LCI Industries Q2 FY2026 earnings call

• Interim CEO Transition & Core Principles • Interim CEO Johnny Sirpilla, a 7-year board member with 3 decades of industry experience, outlined four guiding principles: curiosity, alignment, accountability, and gratitude, positioning himself as a builder rather than a caretaker during the leadership transition. • The core strategic priorities remain unchanged: maintain a balanced portfolio, expand into adjacent OEM markets, grow aftermarket presence, pursue accretive M&A, streamline operations/costs, partner with customers, and drive content gains via product innovation.

• Proposed Merger with Patrick Industries • Management continues to view the proposed merger as strategically and financially compelling, expecting it to unlock long-term value by creating a broader, more innovative product platform and expanding affordable product access for consumers. • The company is progressing through customary regulatory review and conducting pre-closing integration planning per legal requirements, with business continuing as usual for LCI pre-close.

• Operational & Cost Initiatives • Disciplined self-help initiatives including strategic cost reduction, operational efficiency improvements, and facility consolidations have structurally improved the company's cost base, expanding margins despite weak industry demand. 5 facility consolidations were completed in 2025, with 8-10 more planned for H2 2026. • The internal IEPA tariff refund team processed eligible claims, enabling the company to pass nearly $90 million in refunds directly to customers without paying large third-party contingency fees, honoring a prior commitment to mitigate customer price impacts. • Innovation pipeline remains strong: $140 million in additional annualized revenue is expected from new product placements for the 2027 model year, with 50% of engineering resources now focused on value analysis/cost reduction and 50% on customer experience-focused new product development. • Aftermarket expansion: The company is expanding service reach via a 400+ member care/technical organization, new distribution capacity, new dealer retail concepts, and factory/mobile service offerings, supported by 15 billion dollars' worth of installed LCI content that will enter repair cycles over the next several years.

Consolidated: Adjusted net sales were $1.1 billion, down 4% year-over-year. Adjusted operating profit was $99 million, up 8% year-over-year, with an adjusted operating margin of 9.3% (up 110 basis points). Adjusted EBITDA was $129 million, up 7% year-over-year, with a margin of 12.2% (up 120 basis points). GAAP net income was $67 million, up 16% year-over-year. OEM Segment: Adjusted net sales declined 10% year-over-year, contributing 74.1% of consolidated net sales. Adjusted operating margin expanded 100 basis points to 7.5%. The sales decline was driven by lower North American towable RV wholesale shipments (down 20% in the quarter) and a shift in mix toward lower-content single axle trailers, partially offset by content gains, commercial pricing actions, and commodity index adjustments. Content per unit increased 11% year-over-year to $5,831, and the top five innovations hold a $270 million annual revenue run rate. Aftermarket Segment: Adjusted net sales grew 11% year-over-year, contributing 25.9% of consolidated net sales. Adjusted operating margin increased 30 basis points to 14% year-over-year. Growth was driven by commercial pricing actions, acquired business contributions, new automotive aftermarket volumes, and growing repair demand from the large existing installed base of LCI products.

• Full year 2026 RV industry wholesale shipment guidance was revised downward to 280,000 to 300,000 units, from the prior guidance range of 315,000 to 330,000 units.
• Full year 2026 adjusted revenue guidance was revised downward to $3.9 billion to $4.1 billion, from the prior higher range.
• Full year 2026 adjusted operating margin guidance was maintained at 7.5% to 8%, as cost reduction initiatives offset the impact of lower expected top-line revenue.
• Full year 2026 adjusted EPS guidance range is now $8.25 to $8.75, reflecting the downward revenue revision and maintained margin outlook.
• Full year 2026 capital expenditure guidance is maintained at $55 million to $65 million.
• Management expects a normal seasonal cadence for the remaining two quarters of 2026, with typical summer shutdowns in Q3 and holiday shutdowns in Q4 aligned with historical norms.

• Persistent soft demand in the outdoor recreation and RV industry, driven by macroeconomic factors including high interest rates, inflation, and consumer uncertainty, has led to lower wholesale shipment volumes and reduced fixed cost absorption.
• Higher input costs for key commodities including aluminum (up 80% year-over-year) and steel (up 20% year-over-year), along with elevated fuel, energy, and freight costs, create margin pressure that requires ongoing cost mitigation.
• Geopolitical issues, trade policy volatility, and tariff changes add additional cost uncertainty beyond stable commodity index pricing.
• The proposed Patrick Industries merger is subject to regulatory approval risk, which remains unresolved as the company progresses through the customary review process.
• The automotive aftermarket segment has seen tepid demand in 2026 due to macroeconomic impacts on consumer confidence, partially offset by market share gains from a bankrupt competitor.

Q: Beyond the IEPA tariff refunds passed through to customers, does LCI have a broader program to improve RV affordability for OEM customers like Thor and Winnebago, and is this factored into 2026 guidance? / A: Cost reduction to drive industry volume is a major focus for LCI. Ongoing efforts include G&A reductions, 8-10 additional facility consolidations planned for H2 2026, quality improvement initiatives that are already delivering measurable gains, and reshoring procurement to lower-cost locations for tariff mitigation. All these efforts are already included in the current full-year guidance.

Q: Given share gains from a competitor's bankruptcy and growing RV repair cycle demand, should investors expect the aftermarket segment to sustain steady high single-digit to low double-digit growth long-term? / A: Management expects the aftermarket segment to continue delivering this growth trajectory, making it a consistent bright spot that is less exposed to RV industry cyclicality. Recent investments in distribution infrastructure and new facilities will taper off going forward, allowing aftermarket margins to improve from current levels. New OEM business awarded to LCI also creates long-term future aftermarket demand for replacement and repair services.

Q: How were you able to maintain the original adjusted operating margin guidance despite cutting full-year revenue guidance by ~$250 million, and is the offset driven more by OEM or aftermarket improvements? / A: 18 months of focused execution on self-help cost reduction initiatives delivered 160 basis points of year-over-year margin improvement in Q2 2026. These improvements include overhead reductions, indirect spend cuts, and lower G&A that structurally lowered the company's cost base. Half of the company's current engineering resources are dedicated to cost reduction via value analysis and engineering, which further supports margin maintenance despite lower top-line volumes.

Q: What are the biggest factors currently impacting retail RV demand, beyond the pandemic-era pull-forward of purchases? / A: While pandemic pull-forward still has some lingering impact, OEMs and dealers have done a good job adjusting production and managing inventory, with current dealer inventory at a responsible 18-20 weeks supply. This positions dealers well heading into the end-of-year open house event and prepares the industry to replenish inventory for the first half of 2027, with retail demand currently outpacing wholesale shipments slightly, which is an improvement over prior years.