Renee Ketels - Lambert Edwards, Drew's Investor Relations Jim Gero - Chairman of the Board Jason Lippert - Chief Executive Officer and Director Joseph Giordano - Chief Financial Officer and Treasurer Scott Mereness - President.

Wenjun Xu - Thompson Research Group Scott Stember - Sidoti & Company Robert Magic - CJS Barry Kaplan - Maple Tree Capital.

Good day, ladies and gentlemen, and welcome to the Q4 and Year End 2014 Drew Industries Incorporated Earnings Conference Call. My name is Towanda [ph] and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Renee Ketels, Senior Associate, please proceed..

Good morning, everyone, and welcome to the Drew Industries 2014 Fourth Quarter and Year End Conference Call.

I'm Renee Ketels with Lambert Edwards, Drew's Investor Relations firm and I am joined on the call today by members of Drew's management team, including Jim Gero, Chairman of the Board; Jason Lippert, CEO and a Director; Scott Mereness, President; and Joe Giordano, CFO and Treasurer.

Management will be discussing fourth quarter results in just a moment, but first they have asked me to inform you that certain statements made in today's conference call regarding Drew Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties.

As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

These factors are discussed in the company's earnings release and its annual report on Form 10-K and in its other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made except as required by law.

With that, I would like to turn the call over to Jason Lippert.

Jason?.

Thanks Renee, and thanks everybody for joining us on the call today. Today’s announcement marks the fifth year in a row that we’ve increased our consolidated net sales on a year-over-year basis. And we are off to a record start for the beginning of 2015.

This kind of year-over-year improvement isn’t easy but because we have invested heavily in customer service product innovation and people, our historical drivers of success, we believe that we increase our odds for continued long term success.

2014 was another record year sales for Drew reaching nearly 1.2 billion of sales an increase over 30% from just two years ago. This kind of growth always come with a price but despite their growth related cost incurred by the company, we increased operating profit by 22%.

Our investments for the future are important and we believe that we have laid the foundation for continued long term profitable growth. In the last 12 months as noted in the press release, we completed five acquisitions at an aggregate cost of more than $100 million.

These acquisitions add $85 million in sales bring us new products and customers, take us into new industries as well as build on our already existing sales on adjacent industries.

More importantly, we were able to increase the quality of our team for the addition of many talented new people through these acquisitions and our labor market that has proven increasingly difficult as a way.

Last year we increased our capacity by approximately 700,000 square feet on top of the existing 3 million plus square feet including our new furniture and mattress facility and our new aftermarket and customer service facility, and new laminated door facility. We also added significant capital improvements to our extensive chassis operation.

Employer retention is another significant focus of ours and we are pleased to report that our employee turnover for the last calendar year has been reduced to half of what it was in 2012 and prior. Continued focus on reducing turnover will significantly help improve efficiencies in many ways.

Our success at Drew is largely been based on the quality of our people and the unique culture we’ve developed. We believe that attracting and retaining talented individuals and creating an excellent work environment will be extremely important for continued success going forward In addition, we continue to focus on lean initiatives in our dimension.

While 2014 was a solid year and we made good strides in these areas, there are still more opportunities for us to take advantage up to 2015. As we look forward we are excited about the opportunities that I had, a record sales for January coupled with strong RV fundamentals and demographic tail winds are a positive start for this year.

In addition to the RV industry, the momentum we gained in 2014 in the aftermarket, adjacent industries and international markets to continue to benefit growth in 2015, increasing that sales through projected industry growth, market share gains and acquisitions will continue to be a major focus as we move forward Further, we are placing continuous emphasis on new product development and product enhancement through R&D.

R&D has been an important part of growth in the past and it will certainly continue to play a big role in our success in the future. Growing capacity to efficiently serve our customers is important and we have made numerous capacity expansion and capital investments to meet the anticipated increases and demand.

