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Marine Products Corp  (NYSE:MPX)
Q4 2018 Earnings Conference Call
Jan. 23, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for joining us for Marine Products Corporation's Fourth Quarter 2018 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded.

Jim will get us started by reading the forward-looking disclaimer.

James Landers -- Vice President, Corporate Finance

Good morning and thank you. 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 2017 10-K and other SEC filings that outline those risks. All of which are available on our website at www.marineproductscorp.com.

I also need to inform you that Marine Products Corporation has used the non-GAAP financial measures of net income and diluted earnings per share, excluding the impact of tax reform in today's earnings release, and we anticipate that we will refer to these non-GAAP financial measures in today's earnings conference call and discussion.

Management believes that presenting the operating results without the impact of tax reform enables us to compare our operating performance consistently over various time periods. Our press release issued today and our website contain a reconciliation of these non-GAAP financial measures to net income and diluted earnings per share, which are the nearest GAAP financial measures. If you've not received our press release, 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.

Richard Hubbell -- President and Chief Executive Officer

Thank you, Jim. We issued our earnings press release for the fourth quarter of 2018 this morning. Ben Palmer, our CFO, will discuss the financial results in more detail in a moment.

At this time, I will briefly discuss our operating highlights. Our net sales decreased by 5.4% during the fourth quarter. Net sales decreased due to an 18.1% decrease in units sold partially offset by a 14.2% increase in the average selling price per boat. Our unit sales declined compared to the prior year was concentrated in sales to international markets where the cost of tariffs impacted orders.

We continue to be pleased with the market share of all of our product categories. Our Chaparral's sterndrive products continue to hold the highest market share in their category, approximately 16.4% for the nine months ending September 30, 2018. Robalo's market share is now number three in the outboard sport fishing category.

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 in the open market.

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

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

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 2017. Although unit sales decreased, especially sales to our international markets, average selling prices increased due to the popularity of the 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 2017.

Gross margin during the quarter declined slightly to 21% compared with 21.9% in the fourth quarter of 2017, due to manufacturing cost inefficiencies, primarily labor.

Selling, general and administrative expenses were $7 million in the fourth quarter of 2018, 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 2018 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 2017. 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 2017.

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 this 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.

Richard Hubbell -- President and Chief Executive Officer

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 is 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 super-sized bowrider and a big boat with full beam in closed 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'll be happy to take any questions you may have.

Questions and Answers:

Operator

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

Ronald Bookbinder -- IFS Securities -- Analyst

Good morning and thank you for taking my questions.

James Landers -- Vice President, Corporate Finance

Sure, Ron.

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Good morning.

Ronald Bookbinder -- IFS Securities -- Analyst

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?

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

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.

Ronald Bookbinder -- IFS Securities -- Analyst

And in the international sector, has that improved lately with no agreements in North America?

James Landers -- Vice President, Corporate Finance

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

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

This is Ben. Luckily for us, of course, in the fourth quarter -- over the last couple of quarters it's 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 free 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.

Ronald Bookbinder -- IFS Securities -- Analyst

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?

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Well, I think for -- labor is a constant issue, something we were always working to try to address to keep enough of the right people and train people and all that. It is a big challenge for everybody, and we're certainly not excluded from that. During the last few quarters, we've attempted to again recruit and train some new people, that sort of shows up, as you know, again it shows up as -- in some of those, or creating some of those inefficiencies that we're talking about. We hope it's going to stabilize, there are few programs that we have in place, or that we're developing to try to address, again the overall quality of the workforce and having the right people in the right places to hopefully improve -- the expectation is to improve the margins over time. But it'll continue to be a challenge for us for at least another couple of quarters.

Ronald Bookbinder -- IFS Securities -- Analyst

Okay, great. Thank you and good luck in the New Year.

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Thank you.

James Landers -- Vice President, Corporate Finance

Thank you, Ron.

Operator

(Operator Instructions) And at this time, there are no further questions in the queue. I would now like to turn the call back to Jim Landers for any additional or closing remarks.

James Landers -- Vice President, Corporate Finance

Thank you very much. We appreciate the people who called in to listen and I appreciate the question. Look forward to seeing everybody soon. Have a good day.

Operator

And to remind everyone, the conference call will be replayed on www.marineproductscorp.com within two hours following the completion of this call. We do thank you for your participation today.

Duration: 12 minutes

Call participants:

James Landers -- Vice President, Corporate Finance

Richard Hubbell -- President and Chief Executive Officer

Ben Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Ronald Bookbinder -- IFS Securities -- Analyst

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