Q1 2019 Marine Products Corp Earnings Call
Atlanta Apr 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Marine Products Corp earnings conference call or presentation Wednesday, April 24, 2019 at 12:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Ben M. Palmer
Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary
* James C. Landers
Marine Products Corporation - VP of Corporate Finance
* Richard A. Hubbell
Marine Products Corporation - President, CEO & Director
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Conference Call Participants
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* Eric Christian Wold
B. Riley FBR, Inc., Research Division - Senior Equity Analyst
* Ronald Cunningham Bookbinder
IFS Securities, Inc., Research Division - Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, good morning, and thank you for joining us for Marine Products Corporation's First Quarter 2019 Financial Earnings Conference Call. Today's call will be hosted by Mr. Rick Hubbell, President and CEO; Mr. Ben Palmer, Chief Financial Officer; and also present is Mr. Jim Landers, Vice President of Corporate Finance. (Operator Instructions) I would also like to advise everyone that this conference call is being recorded.
Mr. Landers will get us started by reading the forward-looking disclaimer. Please go ahead, sir.
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James C. Landers, Marine Products Corporation - VP of Corporate Finance [2]
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Thank you and good morning. Before we get started today, I'd like to remind everyone that some of the statements that we will make on this call may be forward looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, our 2018 10-K and other SEC filings that outline those risks, all of these are available on our website at www.marineproductscorp.com.
If you've not received a copy of our press release and would like one, please visit our website, again, at www.marineproductscorp.com for a copy. We'll make a few comments about the quarter and then we'll be available for your questions.
Now I will turn the call over to our President and CEO, Rick Hubbell.
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Richard A. Hubbell, Marine Products Corporation - President, CEO & Director [3]
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Jim, thank you. We issued our earnings press release for the first quarter of 2019 this morning. Ben Palmer, our CFO, will discuss the financial results in more details in a moment. At this time, I will briefly discuss our operational highlights.
Our net sales increased by 7.1% during the first quarter. Net sales increased due to a model mix that was highlighted by more sales of larger books, leading to a 14.8% increase in average selling prices. These increases were partially offset by a 6.8% decrease in the number of boats sold. In general, sales of smaller boats accounted for the decrease in unit sales during the quarter.
Marine Products Corporation is maintaining its strong market share. For 2018, Chaparral sterndrive products held a 16.2% market share, the highest in that category. Robalo maintained its position as the second largest brand in this category with a market share of 5.6%. And the combination of Robalo and Chaparral outboards held the third highest position in the overall outboard market with the market share of 6.8%. We also announced this morning that our Board of Directors yesterday declared a regular quarterly dividend of $0.12 per share, the same as our regular quarterly dividend of $0.12 per share in the previous quarter. Also, during the first quarter, we repurchased 263,805 shares of common stock in the open market.
With that overview, I'll 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 first quarter of 2019 were $83.1 million, an increase of 7.1% compared to the first quarter of last year. Unit sales decreased by 6.8% with the smaller boats accounting for this unit sales decline. Our average selling prices increased by 14.8%, however, as a number of our larger models sold very well. In addition, parts and accessories sales increased by almost 10%.
Gross profit in the first quarter was $18.7 million, an increase of 5.9% compared with the first quarter of 2018. Gross margin during the quarter declined slightly to 22.5% compared with 22.8% in the first quarter of 2018 due to higher labor rates to assist with retention and higher headcount targeting improved quality.
Selling, general and administrative expenses were $9.8 million in the first quarter of 2019, an increase of $1.2 million compared to $8.6 million in the first quarter of last year. These expenses increased due to expenses that increased with sales and profitability, such as incentive compensation and sales commissions as well as higher research and development costs to support our new model development.
As a percentage of net sales, SG&A expenses increased to 11.8% in the first quarter of '19 compared to 11.1% in the first quarter of last year. Interest income during the first quarter of this year was $57 million -- or $57,000, an increase of $24,000 compared with $33,000 during the first quarter of '18.