In 2015, leveraging these investments of fixed costs will be an important objective. As we stated in our release we believe that with all the capital we added to this business in 2014 we have positioned ourselves well for 2015 and into 2016 without having to add the near level of capital expenditures to the business that we did last year.

As we always emphasize our people are our highest priority and the key to our success. We feel privileged to serve our customer partners and are proud to work alongside our extremely talented family of managers and employees. Above all we have a more successful business by developing strong and lasting relationships with all of these individuals.

We are confident that our commitment to this relationship focused velocity will continue to yield substantial benefits over the long term. Now I’m going to ask Joe to provide a few additional comments and then we’ll take some questions..

Thank you, Jason. In 2014 our sales growth was strong, with net sales growing by more than a $175 million as Jason said making 2014 a fifth year in a row of consolidated net sales growth of more than $100 million. And over those years our net sales have nearly tripled, cumulatively growing by almost $800 million from $400 million to $1.2 billion.

Our sales growth over this five new period as well as our sales growth in 2014 was due to increased industry wide RV production, increases in content and the completion of numerous acquisitions.

Acquisitions over the past several years have been an important part of our long term growth strategy adding existing sales, products and personnel of the acquired company as well as new customer relationships which have provided opportunities to sell our existing products.

The acquisitions completed in 2014 added a full year run rate of approximately $67 million in net sales. And specifically the net sales resulting from these acquisitions all relate to the RV segment and added about $36 million to our 2014 full year sales.

Based on the total historical sales of $67 million and assuming each of these acquisitions completed in 2014 had been accomplished at the beginning of 2014 our consolidated net sales would have increased by an additional $31 million for 2014. And in 2015, we hope to increase these acquired sales.

While we are pleased with our sales growth in 2014, we are continuing to pursue new market opportunities, develop new products and make improvements to our existing products, which are part of our long term strategic plan for growth. Acquisitions also continued to remain key component of our growth plans for the future.

And in January 2015, we completed the acquisition of EA technologies with annual sales of approximately $17 million of which approximately 75% was to adjacent industries with the balance for the RV industry. EA will be included in our RV segment going forward.

EA technologies has solid relationships in the bus, automotive, medium duty truck and trailer markets which we believe will help accelerate our industry diversification and product innovation. Our top priority for cash and borrowing remains the same, to make attractive investments, and we expect to produce above average returns.

In order to meet the rising demand for our products we have added capacity and realigned many of our facilities to gain efficiencies where needed. As noted in the press release, 2014 was impacted by the cost of growth and expansion. And as a result our year-over-year incremental margin was negatively impacted.

However, we believe that the investments in our business that we made in 2014 are fundamental for the long term growth and prosperity of the company. And as we noted we believe these costs will not be of the same magnitude in 2015 as we should be able to leverage the fixed cost added in 2014 to meet the increased demands expected for 2015 and after.

On a year-over-year basis, our SG&A costs remain relatively steady as a percent of sales. The increase in the total amount of SG&A was primarily due to the fixed cost added from the 2014 acquisitions and the variable nature of our selling and delivery costs which comprise approximately 30% of SG&A.

Further, over the last year or so we’ve added fixed SG&A costs to meet the corresponding organic increase in sales. Thank you for your time. Now this is the end of our prepared remarks. Towanda we are ready to take questions..

Thank you. [Operator Instructions] Your first question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed..

Good morning, this is Wenjun sitting for Kathryn. Can you provide a bit more color on how start up raw material inflation and health insurance each affected the RV segment operating margins this quarter.

If I remember correctly the increase in insurance cost was first mentioned in Q3 2014, so for year-over-year comparison, would that continue to be a factor for the first half of this year? And also if you can comment on the price increases you recently implemented, how soon can the benefit expect to flow through? Thanks..

We’ll try to tackle that question Wenjun. With the pricing I think we stated that most of that has taken place in the first quarter the price increases to cover material cost increases from that we saw in the last couple of quarters last year.

