LCI INDUSTRIES Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Diversification: Diversified product portfolio helps win with OEM and aftermarket customers. Gained RV OEM market share in top 5 categories (appliances, awnings, chassis, furniture, windows).
• Financial Performance: Net sales down 5% to $915M. Operating margin up 100bps, operating income up 18% due to operational improvements, cost management (e.g., $10M warranty cost reduction), and supply chain improvements.
• Innovations: Touring Coil Suspension, Anti-Lock Brakes, larger windows, and Chill Cube AC driving content growth and market share. TCS and ABS expected to capture significant addressable markets.
• Aftermarket Growth: Automotive aftermarket sales strong, Camping World partnership up 47%, Furrion appliances up 18%.
• Adjacent Markets: Focus on expanding in RV, marine, rail, transportation, building products; launching appliances in European caravan market.
• Capital Allocation: Operating cash generation $402M over 12 months, leverage at 2x; evaluating M&A opportunities. Aim to pursue strategic opportunities for growth.
• Cultural Achievements: Received Community Impact Award, 5 Star AchieveWELL Award, and over 1 million hours of community service.

Segment Performance

• RV OEM: Net sales $419 million, down ~2% vs prior year. Content per towable RV was $5,131, per motorhome RV was $3,739. Organic content for towables up 1%. Made up roughly 71% of total RV OEM business in 2024.
• Aftermarket: Net sales $231 million, flat vs prior year. Operating profit 13.9%. CURT family up 7%, Camping World partnership up 47%, Furrion appliances up 18%. Contributed 25.2% to total net sales.
• Adjacent Markets: Net sales $256 million, down 11% vs prior year. Impacted by marine and utility trailer softness, but growth in building products and rail markets. Contributed 27.9% to total net sales.

Guidance

• Full Year 2024: Net sales expected down 4%-5% YOY. Q4 revenue expected down 4%-5% YOY. Operating margin expected to expand vs Q4 2023, ~2%. Full year 2024 capital expenditures $35M-$45M.
• Long-Term: Aim to pursue strategic opportunities to capture profitable growth and deliver shareholder value, with long-term leverage target of 1.5x net debt to EBITDA. Expect industry recovery and organic growth to reach $5B revenue by 2027.

Risks

• Industry Softness: Continued softness in RV and marine sectors.
• Tariffs/Imports: Tariff and import exposure risks, though efforts to de-risk from China.
• Mix Impact: Dependence on mix of RV types affecting content growth.
• Consumer Spend: Impact of consumer discretionary spend on aftermarket sales.

Question and Answer

• Q: Helpful to get wholesale shipment outlook for next year, mix components, commodity headwinds?

A: Wholesale outlook 335-355k units, mix to normalize from single-axle trailer shift, commodity pass-throughs mitigated.

• Q: Tariff tax in last few years?

A: No specific numbers, but efforts to de-risk from China to reduce exposure.

• Q: Ingredients to get back to 8%-10% EBITDA margin?

A: Diversified business, cost structure improvements, RV market normalization to ~400-425k wholesale units.

• Q: Wholesale unit cadence H1 vs H2, content growth in 2025?

A: Dependent on mix, low dealer inventory levels suggest restock, organic content to pick up in Q4 and 2025.

• Q: M&A pipeline?

A: Active conversations, more M&A activity expected in next couple of quarters.

• Q: M&A impact on sales?

A: M&A sales small, only Camping World Furniture acquisition earlier, contributing single digits.

• Q: CapEx timing?

A: Partly timing, CapEx to tick up next year with focus on necessary maintenance spend.

• Q: Aftermarket outlook, margin potential?

A: Automotive aftermarket to grow, margins good but dependent on mix; units out of warranty to drive opportunity.

• Q: Tariff impact, TCS benefit timeline?

A: Mitigation efforts ongoing, TCS benefit in 2025 and beyond with brand adoption.

• Q: Chassis market share gains?

A: Chassis revenue up, market share improved with innovation (e.g., TCS, leveling systems) and brand adoption.