In a sign of confidence, the board of Patrick Industries Inc. has returned the company to paying a quarterly dividend on common shares.
The Elkhart-based producer and distributor of parts and products for the recreational vehicle, manufactured housing and marine industries announced Dec. 2 it would pay a dividend of 25 cents per share on Dec. 30 to shareholders of record on Dec. 16.
“We believe that returning a portion of our free cash flow to our shareholders in the form of a regular quarterly dividend represents the continued evolution of our commitment to increasing long-term shareholder value and reflects the confidence of both management and the board in the company’s strategic and financial position,” Todd Cleveland, Patrick’s chairman and CEO, said in the announcement.
The company could not be reached for comment on its dividend history, but it is traded on Nasdaq under the symbol PATK and a website of the exchange showed Patrick last paid a dividend of 4 cents per share in March of 2003.
It is common for companies in a growth mode to retain earnings for acquisitions they otherwise might have paid out as dividends, and Patrick has been buying smaller companies in the same business for several years.
The company completed at least nine acquisitions last year. The closing of its latest purchase — G.G. Schmitt & Sons, Inc. — was announced Sept. 30.
G.G. Schmitt was known for designing and making customized hardware and structural components such as marine towers, seats, ladders, handrails and port lights for major original equipment manufacturers.
Patrick President Andy Nemeth indicated the company plans to continue expanding without saying anything about the pace of future expansion.
“Our ability to generate strong and consistent cash flows, coupled with our solid financial position, allows us to reward our loyal and supportive shareholders with a quarterly dividend in addition to driving execution on the balance of our capital allocation strategy, which includes strategic acquisitions, investing in organic growth opportunities through strategic capital expenditures and geographic expansions, and share repurchases,” he said in the announcement.
The company announced last month Nemeth would continuing in his roles as president and a board director while succeeding Cleveland as chief executive officer on Jan. 1. Cleveland will become executive chairman and continue leading the board.
“The company has continued to evolve in its depth, breadth, and complexity as it has grown in alignment with our strategic plan, and Andy has provided exceptional strategic, organizational, operational, and financial leadership during this time and throughout his 23-year tenure with Patrick,” Cleveland said.
“He has a proven track record of accomplishment, leadership credibility, and vision within our organization and the industries in which we operate, and has worked side by side with me in driving the execution of our strategic vision.”
Cleveland looks forward to continued involvement with Patrick, he said, and to “partnership with Andy and the team to support our M&A strategy, investor and community relations platform, key customer and supplier relationships, and overall development of our strategic plan.”
Nemeth’s promotion will represent the culmination of a long-term succession plan, according to Scott Welch, lead independent director, who said the board expects a seamless transition.
For its most recent quarter ended Sept. 29, Patrick reported a 24% reduction in earnings on a 2% sales decrease, compared with the same period last year.
The company’s third-quarter sales declined to $566.2 million from $575.1 million for the year-ago period as its earnings fell to $21.3 million, or 92 cents per share, from $27.9 million, or $1.15 per share.
Earnings for the most recent quarter were lowered by about $1.5 million, or 6 cents per share, for costs associated with responding to a highly sophisticated malware cyberattack on administrative and production servers, which disrupted administrative and network operations for about two business days.
Patrick immediately ensured customer commitments were honored, it said, and began investigating the attack and adding to measures it already had in place to prevent unauthorized access to its information systems and mitigate cybersecurity risks.
Without those costs, the company would have reported third-quarter earnings of $22.8 million, or 98 cents per share.
“Our financial results in the third quarter were negatively impacted by continued RV dealer inventory rebalancing as dealers position themselves for the upcoming 2020 model selling season,” Cleveland said in an earnings report.
“In addition, following weather related softness in marine retail sales in the first half of 2019, we saw inventory recalibration by marine dealers in the third quarter of 2019,” he said.
“Our housing and industrial markets appear to have rebounded from the weather related issues that impacted the first half of 2019 with positive momentum and improved shipments and new housing starts in the third quarter of 2019.”
The company’s industrial market consists of sales to customers in residential housing, commercial construction, hospitality and the institutional furniture businesses. They accounted for 13% of Patrick’s overall third-quarter sales and were flat compared with the prior-year period.
With 19% of its overall sales coming from the manufactured housing industry, those customers increased their buying from Patrick 61%, and that happened as the industry’s wholesale unit shipments declined 1%.
About 55% of the company’s sales were with the RV industry, and sales to those customers were down 13% from the year-ago quarter. For comparison, RV industry wholesale unit shipments were down 14% during the most recent quarter.
Marine industry revenues, representing 13% of Patrick’s third-quarter sales, fell 7% from a year earlier.
“As we continue to navigate the volatility in all of our end markets, we have strategically aligned our cost structure while maintaining flexibility to respond to increased demand and changing market conditions,” Cleveland said.
Patrick tactically reduced its fixed cost structure by $10 million during the third quarter and expects to save $2.5 million during the fourth quarter as a result, he said.
“These cost savings, combined with our team’s focus of driving market share gains, operational improvement and synergy realization, will continue to position the company to drive overall long-term growth in both our top and bottom line,” Cleveland said.
“Our diversified market portfolio continued to positively impact our results in the third quarter, helping to partially offset RV market volatility, and pockets of volatility particularly related to the pontoon and aluminum fish sectors of the marine market as a result of adverse weather conditions in the first half of the year,” Nemeth said in the report.
“We believe that retail demand across all of our end markets continues to remain fundamentally strong, driving RV and marine dealer inventories down, and indicating a potential return to a more direct relationship between wholesale shipments and retail unit sales for the upcoming 2020 selling season,” he said.
Nemeth also expects lower commodity costs and the reduction the nation saw in interest rates this year to support Patrick’s leisure lifestyle and housing and industrial markets, he said.