With respect to all the cost that we added to the business, we added over $42 million in CapEx and then we had another $100 million in acquisitions and there is a lot of startup plant cost, there was a lot of transition cost for plants moved, there is a lot of couple of facilities that we closed down to move to other facilities where we consolidated.

So there was a lot of that all at once alongside all the acquisition transition.

So we’ve been off a lot last year and we executed pretty well I think but there is always a lot of things that pop up in those moves and starts up and transitions and consolidations that pop up and that’s kind of what we’ve been talking about here to the release in the early part of the call here, but as far as healthcare I’ll let Jim and Scott comment on kind of the outlook for 2015 to answer that part of your question..

Sure, thanks Jason.

The costs – and I think we spelled it out a little bit in the press release when in – in terms of the impacts for the quarter of the facility started first being about a $0.02 for the quarter and roughly about $0.09 for the year, those are costs again as Jason said incurred with opening of the two new facilities and relocation or realignment of certain other facilities costs which we would expect generally not to happen again in 2015 as we’ve built the foundation up.

But as Jason said there are other costs that we also spent time and effort and focus of management in doing all of those types of activities this year.

In terms of the healthcare and raw material cost, against the quantified for the quarter and this is on a year-over-year basis for the fourth quarter was about a $0.10 per diluted share negative impact. And last quarter it was similar and we had talked about our about a 50:50 split between healthcare and raw material cost.

This quarter is probably a little bit higher on the healthcare cost maybe a 60:40 type of split between those two. I think it was about 90% similar to our sales of these costs residing in the RV segment and Scott maybe have something to add there on those costs..

Late in the fourth quarter we had our annual health insurance enrolment and that enrolment was roughly flat up just under 1%, so going forward that should be that number should not continue to impact just like it did in 2014..

Okay and then that is that flat still for Q2, 2015 we should not be expecting the insurance cost impact? Correct..

Correct. We are expecting for 2015 that our health insurance cost as a percentage of sales to remain relatively consistent..

Okay. Thank you and also my second question is on winter weather. Winter weather was a big factor last year on January sales, well this year’s January was warmer, snowfall in some part of the country this month are affecting some industries.

What are you currently seeing in terms of order trend, any impact from the weather?.

It’s really been a non issue this year Wenjun..

Okay….

A favorable [ph] year like last year..

Thanks. That’s all my questions for today. Thank you..

Thank you..

Your next question comes from the line of Scott Stember with Sidoti. Please proceed..

Good morning, guys..

Hi, Scott..

Your aftermarket business, notably in the RV side, was off the charts, it looks like it tripled this quarter versus a year ago. Obviously there was some acquisitions related to Duncan in there, but could you talk about some of the items organically that were successful this quarter, maybe just pinpoint a few of them.

Well I think that it’s really across the board, it’s all product I think, the easiest way to look at our aftermarket business is to know that for last ten years or so we’ve been putting a lot of product out into the field through the OEM equipment and that a lot of those products that we built have moving parts and experienced a lot of wear and tear and I don’t know what I think there’s ever been a cycle pinpointed where it’s x amount of years, it depends on the amount of used every RV season, every RV is different based on the type of use it gives, but certainly over the course of ten years we are going to see a lot more of the aftermarket input to our business than what we are seeing five or seven years ago.

So what we have seen is a lot of replacement of items and some of the slide-out mechanisms and things, parts like that have moving parts and pieces so and really for a lot of the products we supply we’re the go-to-guy, it’s a unique product and when dealers need those products for fulfillment they got to come to ask for us.

So we’re really working hard to scale that part of our business to really meet the demands of the dealers that are servicing the RVs out there by the thousands and just trying to do the best job we can, but really it’s across a lot of different product lines. It’s actually to slide out parts and pieces like that.

A window is not going to need to be replaced obviously as much as a slide-out that’s moving in and out all the time or jacks that are moving up and down all the time. If that makes any sense..

