Patrick Industries, Inc. (PATK) Earnings

Management highlights

- Overall Q2 2026 Performance * Consolidated net sales of $1.04 billion, down less than 1% year-over-year, with 7% organic growth offset by a 9% industry volume decline in RV. * Gross margin of 23.8%, nearly flat from 23.9% in Q2 2025; adjusted operating margin of 7.5%, down from 8.3% year-over-year due to lower RV volumes and higher fuel prices. * Adjusted diluted EPS was $1.29, including 7 cents of dilution from convertible notes and related warrants. * Net income increased 34% year-over-year to $43 million ($1.28 per diluted share). * Available liquidity at quarter-end was ~$691 million, with no major debt maturities until 2028; net leverage was 3.0x, up from the prior quarter due to increased share repurchases and strategic inventory investments. - Strategic Business Positioning * Over a decade of targeted diversification has created a resilient business model across multiple outdoor enthusiast end markets. Trailing 12-month net sales are up nearly 70% and adjusted EPS is up more than 60% compared to 2019, despite 20%+ declines in both RV and marine wholesale unit shipments over the same period. * Management is focused on cost discipline while preserving operational flexibility to adapt to shifting demand. OEM and dealer inventory discipline across end markets is healthier than in prior cycles, supporting better long-term industry dynamics ahead of an eventual demand recovery. * The company partners with customers to address affordability pressures through value engineering, good-better-best product tiers, integrated solutions, and cost reduction initiatives. - Innovation and Operational Improvements * Management is prioritizing investments in technology, data analytics, and AI tools. Practical internal applications include an internal AI process competition for administrative automation, AI-powered new product introduction and content generation for the aftermarket platform, and AI-enabled quality control cameras at the Sportek power sports facility. * The company launched a new multi-million dollar advanced digital printing technology at its North American Forest Products campus, which improves design flexibility, manufacturing efficiency, and quality for decorative surfaces across value and premium market segments. - Capital Allocation * Capital priorities are reinvestment in the business, supporting organic and strategic growth, maintaining financial flexibility, and returning capital to shareholders. * In Q2 2026, the company repurchased $91 million of common stock and paid $15 million in dividends, returning $106 million total to shareholders. ~$62 million remains under the existing repurchase authorization, with additional repurchases restricted prior to closing the announced merger with LCI Industries. - Merger with LCI Industries * The all-stock merger agreement with LCI is expected to generate $150 million in net annual run-rate cost synergies, which will support long-term market affordability for customers. The transaction is targeted to close in H1 2027, pending customary regulatory and shareholder approvals.

Guidance

- 2026 full-year end market guidance: RV retail shipments are expected to be down low double digits, with RV wholesale shipments guided to 285,000 to 300,000 units. Marine retail is expected to be flat to down slightly, while marine wholesale shipments are expected to be up low single digits. Power sports full-year unit shipments and organic content are expected to be up low single digits, implying mid to high single-digit overall growth for the segment. Manufactured housing wholesale unit shipments and total new housing starts are both expected to be down low to mid single digits. - 2026 adjusted operating margin guidance was revised: management now expects adjusted operating margin to be flat versus 2025, with an additional potential 20 basis point headwind from incremental volume-based affordability programs for OEM customers in the second half of 2026. - 2026 operating cash flow is guided to $320 to $350 million, with capital expenditures of $70 to $80 million, implying full-year free cash flow of ~$250 million. The effective tax rate for 2026 is expected to be 24% to 25%.

Segment performance

1. RV Segment: Q2 2026 revenue of $407 million, down 15% year-over-year, representing 39% of consolidated net sales. Trailing 12-month (TTM) content per unit (CPU) was up 7% to $5,303, and quarterly CPU increased 2% year-over-year. RV industry wholesale unit shipments declined 16% year-over-year in the quarter. 2. Marine Segment: Q2 2026 revenue of $191 million, up 22% year-over-year, representing 18% of consolidated net sales. TTM estimated marine CPU increased 22% to $4,883, and quarterly CPU increased 22% year-over-year, with the majority of growth organic. 3. Power Sports Segment: Q2 2026 revenue of $123 million, up 28% year-over-year, representing 12% of consolidated net sales. Growth was driven by resilient demand for utility-focused units and strong adoption of premium cabin closure products. 4. Housing Segment: Q2 2026 revenue of $320 million, up 2% year-over-year, representing 31% of consolidated net sales. Manufactured housing (MH) represented 55% of housing segment revenue, with estimated MH wholesale unit shipments down 8% year-over-year. Quarterly CPU for MH units increased 4% year-over-year, while TTM CPU was flat year-over-year at $6,673.

Risks & headwinds

- Elevated interest rates, high domestic fuel prices, and weak consumer confidence are weighing heavily on demand for large-ticket discretionary purchases across RV, marine, and housing end markets. - Anti-dumping and countervailing duties on imported Luan plywood from Indonesia are expected to increase input costs starting in late Q3/Q4 2026, though the company has mitigated near-term impacts via pre-emptive inventory purchases and is positioned to drive adoption of composite alternatives. - Slower-than-expected adoption of the company's composite products has delayed inventory turnover and reduced near-term operating cash flow, though improved adoption is expected in H2 2026.

Analyst Q&A

• Q: A large dealer reported July retail sales declined further from already weak Q2 levels. What is Patrick seeing, and how are production levels trending into summer and the new model year open house? /

  A: Retail results are mixed across different OEMs, with some positive and some weaker June-July results. Production levels for July-August are tracking lower than H1 2026, which aligns with the 285,000-300,000 full-year RV wholesale guidance. OEMs are launching new model previews ahead of open house, with hopes for new orders to close out the year, and production is being adjusted based on actual retail demand.

• Q: Strong 28% Q2 power sports growth contrasts with full-year mid-single-digit guidance. Why is guidance lower, and is this due to lapping strong prior-year results? /

  A: Management has been pleasantly surprised by faster-than-expected adoption of premium cabin closures for utility vehicles, which has outperformed initial expectations. Full-year guidance reflects cautious optimism amid broader weak consumer discretionary market conditions, but management believes there remains significant long-term growth opportunity for power sports products.

• Q: What is driving strong content growth in the marine segment, and how does marine performance compare to RV? /

  A: Content growth is driven by strong traction for integrated solutions including towers, windshields, electrical systems, digital systems, flooring, and fuel tanks, which has helped the company gain market share. Marine demand is more resilient than RV, as Patrick's exposure is skewed to the mid-to-high end boat segment, which has held up better than entry-level segments amid current economic pressures.

• Q: How much lower can dealer inventories for RV and marine go, and when would low inventories start to risk lost incremental sales? /

  A: Current dealer inventory weeks on hand are already well below pre-COVID historical averages, and management expects dealers will reduce inventory by an additional week by the end of 2026, which is already factored into guidance. There is enough production capacity across the supply chain to support a quick scaling up if retail demand inflects, and low inventories create upside potential when demand recovers, as dealers will need to restock to meet new demand.