Spartan Motors, Inc. today reported its best-ever third quarter sales and earnings for the quarter ended Sept. 30, 2006, marked by a 50.7 percent increase in net earnings and a 21.9 percent increase in net sales.
Spartan Motors, a leading manufacturer of custom motorhome chassis, fire truck chassis, specialty vehicle chassis and emergency-rescue vehicles, reported net earnings of $4.1 million, or $0.30 per diluted share, on net sales of $108.9 million for the third quarter of 2006, compared with net earnings of $2.7 million, or $0.21 per diluted share, on net sales of $89.3 million for the third quarter of 2005.
The company attributed its improved quarterly results to record-level fire truck chassis sales, increased military vehicle chassis sales and improved performance at Spartan's EVTeam operating group, consisting of the company's subsidiaries Crimson Fire, Crimson Fire Aerials and Road Rescue, as compared to last year's third quarter. Spartan also outperformed the overall softness in the Class A RV market, posting only a modest sales decline for motorhome chassis as it continues to gain market share.
"This was another strong quarter, driven by the strength of our brands, as reflected in our increased sales and backlog and the consistency of our execution," said John Sztykiel, president and CEO of Spartan Motors. "Though conditions in the RV market remain difficult, we continue to gain market share, and I am more optimistic than I was three months ago. Consumer confidence has improved two months in a row, fuel costs have dropped and our RV backlog is moving in the right direction.
"For the first time ever, sales of Class A diesel motorhomes have surpassed sales of Class A gas units at the retail level, which demonstrates the desire of customers for diesel. The continued shift in motorhomes from gas to diesel bodes well for Spartan Chassis. At the same time, increased sales of fire truck chassis, fire trucks and military vehicle chassis have also given us a stronger, more diversified foundation beyond the RV market, which now makes up less than half of our total sales. This will ultimately reduce cyclicality from an earnings perspective."
Through the first nine months of 2006, Spartan's sales increased 20.3 percent and earnings increased 85.4 percent compared to the same period last year. Spartan reported net earnings of $13.5 million, or $1.03 per diluted share, on net sales of $321.8 million, for the nine months ended Sept. 30, 2006, the best nine-month period in company history.
"Our growth year-to-date has been driven by our focus on operations and existing products, without any major product introductions. We are becoming a disciplined group of people, working as a team and focused on execution. Looking ahead to 2007, we plan to introduce several new products, which we anticipate accelerating our growth into 2008."
Spartan reported its gross margin improved to 15.8 percent in the third quarter of 2006, compared with 15.1 percent for the same period in 2005, reflecting improved product mix, pricing, overhead utilization and labor efficiencies. Operating margin also improved to 5.7 percent in the third quarter of 2006, compared with 4.8 percent in the same quarter of 2005. Spartan's consolidated backlog as of Sept. 30, 2006 increased 57.3 percent over last year's quarter to approximately $230.9 million. Spartan Motors anticipates filling 35 to 40 percent of its current backlog orders by December 31, 2006.
On a consolidated basis, Spartan posted a return on invested capital (ROIC) of 16.2 percent in the third quarter of 2006, a 19.1 percent increase compared to ROIC of 13.6 percent for the same quarter in 2005. (Spartan defines return on invested capital as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.) The company ended the quarter with $5.8 million in long-term debt and $5.6 million in cash and cash equivalents.
Spartan Chassis
Third quarter earnings at Spartan Chassis, the company's largest operating subsidiary, improved 11.7 percent compared to last year's third quarter, while sales increased 19.6 percent. Difficult conditions in the RV industry led to a decrease of 5.9 percent in RV chassis sales compared to the third quarter of 2005. Industry-wide, the Class A wholesale market declined by an average of 16 percent for July and August, the latest data available. Conversely, sales of fire truck chassis increased 27.3 percent year-over-year, setting a new quarterly record.
"Our RV sales were affected by the overall downturn in the RV market, though we continue to add market share and have increased our RV backlog compared to a year ago," said Sztykiel. "We are certainly encouraged by early indicators of an uptick in the RV market in the fourth quarter due to lower gas prices and the highest level of consumer confidence in 2006. For fire truck chassis, we had our best-ever quarter in terms of sales and our backlog for fire truck chassis has nearly doubled over last year."
Sales of specialty vehicle chassis, which include military vehicles, increased 259.0 percent compared to last year's quarter. In July 2006, BAE Systems awarded Spartan a subcontract to assist with the production of the Iraqi Light Armored Vehicle (ILAV), a mine-blast protected vehicle. During the quarter, the company also received several new subcontract orders from Force Protection, Inc. for Cougar chassis in addition to those previously announced.
"The increase in fire truck chassis orders has created a production constraint, which we are in the process of solving with a new 102,000-square- foot manufacturing facility, expected to open in May 2007. This new facility will alleviate the current capacity issue, create capacity for new products and accelerate production rates. We are pleased with how well our associates at Spartan Chassis have ramped up production in support of the Cougar and ILAV projects. We have room for growth in this market, as we are only running at 35 percent capacity for specialty and military vehicles production, and remain excited about our prospects in specialty vehicles."
Emergency Vehicle Team (EVTeam)
Spartan's EVTeam operating group, consisting of its Crimson Fire, Crimson Fire Aerials and Road Rescue subsidiaries, narrowed its net loss by 47.0 percent compared to the same quarter of last year. Spartan reported the improvement was due to a 38.4 percent increase in sales for the group and a net profit at Crimson Fire, the subsidiary's second consecutive quarter of profitability.
"Crimson Fire and Crimson Fire Aerials continue to move in the right direction," Sztykiel said. "As sales accelerate at Crimson Fire and Crimson Fire Aerials, we also see greater pull-through sales from Spartan Chassis, which increases total profitability. Road Rescue is also moving in the right direction, as we are making a concentrated effort to boost production while reducing costs."
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