Cyclical names could become suspect as the economy begins to crack. A leading indicator of economic weakness could be recreational vehicle (“RV”) shipments. A Y/Y decline in RV shipments preceded the last two recessions. This economic indicator is now flashing red:

RV shipments for November 2018 were 33,023, down 21% Y/Y. Towable RVs fell 21%, while motorhomes were down 17%. Through year-to-date November 2018 shipments were 444,090, down 3% Y/Y. In the first half of 2018, RV manufacturers could not ship units fast enough. Dealers did not want to miss out on sales, so shipments may have exceeded consumer demand. Thousands of RVs remain on dealer lots awaiting buyers. A slowdown in shipments could be a necessary evil in order to work down excess inventory.

This could be foreboding for Patrick Industries (PATK), a major supplier into the RV industry. Patrick manufactures components and distributes building products and materials to original equipment manufacturers (“OEMs”). The company’s four main product segments are RV, Marine, Manufactured Housing (“MH”), and Industrial. Over 60% of the company’s revenue is derived from its RV segment.

For the quarter-ended September 2018, the company’s revenue of $575 million was up 41% Y/Y. Revenue grew by double digits across each segment. Revenue for the RV segment rose 30% Y/Y. Revenue from the Marine segment rose 138%, largely on the strength of acquisitions. Patrick spent about $290 million on business acquisitions through the first nine months of the year and about $26 million during the quarter. Read more:


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