ASV Holdings, Inc. (NASDAQ:ASV) Q3 2018 Earnings Conference Call - Final Transcript

Nov 01, 2018 • 04:30 pm ET

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ASV Holdings, Inc. (NASDAQ:ASV) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Executive
Andrew Rooke

on production and delivery times. During the third quarter, we were able to mitigate most of the impacts on shipments by a combination of nimble resourcing and modestly higher inventory levels of both long lead time components and finished products. However, the supply constraint show little sign of improving in the near term and will remain a challenge for us again in the final quarter of the year and until additional supply chain capacity comes online.

Input costs are also an industry-wide challenge, with for us US sourced steel and imported components affected by tariffs showing significant cost increases from the start of the year. As previously discussed, we implemented steel surcharge pricing on our sales orders received from May 1st, and we've seen competitors recently follow through with similar pricing adjustments. We have also accelerated our resourcing and cost reduction activities to help mitigate the adverse effect of material costs. There is a timing lag to the full run rate benefits from these actions that resulted in a net cost of $0.5 million in the quarter, or $0.05 of the EPS. But we still anticipate that with steel at its current cost, we will be largely able to offset the impact as we go into 2019.

So, now please move to slide four, where I will comment on the market conditions for our products. The key indicators for our compact track loaders such as housing starts, general construction, and the rental channel have been largely favorable for the year so far. And industry forecasts indicate this demand will continue. The housing market is seeing more uncertainty and adverse impacts from adverse weather and interest rate increases. Although September starts were again down from the previous month, new starts in September were 3.7% above the prior year, on a year-to-date basis were 6.4% ahead of last year's rate and at a rate of $1.2 million are still below the long-term average of $1.5 million units.

The trend is still good in US construction, as spending continues with year-over-year growth of 5.3% and the rental market also remains robust. Australia, a large market for us, remains in the positive trend with the recent reports of 3.4% GDP growth, above expectations in the second quarter of the year. Our discussions with dealers also indicate optimism in the level of activity going forward and activity at the landscaping equipment trade show we attended a few weeks ago was very strong.

Turning to slide five, I'd now like to make some comments regarding our strategic initiatives. So far this year in North America, our net increase of additional dealer or rental locations less those that have been canceled is 48, taking our total at the end of the quarter to 270. We expect to continue this progress and remain highly focused to continue the expansion of the network to our initial target of 300, but are increasingly working towards driving overall network performance.

This revolves around expanding our overall brand awareness, marketing material and