 model year and supportive of our planned increase in production levels.

With that, I'll turn it back over to Rick.

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Richard A. Hubbell, Marine Products Corporation - President, CEO & Director [5]

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Thanks, Ben. Several times this morning we mentioned larger boats and higher selling prices, the appeal of our new designs to consumers and their contribution to our financial results. One of the Chaparral models that has meant a lot to us during the end of this year is the Chaparral 347 SSX. This is our largest sterndrive model and is both a supersized bowrider and a big boat with full-beam enclosed cabin. The full-beam cabin really distinguishes this boat from its comparably sized peers. We have some other large boats that we'll be showing at the winter boat shows in the upcoming retail selling season. We are as excited about these boats as we are about the 347 SSX, and we look forward to talking with you about them soon.

Thank you for joining us this morning, and we'd be happy to take any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And at this time, we'll hear from Ronald Bookbinder of IFS Securities.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [2]

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I was wondering on out -- the supply of outboard engines. The supply was fairly tight during this off-season. Have the manufacturers been able to build inventory for demand?

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [3]

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This is Ben. For us, yes, we're in much better shape today. In fact, part of the reason that our inventories are up a bit and working capital is up because we've bought a few engines ahead and to protect ourselves in that regard. So we're generally in good shape at this point.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [4]

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And in the international sector, has that improved lately with new agreements in North America?

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James C. Landers, Marine Products Corporation - VP of Corporate Finance [5]

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Ron, this is Jim. Not as at this moment. International sales are weak as Ben mentioned, and there's nothing at this moment that has improved.

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [6]

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Well, luck -- and like -- this is Ben. Luckily for us, of course, in the fourth quarter, over the last couple of quarters, it has been very low single-digit percentage of our total sales. So that's the good news, but we would love for it to be addressed and freed back up, that would be good for everybody, including us. But no real change at this point given that it's a relatively small portion of our total sales. We would not see any new momentum or anything based on any changes recently.

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Ronald Cunningham Bookbinder, IFS Securities, Inc., Research Division - Analyst [7]

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And lastly, on the gross margin, labor has been -- the labor market is just tight everywhere. And this has been going on for several quarters now. Do you see anything that's going to change that? Or should we be looking to be conservative on the labor costs going forward?

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [8]

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