During the first quarter, we liquidated the portfolio of short-term tax-exempt marketable securities in which we had invested for more than 10 years and we've reinvested the proceeds and bank deposits, which pay taxable interest. We made this change due to our lower effective tax rate and our status as a taxpaying entity. The taxable-equivalent return on our bank deposits is at the present time higher than that of the taxes in securities in which we've previously invested.
The quarter ended March 31, '19, we reported net income of $7.5 million, a decrease of 1.8% compared to net income of $7.6 million in the first quarter of 2018. Diluted earnings per share were $0.22 in the first quarters of both 2019 and 2018. Our effective tax rate during the first quarter of '19 was 16.3% compared with 16.1% in the first quarter of '18.
International sales grew by 2.1% in the first quarter compared to the prior year and represented 7.4% of net sales compared to 7.7% of net sales in the first quarter of last year. International sales increased in many of our international markets, although sales decreased in Canada. Our cash balance at the end of the first quarter was $18.3 million, a decrease of $3.1 million compared to cash and marketable securities at the end of the first quarter of '18.
Our cash and marketable securities balance decreased because of higher working capital requirements as well as higher dividends and increased cost of share repurchases during the previous 4 quarters. As of March 31, 2019, dealer inventories were essentially unchanged compared to the prior year. Unit backlog at the end of the quarter was slightly lower than at the same time last year. The dollar backlog was slightly higher due to average selling -- higher average selling prices that we reported this quarter and believe that we will report in the immediate future. We have reduced our unit production slightly in order to keep dealer inventories healthy in preparation for the upcoming 2020 model year.
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Richard A. Hubbell, Marine Products Corporation - President, CEO & Director [5]
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Thank you, Ben. A prominent operational and financial feature of Marine Products is our large boats. We believe that we have found several appealing opportunities that attracted potential customers during the 2019 winter boat shows. We believe that the 2019 retail selling season will continue to be strong, but we are monitoring retail demand to ensure that our dealer inventories remain healthy in preparation for the new models that we continue to develop for upcoming years.
I like to 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 our first question comes from Eric Wold with B. Riley.
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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [2]
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Two quick questions, so 2 quick questions. One, on Canada, I can understand that you continue to be down in the quarter. Are you seeing any change or any improvement in demand trends as that tariff lingers, may becomes more of the expected norm in the region or is really that could expected to stay weak until we get some release there? And then I had a follow-up?
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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [3]
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Eric, this is Ben. I would say that there's no definitive trends or improvements. I agree with you that it will probably continue to be a little uncertain or a little weak until some of that uncertainty gets cleared up.
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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [4]
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Okay. And then, can you maybe talk a little bit more about what drove the weakness in the smaller boats in the quarter and if that -- kind of what was specific to those boats and kind of then maybe dive into kind of if there are certain types or models that were impacted more than others? Then aside from that, coming out of the boat show season, I know you still remain the optimistic in kind of marketing. Any underlying trends that are kind of possibly giving more pause than not, your shifts in buying preferences around ASP features, financing needs or is everything kind of remaining kind of as it was kind of heading into the boat show as maybe the one last year?
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James C. Landers, Marine Products Corporation - VP of Corporate Finance [5]
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Eric, this is Jim. Good questions. I don't think we see any really discernable trends at this point. It is -- that would point to larger boats being -- or smaller boats being weaker. We do know that it was a difficult February and March from a weather point of view. And it is possible that smaller boats are more susceptible or purchases of smaller boats are more susceptible to short-term trends. If you are thinking about buying a small boat, it's a little more of an impulse purchase. And if it's a cold, rainy March, you might not do that. Whereas with bigger boats, you plan for it and you might have a different mindset. So that is a possibility. Also for us, we're just trying to find different market niches and designs that appeal to things. So I'm not sure that our results point to big macro trends one way or the other.
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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [6]
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