Marine Products Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and thank you for joining us for Marine Products Corporation's First Quarter 2024 Financial Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. 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 question. I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmit.
Mike Schmit: Thank you, and good morning. Before we begin, I want to remind you that some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. Please refer to our press release issued today, along with our 2023 10-K and other public filings that outline those risks, all of which can be found at www.marineproductscorp.com. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release issued today and our website contain reconciliations of these non-GAAP measures to most directly comparable GAAP measures. I'll now turn the call over to our President and CEO, Ben Palmer.
Ben Palmer: Thanks, Mike, and thank you all for joining our call. Before we get started, I'd like to take a moment to share some unfortunate and sad news. Our long-time Head of Investor Relations and Vice President of Corporate Services, Jim Landers, passed away a few weeks ago after a long and courageous battle with cancer. I worked closely with Jim here at Marine Products for more than 20 years, and he was a tremendous contributor to the company in so many ways. And I'm sure those of you listening today, who were lucky enough to work with him over the years, he was also a great friend and colleague. He will truly be missed by all of us. Shifting to our results. First quarter results showed signs of stability on the top line and some improvement in profitability sequentially compared to the fourth quarter of last year.
However, year-over-year comparisons were very challenging, consistent with the near-term expectations were signaled on our last call. Both the quarter played out generally as we anticipated and our discussion today might feel quite similar to our last call, as the key things remain very much the same. Overall, our industry is still contending with the dealer channel that is flushed with inventory and hesitant to order aggressively in the face of uncertain demand and higher floor plan carrying costs. We are being proactive in managing costs and production schedules during this soft period. As we said last quarter, we have reduced our production levels to be more in line with current demand as our dealers work through showroom inventories. This production scale back was in order of magnitude of around mid-30% range below our peak production rates in the first half of 2023.
Although, we would certainly want our plans to be this year with more production to fill orders, we are taking advantage of this slowdown to execute operational projects we were unable to undertake during our periods of surgeon demand from the pandemic through mid-2023. Examples include projects to maintain repair tooling, improved consistency of lamination and other assembly processes and evaluate alternative production schedules. With regard to dealer inventory, I'd like to remind comments from last quarter that we remain pretty comfortable with the level of our products in the deal. But we continue to hear that high inventories are still an issue for many dealers, often in categories where we do not compete. We would note that our fuel inventory DNS is solidly below pre-pandemic levels.
However, we may not return to those levels regardless of demand, given the new normal of higher carrying costs. We continue to have attractive retail incentives in the marketplace and are encouraged to see monthly sales trends for our dealers, reflecting the typical ramp-up throughout the first quarter. There was positive reception at most of the early 2024 boat shows with customers excited about our product lineup. Consistent with recent trends since the rise in interest rates are larger priced boats, which are often purchased by cash buyers, sold better in smaller, lower priced boats, which are often financed purchases. Speaking of borrowing costs, it is worth noting that there remains a great deal of uncertainty regarding the timing and magnitude of a potential decline in interest rates.
A colorful fleet of recreational fiberglass powerboats in full sail.
So there has been broad consensus for multiple rate cuts by the Fed during 2024. Expectations have clearly moderated with mixed economic data cloud in the interest rate outlook. While this is a macro factor out of our hands, we will focus on things within our control. We are navigating the current environment with a focus on cost and efficiencies making the best of this law by executing multiple projects to improve our operations and continuing to support our dealers and maximize our partnerships. Now, Mike will provide an overview of the financial results.
Mike Schmit: Thanks, Ben. For the first quarter of 2024 compared to the first quarter of 2023. Sales were down 42% to $69.3 million, driven by a 40% decrease in the number of those sold. Price to mix netted to a negative 2%. Of note, last year's first quarter sales of $119 million were the highest in company's history, as we were still experiencing unprecedented post-pandemic demand at that time last year. Gross profit decreased 52% to $14 million, with gross margin of 20.2%, down 420 basis points versus last year. Although recall, we had an outsized impact on gross margin in the fourth quarter from the initiation of our traditional retail incentive program. So we were encouraged to see the sequential increase in gross margin from 19% in the fourth quarter of '23, back to over the 20% mark in the first quarter of '24.
SG&A expenses were $8.7 million in the quarter, down 40% or $5.8 million compared to last year's first quarter. These expenses decreased due to costs that vary with sales and profitability, such as incentive compensation, sales conditions and warranty expenses. In addition, last year's first quarter results included a non-cash pension settlement charge of $2.1 million. Diluted EPS was $0.13 in the first quarter down from $0.34 last year. EBITDA was $5.9 million, down from $15 million and EBITDA margin decreasing 410 basis points to 8.5%. Year-over-year comparisons were obviously difficult for the first quarter, and they remain soft in the near term. It should become less pronounced later this year. While we don't give explicit financial guidance, directionally, we believe sequential sales will be relatively stable and our cost reductions and normalizes incentives should result in stable margins as well.
I'll now turn it back over to Ben for a few closing remarks on capital allocation, including the special dividend we announced this morning.
Ben Palmer: Thanks, Mike. As headlines in our release this morning, our Board of Directors approved a $0.14 per share regular quarterly dividend and a $0.70 per share special dividend. In aggregate, these two upcoming dividends represent a $29 million tangible return of capital to our shareholders. While we have limited our stock repurchases in recent years due to our relatively small float, we're extremely proud of our track record for distributing cash back to our investors. For the five-year period from 2019 to 2023, we paid $85 million to our investors in dividends. Our ability to return capital to investors is a function of our financial discipline, strong cash generation and a debt-free balance sheet that allows all cash flow to benefit our equity holders.
We ended the first quarter with over $80 million in cash and believe that even following the special dividend payment, we will have ample liquidity to pursue organic investments in the business, as well as maintain the flexibility to pursue strategic acquisitions. We continue actively assessing the marketplace for the right opportunity, the right valuation. Of course, over time, if we do not execute on transactions, we will look at further actions to return capital to our investors. Special dividends are naturally less consistent, but we have a track record for periodically returning the excess cash to our investors. These boost the total return of our potential return of our stock which already has an attractive dividend yield of around 5%.
So before we turn the call over for questions, I'd like to thank our employees for their contributions every day, our dealers who continue to partner with us for mutual success. We're excited about entering the prime selling season and look forward to sharing results with you next quarter. With that, operator, please open up the line for questions.
