RV chassis manufacturer Spartan Motors, Inc. (NASDAQ: SPAR) announced in an online conference call for analysts and portfolio managers held yesterday that the company had delivered improved operating results for Q3 of 2011. Both John Sztykiel – President and CEO, Spartan Motors – and Joe Nowicki – Chief Financial Officer – discussed the results for the quarter and Sztykiel was upbeat about Spartan’s performance, “our focus on our four-part operational plan resulted in sequential improvements in revenue and return to solid profitability in Q3,” said Sztykiel in the webcast.
Revenues were $120.3 million, up 21 percent from the second quarter, driven by increased sales in the Delivery and Service segment ahead of the peak holiday season, which offset softness in other markets Spartan serves. Also contributing to the improvement in third quarter revenues were sizable orders for Aftermarket Parts and Assemblies (APA).
The biggest RV related item to impact Spartan Motors operations has to be their decision to transition production for RV chassis to facilities in Wakarusa, Ind. to better meet the needs of RV manufacturer customers in Elkhart County, Ind. The theory behind such a move – which will take place in mid 2012 – was that by moving production closer to customers, Spartan can reduce transportation costs and be more responsive to customer demand through improved speed and agility.
Sztykiel’s assessment of the North American RV Market
Sztykiel noted that whilst the “RV market on the whole improved slightly (in 2011)…those gains were primarily in smaller-sized motorhomes and towables where Spartan currently does not compete and I use the term ‘currently’ as overtime we will.” Operating in this depressed market clearly poses a potential threat to Spartan’s RV chassis operations but it also presents a number of opportunities. Wholesale shipments of motorhomes fell 17.4% overall and in August 2011 Class A motorhomes were down 15.4% on August of 2010. Sztykiel also observed that “the motorhome sales mix has shifted from diesel to less expensive models in the Class A and Class C markets. As a result, our recreational and especially chassis market sale were down 34% in Q3 compared to the same period a year ago. Obviously that is not our positive data point, but there are several initiatives in place to address them,” he said.
This softening in the RV market is one of the major reasons behind Spartan’s relocation of their motorhome chassis manufacturing operation to Wakarusa. “This relocation…provides us the opportunity to grow market share by being closer to our end customers and more responsive to their needs. This facility is located in the heart of the motorhome or the RV production industry as more than 70% of our recreational vehicles are produced in northern Indiana…We also believe that it will provide other opportunities for other areas of growth in the RV industry beyond the typical Class A diesel where we currently participate.”
Sztykiel also pointed to, “a recent camp by a canvas [ph] survey of RV owners (which) revealed that 53% intended to use their RV more this past year than what they did in previous years despite higher fuel prices. While 38% planned to use theirs the same amount and just 9% say they have used the RV lives.” This data coupled with the increase in the number of RV owners taking mini vacations shows that a limited recovery in the industry is underway. “People are taking their RVs for a long three-day weekend…They are using them more and that’s good for the industry. In addition, RV family vacations are an average 27% to 61% less expensive than the other types of vacations, according to a study by international travel and tourism expert carriers [ph].”
Sztykiel concluded with an upbeat assessment of the RV market. “Today the RV industry is an $8 billion market. It’s been in its high as $14 billion. But as you look over the next three to five years and it will be a challenging economy, the RV vacation is a very attractive from a cost point, plus it is the only lifestyle that gives you the ability to go where you want, when you want, at your direction and that is another reason that makes it so attractive.”
Spartan Q3 highlights:
- Net sales of $120.3 million (flat with Q3 2010 sales of $120.6 million)
- Gross margin of 17.0 percent of sales (up from 16.4 percent in Q3 2010)
- Operating expense of $15.2 million (up $0.8 million compared to Q3 2010)
- Net income of $3.2 million ($0.10 per diluted share)
- Cash from continuing operations of $26.4 million (for the first nine months of 2011)
- Ending consolidated backlog of $142.8 million (down 20.4 percent from Q2 2011)
- Total debt of $5.2 million
- Cash balance of $30.5 million (up $16.0 million from Q4 2010)
Source: Spartan Motors Inc/Seeking Alpha