Marine Products (MPX) Q4 2019 Earnings Call Transcript

Image source: The Motley Fool.

Marine Products (MPX -1.38%)
Q4 2019 Earnings Call
Jan 29, 2020, 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 the Marine Products Corporation's fourth-quarter 2019 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 a 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 is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Jim Landers -- Vice President of Corporate Finance

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 marineproductscorp.com.

If you've not received our press release, please visit our website, again, at 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.

Rick Hubbell -- President and Chief Executive Officer

Jim, thank you. We issued our earnings press release for the fourth quarter of 2019 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 operational highlights.

As previously announced, we reduced our headcount and lowered our production during the fourth quarter. As result, our net sales during the fourth quarter decreased 22.4% over the fourth quarter of the prior year. Net sales decreased due to a 21% decrease in the number of units sold during the quarter. Average selling prices decreased slightly due to model mix.

We maintain high market share in all of our major categories. Our Chaparral sterndrive products held the second-highest market share in that category, approximately 16.2% for the 12 months ending September 30, 2019. Robalo maintained its position as the second-largest brands in its category with a market share of 5.3%. And the combination of Robalo and Chaparral outboards continues to hold the highest position in the overall outboard market with a market share of 6.5%.

We announced this morning that our board of directors declared a regular quarterly cash dividend of $0.12 per share. Also during the fourth quarter we repurchased 88,983 shares of common stock on the open market. With that overview, I will turn it over to our CFO, Ben Palmer.

Ben Palmer -- Chief Financial Officer

Thanks Rick. Net sales for the fourth-quarter 2019 were $48.2 million, a 22.4% decrease compared to the fourth quarter last year. As Rick said, unit sales declined by 21% during the quarter and average selling prices declined slightly [Inaudible] mix. Gross profit in the fourth quarter was $10.5 million, a decrease of 19.2% compared with the fourth quarter of 2018.

Gross margin during the quarter was slightly higher at 21.8% compared with 21% in the fourth quarter of 2018. Selling, general and administrative expenses were $6.3 million in the fourth quarter of this year, a decrease of $657,000 compared with $7 million in the fourth quarter of last year. These expenses decreased due to expenses that vary with sales and profitability, including warranty and incentive compensation, as well as lower research and development expenses incurred during the fourth quarter of 2019. Interest income during the fourth quarter of this year was $88,000, an increase compared with $48,000 in the fourth quarter of 2018.For the quarter-ended December 31, 2019, we reported net income of $3.5 million, a decrease of 25.1% compared to net income of $4.7 million in the fourth quarter of 2018.

Diluted earnings per share were $0.10 in the fourth quarter of 2019 compared with $0.14 in the fourth quarter of 2018. Our effective tax rate during the current quarter was 17% compared with 22% in the fourth quarter of 2018. Our effective tax rate decreased due to favorable permanent adjustments reflected in the fourth quarter of 2019. For 2020, we project an effective tax rate of approximately 22%.

While Marine Products domestic sales decreased during the fourth quarter of 2019, our international sales increased by 17.4% and accounted for 4.8% of total sales. Our international sales increased because of significantly higher sales to our Canadian dealers. Our sales to other international markets were flat compared to the fourth quarter of last year. For the 12-months ended December 31, 2019, net sales of $292.1 million decreased by only 2.2% compared to the prior year.

Net income for the 12-month period was $28.2 million, essentially the same as the prior-year. Diluted earnings per share were $0.83 in both years. Our cash balance at the end of the fourth quarter was $19.8 million, an increase of $3.4 million or 20.7% compared to cash and marketable securities of $16.4 million at the end of the fourth quarter of 2018. As we discussed at the end of the third quarter, our dealer inventories had increased to a level that prompted us to adjust production to be more aligned with field inventories as we prepared for the 2020 retail selling season.

At the end of the fourth quarter of 2019, dealer inventory levels had improved to be approximately the same as the fourth quarter of 2018. With that, I'll turn it back over to Rick.

Rick Hubbell -- President and Chief Executive Officer

Thanks Ben. Our fourth quarter results showed the result of our decision to reduce production in order to align field inventories with backlog, an objective we achieved by the end of the year. We continue to monitor field inventories as we always do. And at this time, we have an increasingly positive outlook for 2020.

Early winter boat shows have been well-attended, and more sales are being closed at the shows than in previous years. We're also noticing more sales of larger boats, which is a positive build. We're presently planning to increase production early in the first quarter as we respond to these positive indicators of 2020 demand. Thank you for joining us this morning, and we'd be happy to take any questions you may have.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions]. Our first question will come from Eric Wold of B. Riley.

Eric Wold -- B. Riley FBR -- Analyst

Thank you, and good morning.

Ben Palmer -- Chief Financial Officer

Hey, Eric.

Eric Wold -- B. Riley FBR -- Analyst

I have two questions. I guess, one, so getting inventory down to flat with the year-ago period, obviously, strong moves doing that, I guess, one, I guess what level of discounting did you kind of was necessary to move that inventory even out of the year-ago period? Have you -- has that discounting now ended as you moved into Q1?

Ben Palmer -- Chief Financial Officer

Eric, this is Ben. We didn't have any particular strong discounting. I think it was kind of normal year-over-year and for the period. The clearing out of inventory was solely due to the fact, obviously, that we shipped a lot fewer boats during the fourth quarter.

So that was just normal sale for [Inaudible]

Eric Wold -- B. Riley FBR -- Analyst

Perfect. Thank you. OK. Thank you, Ben.

And then on the commentary you expect kind of ramp production backup here in Q1, what are your kind of retail growth expectations for 2020 that you're kind of using within your kind of production plans for early in the year and then kind of through the year given what happened last year?

Jim Landers -- Vice President of Corporate Finance

Eric, this is Jim. We don't have a good handle on that. We've all at this point seen retail sales for 2019, the preliminary numbers anyway, and they were flat-to-down. Rick's comments about how good the boat shows look and the activity and the reception from our dealers and our retail customers for the larger boats is very valid, and that's what we're using to plan a production increase in the first quarter.

So we don't have any global assumptions about retail demand in 2020. We're just responding tactically to what looks like a very strong winter boat show season at this point.

Eric Wold -- B. Riley FBR -- Analyst

Perfect. Thank you, guys.

Operator

Thank you, sir. At this time, I'm showing no additional questions. And I'd like to turn it back over to Jim Landers for closing remarks.

Jim Landers -- Vice President of Corporate Finance

Thank you very much. We appreciate everybody who called, who listened in and we appreciate the questions. Hope everyone has a good day, and we will talk to you soon. Thanks.

Operator

Thank you, ladies and gentlemen. As a reminder, today's call will be replayed at the company's website www.marineproductscorp.com within two hours. [Operatior signoff]

Duration: 11 minutes

Call participants:

Jim Landers -- Vice President of Corporate Finance

Rick Hubbell -- President and Chief Executive Officer

Ben Palmer -- Chief Financial Officer

Eric Wold -- B. Riley FBR -- Analyst

More MPX analysis

All earnings call transcripts