By DANIEL TAUB
Staff Reporter
The same generation that idealized the cross-country ramblings of Jack Kerouac is ready to get lost in America again. Only this time, instead of hitting the highway on a Harley or in a ’57 Chevy, they’re buying up motor homes.
And that’s where Rexhall Industries Inc. comes in.
Like much larger companies such as SunAmerica Inc. and Herbalife International Inc., motor-home maker Rexhall is finding gold in the aging Baby Boom market. For the first quarter ended March 31, the company reported net income of $1.3 million (42 cents per diluted share) up 132 percent from net income of $543,000 (19 cents a share) in the like year-earlier period.
Revenues for the first quarter were $22.2 million, up from $14.2 million a year earlier. For both sales and earnings, it was Rexhall’s most successful quarter since the company began manufacturing recreational vehicles in Pacoima in 1986.
The record quarter follows what was the company’s most successful full year in its history. In 1998, Rexhall reported net income of $3.4 million ($1.13 per share), compared to a net loss of $1.8 million (64 cents) in 1997.
The 1997 loss came as a result of two factors: a $1 million-plus restructuring charge the company took when it closed down its poorly performing manufacturing plant in Elkhart, Ind., and $1.6 million in costs related to the settlement of a class-action lawsuit. Litigants in the suit accused the company of over-hyping the safety of roll cages in its RVs.
Company officials say those problems are now behind them. The lawsuit is settled, and the company has shut down the Indiana plant and has its property there up for sale. Meanwhile, its 120,000-square-foot Lancaster plant, where the company moved four years ago, has taken up the slack in production, and is undergoing a 20,000-square-foot expansion.
Rexhall, which has just a small sliver of the $16 billion RV industry, is hoping to see further growth as Baby Boomers start to take longer vacations and eventually retire, taking to the roads in luxury motor homes like the ones built by Rexhall.
“The anticipation is that as more and more of these Baby Boomers come of age in the over-50 range even the over-40 range it is predicted that this RV industry will continue to grow for some time to come,” said Thomas M. Zirnite, the company’s chief financial officer.
Rexhall is a fraction of the size of many of its competitors, including Riverside-based Fleetwood Enterprises, Elkhart, Ind.-based Coachmen Industries and Coburg, Ore.-based Monaco Coach.
Like Rexhall, all those companies make luxurious, “class-A” vehicles. But while many of the competitors’ RVs sell for more than $500,000 apiece, Rexhall’s retail for a comparatively low $60,000 to $175,000.
“You get a lot of cluck for your buck,” Zirnite said.
With Rexhall’s recent strong earnings, investors have started to take notice. After dropping to a 52-week low of $4.56 a share on Nasdaq last October, then trading in the $8 to $9 range for months, Rexhall’s stock was trading at $12.88 last week a 52-week high. Even at that price, the company’s price-to-earnings ratio was 9.47 about one-third the P/Es of stocks that make up the Dow Jones Industrial Average.
Late last month, Rexhall hired an investor relations firm, Grand Rapids, Mich.-based Lambert, Edwards & Associates Inc., to promote the company’s performance to shareholders and potential investors.
“Basically the strategy is to get them on the radar screen of the investment community,” said Jeff Lambert, principal at the firm.
The investor relations firm’s task may be a challenging one, though. The one analyst who now covers Rexhall is impressed by the company’s performance, but feels the stock may have hit its ceiling.
“How big is the multiple going to get?” said Deepak Raja, an analyst with Wiley Bros.-Aintree Capital. “We just don’t see it trading higher than nine times forward earnings. It hasn’t done so and we don’t expect it to. We just see limited upside.”
Until last month, Raja had a “buy” rating on Rexhall’s stock and a 52-week target price of $11 to $12 a share. Once Rexhall released its first-quarter earnings, which caused the company’s stock price to rise above that target, Raja raised his 1999 earnings estimate from $1.36 a share to $1.42. But he also cut his recommendation on Rexhall’s stock to “neutral.”
“We saw limited upside in it and it just didn’t warrant us keeping a ‘buy’ on it,” he said. “We’re not aware of anything fundamentally that’s wrong (with the company). It was just a valuation goal.”
Lambert said he hopes to convince investors and analysts otherwise.
“We wouldn’t say we’ve hit the ceiling,” he said. “The whole RV sector is undervalued, particularly based on the growth rates the industry is expecting.”
Rexhall makes six lines of motor homes the Aerbus, Rexair, RoseAir, Vision, Anthem and American Clipper. The RVs’ engines and chassises are made by Ford Motor Co. and Spartan Motors, and the RVs themselves are assembled in Lancaster, where Rexhall employs 478 workers.
Last year, the company manufactured 1,147 RVs in Lancaster. Though the company doesn’t publicly discuss earnings projections, Zirnite said the expectation is that 1999 earnings will be better than last year’s. “We’re expecting a good year,” he said.
