One of the most surprising consumer trends over the past several years has been the dramatic increase in interest in recreational vehicles. Once thought of as a dying industry facing huge demographic challenges, RVs have instead attracted the attention of millennials seeking high-quality, low-cost travel options. LCI Industries (LCII 1.81%) has helped to power the RV movement with its components and systems for recreational vehicles. Yet with the industry having hit a down spell, some wondered whether LCI would see a similar air pocket.
Coming into Tuesday's first-quarter financial report, LCI investors were prepared to see pressure on its top and bottom lines. LCI wasn't able to avoid a downturn during the seasonally slow winter months, but it's hopeful that it'll be able to recover and return to the outstanding long-term performance that investors have come to expect from the company.
Image source: LCI Industries.
LCI Industries isn't hitting the gas -- yet
LCI Industries' first-quarter results showed that tough times continued for the RV market. Sales came in at $592.2 million, down 9% from where they were this time last year, although that was slightly better than the double-digit percentage drop that most of those following the stock were expecting. Net income was down 27% to $34.4 million. That translated into earnings of $1.38 per share, which topped the consensus forecast among investors despite marking a significant drop from year-ago levels.
As we've seen in past quarters, it took significant contributions from the acquired businesses that LCI has bought in order to prevent the revenue drop from being even larger. Revenue from businesses that LCI acquired over the past 12 months made up $31.2 million in sales, saving the company about five percentage points of further downward pressure on sales from its continuing businesses.
LCI also got a big boost from the diversified business segments adjacent to the RV industry that it has pursued lately. Revenue from adjacent industry original equipment manufacturers climbed almost 20% from year-ago levels, reflecting the better conditions in areas like the marine products market. Aftermarket sales were also up about a fifth, and that helped to boost operating profit from the segment by 25%.
However, LCI still relies on RV products for the majority of its revenue, and there, performance was weak. Travel trailer and fifth wheel revenue fell 22% from year-ago levels, while motorhome sales were down a slightly more modest 15% over the same period. Looking at original equipment manufacturer sales in total -- RVs plus adjacent industries -- operating profit for the segment declined by a quarter.
Despite the poor industry conditions, LCI kept working to play a more valuable role in producing RVs. The value of the content in each travel trailer and fifth-wheel RV for which it plays a role in helping to manufacturer picked up $187 to $3,504 per vehicle. In the motorhome segment, an increase of $172 brought content to an even $2,500 per vehicle. LCI kept benefiting from innovative products that have gained demand.
What's ahead for LCI?
CEO Jason Lippert explained just how important the move into adjacent industries has been. "This strategy has proven critical in the current decreased volume operating environment in our recreational vehicle OEM segment," Lippert said, "as it offset wholesale shipments that were down roughly 30% during the quarter as dealers continue to normalize inventory levels." The CEO also noted that LCI has done a great job of boosting profit margin even amid rising raw material costs.
LCI also has high hopes for a rebound. In Lippert's words, "As we enter the prime retail selling season, we believe that channel inventories will move toward more appropriate levels by the end of the second quarter."
However, those hopes haven't yet materialized. LCI said that its early look at April sales indicated about $218 million in revenue across the company, and that's down 8% from year-ago levels. The company is still seeing reduced production rates among manufacturers of RVs, despite the coming high season for those shopping for new vehicles.
Even with those concerns, investors seemed to remain optimistic about the company's future, and LCI's stock was up 4% on Tuesday following the announcement. We'll have to wait to see whether the spring selling season starts to pick up momentum in May and June, but shareholders appear convinced that LCI's long-term future remains bright.
