The RV market isn't the most exciting part of the automotive world, but it can be lucrative. Drew Industries (NYSE:LCII) makes key components for RVs and manufactured homes, and coming into Thursday's fourth-quarter financial report, some investors were nervous about the fact that RV giant Winnebago Industries (NYSE:WGO) had seen its stock drop toward levels not seen since 2012 despite what ordinarily would be a favorable gasoline-price environment for the industry. Despite those fears, Drew posted strong results that suggested that there's plenty of room left for growth in RVs. Let's take a closer look at how Drew Industries did and what it expects for 2016.
Drew Industries revs its engines
Drew Industries' fourth-quarter results were strong across the board. Sales climbed 16% to $334 million, and although that was slightly less than the consensus forecast of $336 million, it still represented an all-time record performance for any fourth quarter in Drew's history. Net income jumped by more than a third to $16.1 million, and after accounting for one-time charges, adjusted net income of $0.79 per share was $0.20 higher than investors were expecting to see.
A closer look at the numbers shows some of the favorable trends that have helped Drew Industries. Sales in the RV segment jumped nearly 20%, of which roughly six percentage points were attributable to recent acquisitions over the past year. Rising sales both to adjacent industries and to the aftermarket channel also helped boost overall results, and Drew cited higher market share within sold vehicles as a major contributor to its performance. Operating profits for the segment jumped 24% from the year-ago quarter.
That solid performance also showed up in how much of the value of each RV and manufactured home comes from products Drew sells. That figure climbed $171 to $2,987 for travel trailers and fifth-wheel RVs in the fourth quarter, and the corresponding figure for motorhome RVs rose $208 to $1,810 per vehicle.
Drew Industries' manufactured home segment once again posted much less exciting results. Revenue inched upward by just 1.5%. However, profit gains were quite respectable at 15%.
CEO Jason Lippert repeated how the RV industry has driven its performance. "The popularity of the RV lifestyle," Lippert said, "supported by new OEM models and bolstered by strong economic fundamentals, continues to provide the platform for our Company to successfully provide innovative products, services, and features highly sought after by RV consumers." The CEO pointed to huge gains in aftermarket sales throughout the year in helping push the company forward.
Can Drew Industries drive higher?
Drew said that 2016 has gotten off to a good start. January sales were up 10% from the year-ago period, about half of which came from acquisitions. Lippert sees better times ahead, pointing to "anticipated demand of the 2016 spring and summer selling seasons" as an opportunity for even faster growth.
Drew Industries has also gotten help on the cost side of the equation from weak commodity markets. President Scott Mereness pointed to favorable prices for aluminum and steel in helping bolster profit margins. Without those cost reductions to offset severance costs from Drew's third-quarter strategic moves, earnings would have been lower in the fourth quarter.
Still, Drew is looking to grow. In January, it announced the purchase of the marine furniture division of Highwater Marine, a maker of recreational boats. The move expands Drew's presence in marine furniture and provides an interesting strategic expansion into a similar but discrete area of the recreational industry.
Nevertheless, some investors still worry about the weakness that RV giant Winnebago has seen lately. In December, Winnebago reported a 4.5% drop in revenue that sent net income down 13%. Sales of large Class A RVs continue to skid, and even though smaller motorhomes showed gains, cost challenges weighed on Winnebago's performance.
Drew Industries investors didn't seem all that concerned about Winnebago in light of the results, sending the stock up 5% in the first half hour of trading following the announcement. As long as it can navigate the RV industry's opportunities successfully, then Drew Industries seems to have more room to run higher.