Absolutely. Maybe just talk about the international side, I think last quarter you had indicated you had a very good showing for some of your slide-out products at a show in Dusseldorf, and that you had some subsequent conversations with some OEMs.

Can you maybe just talk about where you stand on that front right now?.

I think that where we are at it’s a still early innings, kind of a broad comment, but the people are taking notice, the customer that introduced it at Dusseldorf, they've got the season coming now and they are building multiple units out there to get to their dealer body and show off. So it’s going to be similar to probably how it started in the U.S.

and late 80s early 90s where a customer came out and they built a handful of them and gained acceptance and people started talking about and asking more for it.

We’re working probably with a handful of customers now that are trying to learn about how to engineer it and do a unit that typically doesn’t have a slide and there’s a lot that has to go on there to teach and train and help them build the unit that takes slide-out.

So we’re going through a lot of that early stage type work right now and feel that it will gain momentum no different than the U.S. did. Everybody that seen it really likes it, there’s more room and their units are very small over there, so they really need in our opinion and most people’s opinion they need the space more than we do.

We already built big coaches, but their coaches are limited, the vehicle sizes over there which are much smaller, we are really positive about if that helps answer your question..

That's perfect. And last question, on the MH side of the business, now that it seems that we've anniversaries one of the industry's top OEM's started doing a lot more product in house. It sounds as if we should really benefit from what the industry could potentially do if you were to peg it to new home sales.

Could you talk about, from a capacity standpoint and the margin standpoint, incremental margin standpoint, the potential in that side of the business if you were to see a high single digit or low double digit growth in that area this year?.

In terms of the capacity standpoint we wouldn’t have to add any fixed cost for the foreseeable future to be able to handle moderate uptick in sales. From an incremental margin standpoint, I’ll let Joe comment on that piece, but its….

Yes. I mean, Scott in terms an incremental margin we should be in the 15% to 20% range and I may even say closer to 20% range is what our MH business has historically been at.

Let’s keep it in perspective of the MH side, it’s a very positive, but I want to make sure we understand at 10% uptick is 6,000 homes at $1200 of content is $7 million, $7.5 million of sales, 20% incremental margin is $1.5 million which is give or take about $0.03 per share.

So it’s all positive, I’ll take it any day of the week, and we all will, but I want to make sure we understand that double-digit growth there has much less of a significant impact than any positive on the RV side of our business.

And industry certainly has the ability to grow year-over-year, so that’s what we are most excited about hoping for that it makes a little bit of a run here, but we’re seeing some good times and we’ve made some positive market share most in the recent past and we hope there is a both of that in the near future..

Excellent. Thanks so much for taking my questions guys..

Thanks Scott..

Your next question comes from the line of Dan Moore with CJS. Please proceed..

Good morning. This is Robert Magic filling in for Dan. This time last year dealers were caught a little flat-footed without enough inventory, and they seem to be making sure this doesn't happen again this year.

As you talk to dealers, how much of the strength you're seeing right now reflects stronger retail demands at lots, and how much represents shippings been pulled from Q1 and Q2?.

Well, it’s hard to give you a specific answer to that question, but if you’ve reading all the RV news coming off the dealership loss for the retail show its all super positive, I mean, there is couple of shows that we typically and they’ve been doing those shows non-stop every week since the second or third week in January, when they kicked off to Cleveland and then all the shows have been super positive as far as retail traffic.

We're not hearing a lot about difficulty with getting shipments to dealerships. We know from talking the OEs over open house in Louisville that dealers went and a little bit bigger this year because of their anticipation of good selling season, the first four months of this calendar year.

So all signs points to the positive and OE is a real positive right now. They are still building out there into April right now. Retail and dealers are all talking about strong season. So all the factors are positive right now, try to put up a number on and some of the questions that you ask, but it’s all better than last year..

It’s great to hear.

