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LCI INDUSTRIES 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

LCI INDUSTRIES

Filing date:

02/21/2025

TLDR:

LCI Industries experienced a slight decrease in net sales but a significant increase in net income and operating profit compared to 2023. The company is navigating raw material cost fluctuations, supply chain complexities, and evolving consumer preferences.

ELI5:

LCI Industries, a company that makes parts for RVs and boats, made more money this year even though they sold slightly less. They are dealing with changing costs for materials and some problems with getting supplies.

Accession #:

0000763744-25-000022

Published on

Analyst Summary

  • Gross Profit Margin improved to 23.5% due to lower cost of sales.
  • Operating Profit Margin significantly improved to 5.8% driven by lower costs.
  • Net Income per Diluted Share increased significantly to $5.60.
  • Cash and cash equivalents increased significantly to $165.8 million.
  • Long-term indebtedness decreased to $756.8 million.
  • Current Ratio is 2.82, indicating strong liquidity.
  • OEM Segment Operating Profit Margin increased significantly from 0.6% to 3.7%.
  • Aftermarket Segment Operating Profit Margin increased slightly from 12.0% to 12.6%.

Opportunities and Risks

  • Cyclicality and Seasonality: The RV and marine industries are subject to cyclical fluctuations in consumer demand.
  • Customer Concentration: A significant portion of sales is concentrated among a few key customers (Thor and Berkshire Hathaway).
  • Raw Material Costs: Volatile raw material costs (steel and aluminum) can impact profitability.
  • Supply Chain Disruptions: Inadequate or interrupted supply of raw materials or components could adversely impact financial condition and operating results.
  • Cybersecurity Threats: The company acknowledges ongoing risks from cybersecurity threats that could materially affect business strategy, results of operations or financial condition.
  • Diversification: Expansion into adjacent industries (boats, buses, trucks, trains, manufactured homes) provides growth opportunities.
  • Aftermarket Growth: The Aftermarket segment offers recurring revenue and deeper customer engagement.
  • International Expansion: Continued focus on developing products tailored for international markets.
  • Innovation: Focus on product innovation and operational efficiency to gain market share.

Potential Implications

Company Performance

  • Improved profitability driven by cost management and strategic initiatives.
  • Faces inherent risks associated with cyclical industries and customer concentration.
  • Focus on diversification and aftermarket growth is promising.
  • Commitment to employee well-being is a positive indicator of its long-term sustainability.
  • Needs to focus on revenue growth.

Stock Price

  • Investors should monitor the company’s ability to manage raw material costs.
  • Investors should monitor the company’s ability to mitigate supply chain risks.
  • Investors should monitor the company’s ability to continue to diversify its revenue streams.

LCI Industries (LCII) – 10-K Filing Analysis – Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes LCI Industries’ (LCII) 10-K filing for the fiscal year ended December 31, 2024. LCII experienced a slight decrease in net sales but a significant increase in net income and operating profit compared to 2023. The OEM segment faced challenges due to decreased industry production levels, while the Aftermarket segment remained relatively stable. The company is navigating raw material cost fluctuations, supply chain complexities, and evolving consumer preferences. Overall, the company appears to be well-managed, but faces cyclical industry risks. A ‘Hold’ recommendation is appropriate, pending further observation of industry trends and the successful integration of acquisitions.

Company Overview

LCI Industries (LCII), through Lippert Components, Inc., is a global leader in supplying engineered components to the outdoor recreation, transportation, and building products industries. The company operates in two segments: OEM and Aftermarket. LCII serves original equipment manufacturers (OEMs) and aftermarket customers through retail dealers, wholesale distributors, and online platforms. The company’s diverse product portfolio includes chassis, suspension solutions, outdoor living systems, windows, doors, interior solutions, and towing accessories. LCII has a significant presence in North America and Europe, with over 110 manufacturing and distribution facilities.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management attributes the decrease in net sales primarily to decreased industry production levels in the North American marine and utility trailer markets and the European RV market, mostly offset by a seven percent increase in total North American RV wholesale shipments and sales from acquisitions. The increase in operating profit was attributed to decreases in material, freight, and warranty costs. Management’s tone is cautiously optimistic, highlighting both challenges and opportunities. They emphasize diversification efforts and strategic acquisitions to mitigate cyclical risks.

