This building products supplier is expected to grow by 18.7% next year. Buy at a discount.
Patrick Industries, Inc. (PATK)
From SmallCap Informer
Patrick Industries, Inc. (PATK) reported results that fell short of expectations, held back by double-digit industry declines in both RVs and housing. Sales grew 10%, helped by acquisitions and market share gains. Wholesale shipments in the RV industry, which accounts for more than
half the company’s sales were down an estimated 27% in the quarter. Patrick outperformed the industry, with RV sales declining 9%.
The continued decline in RV industry wholesale shipments is the result of a multi-quarter rebalancing of retail inventories. By comparison, retail RV shipments were only down low- to mid-single digits. Management believes dealer inventories will return to equilibrium with a possible overcorrection in the “near term” that would support sales growth in the back half of the year. It expects inventories will continue to normalize through Q2 and more closely mirror retail demand toward the end of the quarter. For the year, the company conservatively expects a flat to low-single digit decrease in retail shipment growth.
The housing markets were held back by weather, while the marine business performed well. Across end markets Patrick painted an upbeat picture for the remainder of the year.
Margins declined due to higher-priced inventory, the dilutive impact of a recent acquisition,
and the choice to carry a higher cost structure to be better able to respond to the expected improvement in end market demand. Operating profit declined 14%, and higher interest expense and a slightly higher tax rate resulted in a 25% decline in EPS. Leverage at quarter end was 2.4x.
PATK (44.63) is a buy up to 58.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, June 2019