And given some of the tuck in acquisitions you've made recently, what are your expectations for growth and content per RV, over the next 12 months?.

Well, it’s a good question. I think if you look we were just talking this before the call, but if you look at the recent five acquisitions that we’ve made there is not towable sales coming out of those businesses and the towable RV business which is really the cost of our sales.

So, I think that demonstrates our willingness and ability to really get out there and look at businesses outside of our core and we’re getting more comfortable with that. We’re finding great industries with great people and great opportunities and all these businesses that we’ve looked at show a lot of growth potential.

So we’re excited and we’re hoping that the investor community get excited about it too, because everybody talks about the high market shares that we have and I think that these last five acquisitions we’ve done in the last 12 months are biggest 12 months of acquisitions ever.

We’ve gone outside our core and really focusing on some adjacent markets that has some huge potential..

Great. Thank you..

But as far as content goes just answer to question, I don’t think we’ve got a content number for auto homes [indiscernible] time in the couple of the businesses that we bought and had content that was pretty small..

And we’ve talked a little bit about historical run rate in terms of content growth on towables and we talk about being in that $100 to $120 a year average excluding acquisitions.

And 2014 growth was right in that range, was right in middle of that range and demonstrates that there’s still opportunities for us out there to grow content in our existing products and potentially through new products and product enhancement.

Content growth is going to come huge through our continued focus on new product development that’s where it’s coming from..

Very helpful..

[Operator Instructions] You next question comes from the line of Barry Kaplan with Maple Tree Capital. Please proceed..

All right. Thank you. Good morning..

Hi, Barry..

On the decline in investments going forward that you refer to relative to 2014, I wonder, could you give us some sort of sense of the breakdown of that decline between operating expenses and capital spending and just in general if you could give us some feel for the capital spending level that you're thinking in 2015? And then secondly, coming back to the question you had about the weather, in the press release there was reference to the strength of January, but also there was a little bit of weather anomaly that you talked about, I'm just want to get a sense of how much of an impact that had as we think about how much carryover we might see in February and March.

Of that strength?.

Sure. Thanks, Barry. I’ll cover at the first pieces, but in terms of capital expenditures we spend about $42.5 million in 2014. Our current projection for 2015 is that capital expenditures will be give or take $30 million to $35 million and again we’re very focused on that since try to keep that as under control and as low as we possibly can.

Knowing that, historically our maintenance CapEx has been roughly about 2% of our historical sales. In terms of the facility realignment and start up cost for the full year 2014 we’ve heard about $0.09 as noted in the press release. As we go forward there facilities start up cost I think happen, we think happen every year.

But the magnitude that we expect in 2015 we expect to be significantly lower than what we incurred in 2014.

In terms of January and I think Jason kind of touched on it here briefly, it’s difficult to know that 41% increase or even 34% acquisition how much of it is due to whether last year versus this year or how much is just due to the strong retail demand that we’re seeing, I mean, the fourth quarter was up 15% I think for the entire industry in terms of the retail demand accelerating from what we saw earlier in 2014.

I think it goes hand in hand with what we saw in consumer confidence towards the end of the year, and even December, although its one month and I hate drawing a trend line of the one month, but a 25% increase in retail adjustment in the month of December. Again, so only one month.

All those factors are rolling into the January number coupled with our organic growth and market share gains not only in the RV industry but in other industries and another month of shipping blue bird with those for example in our adjacent industries.

All those are the positive factors leading into that 34%, so I think it’s difficult to isolate out just may what may have been weather out of those pieces..

Fair enough. Thanks a lot..

Thanks..

And with no further questions in queue, I would now like to turn the conference over to Mr. Jason Lippert for closing remarks..

I just want to thank everybody for tuning in on the call today and we will plan on seeing you next quarter at our next quarter’s earnings release. Thank you..

Thank you for joining today’s conference. That concludes the presentation You may now disconnect and have a great day..