Financial Statement Analysis

Key Ratios and Trends

Ratio 2024 2023 Change Analysis
Gross Profit Margin 23.5% 20.5% +3.0% Improved due to lower cost of sales.
Operating Profit Margin 5.8% 3.3% +2.5% Significant improvement driven by lower costs.
OEM Segment Operating Profit Margin 3.7% 0.6% +3.1% Substantial improvement in OEM profitability.
Aftermarket Segment Operating Profit Margin 12.6% 12.0% +0.6% Slight improvement in Aftermarket profitability.
Net Income per Diluted Share $5.60 $2.52 +122% Significant increase in profitability.

Balance Sheet Highlights

  • Cash and cash equivalents increased significantly from $66.2 million to $165.8 million.
  • Inventories decreased slightly from $768.4 million to $736.6 million.
  • Long-term indebtedness decreased from $846.8 million to $756.8 million.

Cash Flow Analysis

  • Net cash flows from operating activities decreased from $527.2 million to $370.3 million, primarily due to changes in inventory.
  • Capital expenditures remained relatively stable at approximately $42 million.
  • The company continued to pay dividends, totaling $109.5 million in 2024.

Risk and Opportunity Assessment

Risks

  • Cyclicality and Seasonality: The RV and marine industries are subject to cyclical fluctuations in consumer demand.
  • Customer Concentration: A significant portion of sales is concentrated among a few key customers (Thor and Berkshire Hathaway).
  • Raw Material Costs: Volatile raw material costs (steel and aluminum) can impact profitability.
  • Supply Chain Disruptions: Inadequate or interrupted supply of raw materials or components could adversely impact financial condition and operating results.
  • Cybersecurity Threats: The company acknowledges ongoing risks from cybersecurity threats that could materially affect business strategy, results of operations or financial condition.

Opportunities

  • Diversification: Expansion into adjacent industries (boats, buses, trucks, trains, manufactured homes) provides growth opportunities.
  • Aftermarket Growth: The Aftermarket segment offers recurring revenue and deeper customer engagement.
  • International Expansion: Continued focus on developing products tailored for international markets.
  • Innovation: Focus on product innovation and operational efficiency to gain market share.

Uncommon Metrics

  • Content per RV: The company tracks average product content per RV, indicating market share and pricing trends.
  • Team Member Volunteer Hours: The company highlights team member volunteer hours as a key indicator of its culture and community involvement.
  • Dreams and Goals Achieved: The company tracks the number of “dreams and goals achieved” by team members, reflecting its focus on employee well-being.

Conclusion and Actionable Insights

LCI Industries demonstrates solid financial performance, with improved profitability driven by cost management and strategic initiatives. However, the company faces inherent risks associated with cyclical industries and customer concentration. The focus on diversification and aftermarket growth is promising. The company’s commitment to employee well-being is a positive indicator of its long-term sustainability. A ‘Hold’ recommendation is appropriate, pending further observation of industry trends and the successful integration of acquisitions. Investors should monitor the company’s ability to manage raw material costs, mitigate supply chain risks, and continue to diversify its revenue streams.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: Gross Profit / Net Sales = $879,715 / $3,741,208 = 23.52%
    • Trend: Previous year Gross Profit Margin = $776,190 / $3,784,808 = 20.50%. Percentage Change: ((23.52 – 20.50) / 20.50) * 100 = 14.73%
    • Industry: The manufacturing industry typically sees gross profit margins between 20% and 40%. LCI Industries’ margin of 23.52% is within this range.
  • Operating Profit Margin:

    • Calculation: Operating Profit / Net Sales = $218,237 / $3,741,208 = 5.83%
    • Trend: Previous year Operating Profit Margin = $123,428 / $3,784,808 = 3.26%. Percentage Change: ((5.83 – 3.26) / 3.26) * 100 = 78.83%
    • Industry: The average operating margin for manufacturing companies is typically between 8% and 12%. LCI Industries’ margin of 5.83% is below this range.
  • Net Profit Margin:

