The lure of the open road leads millions of retirees and families to consider recreational vehicles as a primary vacation vehicle. For Drew Industries (NYSE:LCII), every RV sale means more potential business, as the manufacturer of components for RVs and manufactured homes relies on rising demand for its products to drive growth forward. Going into Tuesday morning's first-quarter financial report, Drew Industries investors had expected solid results in revenue and net income, with the rising U.S. economy helping to support growth. Drew's results were even better than most investors expected, pointing to the inherent strength among consumers and Drew's own competitive advantages. Let's look more closely at Drew Industries' results and what they say for the company's future.
Drew Industries heads for all-time high greatness
Drew Industries' first-quarter results included impressive figures throughout the income statement. Revenue soared 27% to $361 million, setting a new quarterly record and easily topping the 17% growth pace that most of those following the stock had expected. Net income grew at a slightly slower 24% rate, but earnings of $0.82 per share were almost 10% higher than the consensus estimate among investors.
Digging more deeply into Drew Industries' numbers, the recreational vehicle segment was clearly the top performer for the company in the quarter. RV sales rose 29%, with aftermarket revenue more than doubling from year-ago levels and motorhome sales rising by more than 50%. Sales of travel trailer and fifth-wheels were also strong, as Drew benefited from an industrywide rise in wholesale shipments. By contrast, in the much smaller manufactured home segment, which accounts for less than 8% of total revenue, sales were up just 2% from the first quarter of 2014. Still, when you look at operating margins, the manufactured home segment actually performed better by more than a full percentage point.
One way that Drew measures success is by looking at how much of its products make it into each RV produced in the industry. For the quarter, total content per travel trailer and fifth-wheel rose 7% to $2,923, while motorhome content jumped an even faster 34% to $1,679. The company attributed the gains to a combination of organic growth and acquisitions, with internal growth primarily aimed at new product introductions and enhancements in the RV segment.
CEO Jason Lippert was quite pleased with the company's performance. "The industries we serve continue to grow," Lippert said, "which, when coupled with our recent acquisitions, new products and market share gains have led to the significant increase in our net sales." Lippert pointed to the big investments it made last year in building up capacity as starting to pay off in the new industry environment.
Can Drew Industries keep pressing forward?
Lippert is enthusiastic about the company's future prospects. "RV industry fundamentals show positive signs for 2015," Lippert said, and "as a result of their confidence in additional retail growth for the RV industry, many RV [original equipment manufacturers] are adding significant capacity to meet the anticipated demand." With retail demand easily keeping up with dealer inventory levels, interest in RVs could continue to support the industry going forward.
Given Drew's command of the interest, that enthusiasm is understandable. Drew Industries believes that it accounts for the majority of RV furniture, windows, doors, and slide-outs, with significant share in RV axles and suspension products as well as suspension systems. Those figures are double-edged, as they demonstrate both the opportunity Drew has to capitalize on strength in the RV industry as well as the danger of suffering a cyclical slowdown in RV demand whenever it comes in the future.
Traders in Drew Industries seemed unimpressed by the results, as shares dropped 4% for the day following the announcement. Nevertheless, with Drew posting record growth, the company has plenty of room to run higher as long as conditions in the RV market remain favorable.