    • Calculation: Net Income / Net Sales = $142,867 / $3,741,208 = 3.82%
    • Trend: Previous year Net Profit Margin = $64,195 / $3,784,808 = 1.69%. Percentage Change: ((3.82 – 1.69) / 1.69) * 100 = 125.91%
    • Industry: The average net profit margin for manufacturing companies is typically between 4% and 7%. LCI Industries’ margin of 3.82% is slightly below this range.
  • Return on Assets (ROA):

    • Calculation: Net Income / Total Assets = $142,867 / $2,894,739 = 4.94%
    • Industry: An average ROA for manufacturing is around 5%. LCI Industries’ ROA of 4.94% is around the average.
  • Return on Equity (ROE):

    • Calculation: Net Income / Total Stockholders’ Equity = $142,867 / $1,386,886 = 10.30%
    • Industry: An average ROE for manufacturing is around 10%. LCI Industries’ ROE of 10.30% is around the average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Basic: $5.61
    • Diluted: $5.60
    • Trend: Previous year Basic EPS: $2.54, Diluted EPS: $2.52. Basic EPS Percentage Change: (($5.61 – $2.54) / $2.54) * 100 = 120.87%. Diluted EPS Percentage Change: (($5.60 – $2.52) / $2.52) * 100 = 122.22%
    • Industry: EPS varies significantly.

Liquidity

  • Current Ratio:

    • Calculation: Total Current Assets / Total Current Liabilities = $1,160,238 / $412,053 = 2.82
    • Trend: Previous year Current Ratio = $1,116,870 / $394,992 = 2.83. Percentage Change: ((2.82 – 2.83) / 2.83) * 100 = -0.35%
    • Industry: A healthy current ratio is typically between 1.5 and 2.5. LCI Industries’ ratio of 2.82 is above this range, indicating strong liquidity.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Total Current Assets – Inventories) / Total Current Liabilities = ($1,160,238 – $736,604) / $412,053 = 1.03
    • Trend: Previous year Quick Ratio = ($1,116,870 – $768,407) / $394,992 = 0.88. Percentage Change: ((1.03 – 0.88) / 0.88) * 100 = 17.05%
    • Industry: A quick ratio of 1 or greater is generally considered healthy. LCI Industries’ ratio of 1.03 indicates adequate short-term liquidity.
  • Cash Ratio:

    • Calculation: (Cash and Cash Equivalents) / Total Current Liabilities = $165,756 / $412,053 = 0.40
    • Trend: Previous year Cash Ratio = $66,157 / $394,992 = 0.17. Percentage Change: ((0.40 – 0.17) / 0.17) * 100 = 135.29%
    • Industry: A cash ratio of 0.5 or higher is often preferred, but this varies by industry. LCI Industries’ ratio of 0.40 shows they can cover 40% of their current liabilities with current cash.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Total Liabilities / Total Stockholders’ Equity = $1,507,853 / $1,386,886 = 1.09
    • Trend: Previous year Debt-to-Equity Ratio = $1,604,283 / $1,355,036 = 1.18. Percentage Change: ((1.09 – 1.18) / 1.18) * 100 = -7.63%
    • Industry: A debt-to-equity ratio of around 1.0 is typical. LCI Industries’ ratio of 1.09 indicates a balanced leverage position.
  • Debt-to-Assets Ratio:

    • Calculation: Total Liabilities / Total Assets = $1,507,853 / $2,894,739 = 0.52
    • Trend: Previous year Debt-to-Assets Ratio = $1,604,283 / $2,959,319 = 0.54. Percentage Change: ((0.52 – 0.54) / 0.54) * 100 = -3.70%
    • Industry: A debt-to-assets ratio below 0.6 is generally considered good. LCI Industries’ ratio of 0.52 suggests a reasonable level of debt relative to assets.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: EBIT / Interest Expense = ($218,237 + $28,899) / $28,899 = 8.55
    • Trend: Previous year Interest Coverage Ratio = ($123,428 + $40,424) / $40,424 = 4.05. Percentage Change: ((8.55 – 4.05) / 4.05) * 100 = 111.11%
    • Industry: A ratio above 4 is generally considered safe. LCI Industries’ ratio of 8.55 indicates a strong ability to cover interest expenses.

Activity/Efficiency

  • Inventory Turnover:

    • Calculation: Cost of Sales / Average Inventory = $2,861,493 / (($736,604 + $768,407) / 2) = 3.81
    • Trend: Previous year Inventory Turnover = $3,008,618 / (($768,407 + $768,407)/2) = 3.91. Percentage Change: ((3.81 – 3.91) / 3.91) * 100 = -2.56%
    • Industry: Inventory turnover varies widely by industry.
  • Days Sales Outstanding (DSO):

    • Calculation: (Accounts Receivable / Net Sales) * 365 = ($199,560 / $3,741,208) * 365 = 19.46 days
    • Trend: Previous year DSO = ($214,707 / $3,784,808) * 365 = 20.68 days. Percentage Change: ((19.46 – 20.68) / 20.68) * 100 = -5.90%
    • Industry: A lower DSO is generally better, indicating faster collection of receivables.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts Payable / Cost of Sales) * 365 = ($187,684 / $2,861,493) * 365 = 23.94 days
    • Trend: Previous year DPO = ($183,697 / $3,008,618) * 365 = 22.28 days. Percentage Change: ((23.94 – 22.28) / 22.28) * 100 = 7.45%
    • Industry: A higher DPO can indicate better cash management, but it should be balanced with supplier relationships.
  • Asset Turnover:

    • Calculation: Net Sales / Total Assets = $3,741,208 / $2,894,739 = 1.29
    • Trend: Previous year Asset Turnover = $3,784,808 / $2,959,319 = 1.28. Percentage Change: ((1.29 – 1.28) / 1.28) * 100 = 0.78%
    • Industry: Asset turnover varies by industry.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Stock Price / EPS = $105.31 / $5.61 = 18.77
    • Industry: The average P/E ratio varies.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Total Stockholders’ Equity = (25,463 * 1000 * $105.31) / $1,386,886,000 = 1.94
    • Industry: The average P/B ratio varies.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Net Sales = (25,463 * 1000 * $105.31) / $3,741,208,000 = 0.72
    • Industry: The average P/S ratio varies.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: EV = Market Cap + Total Debt – Cash and Equivalents = (25,463 * 1000 * $105.31) + $761,274,000 – $165,756,000 = $3,278,889,230
      EBITDA = Net Income + Interest Expense + Taxes + Depreciation and Amortization = $142,867 + $28,899 + $46,471 + $125,693 = $343,830
      EV/EBITDA = $3,278,889,230 / $343,930,000 = 9.53
    • Industry: The average EV/EBITDA ratio varies.

Growth Rates

  • Revenue Growth:

    • Calculation: ($3,741,208 – $3,784,808) / $3,784,808 = -0.0115 or -1.15%
  • Net Income Growth:

    • Calculation: ($142,867 – $64,195) / $64,195 = 1.2254 or 122.54%
  • EPS Growth:

    • Calculation: ($5.61 – $2.54) / $2.54 = 1.2087 or 120.87%

Other Relevant Metrics

  • OEM Segment Operating Profit Margin: Increased significantly from 0.6% in 2023 to 3.7% in 2024, indicating improved profitability in this segment.
  • Aftermarket Segment Operating Profit Margin: Increased slightly from 12.0% in 2023 to 12.6% in 2024, remaining a strong contributor to overall profitability.
  • RV Wholesale Unit Impact on Dealer Inventories: Increased by 13% in 2024, suggesting increased demand at the wholesale level.
  • RV Retail Unit Impact on Dealer Inventories: Decreased by 6% in 2024, suggesting decreased demand at the retail level.

Commentary

LCI Industries demonstrated a mixed financial performance in 2024. While revenue slightly decreased, the company significantly improved its profitability metrics, including gross profit margin, operating profit margin, and net profit margin. The increase in profitability was driven by improved performance in the OEM segment and continued strength in the Aftermarket segment. The company maintains a strong liquidity position, as indicated by its current and quick ratios. Overall, LCI Industries appears to be managing its operations effectively, but needs to focus on revenue growth.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️