LCI Industries' Q3 2025 Earnings Call: Contradictions Emerge on Tariff Mitigation, Single Axle Trends, and Retail Growth Outlook

Date of Call: None provided

Financials Results

• Revenue: $1.0B, up 13% YOY
• EPS: $2.55 per diluted share, up from $1.39 in the prior year period
• Operating Margin: 7.3%, up 140 basis points year over year

Guidance:

• October net sales ~ $380M, up ~15% YOY; Q4 expected mid-teens YOY growth.
• North American RV wholesale shipments: 2025 guidance 340,000–350,000; preliminary 2026 345,000–360,000.
• 2026 operating margin target 7%–8%.
• 2025 CapEx expected $45M–$55M.
• Target organic towable content growth 3%–5% annually.
• Expect 8–10 facility consolidations in 2026 and exploring divestitures of ~ $75M revenue.

Business Commentary:

• Revenue Growth and Innovation Strategy:
• LCI Industries reported revenue of more than $1 billion for the third quarter, up 13% from the same period last year.

• The growth was driven by successful innovation strategy, leading to double-digit sales growth across RV and adjacent businesses.

• Operating Margin Improvement:

• The company's operating margins improved by 140 basis points year over year to 7.3%.

• This improvement was due to disciplined cost management, sustainable overhead and G&A improvements, and mix optimization.

• Adjusted EBITDA Growth:

• LCI Industries reported a 24% increase in adjusted EBITDA to $106 million compared to the previous year.

• Growth was primarily driven by reduced costs from material sourcing strategies and increased RV sales volume.

• Aftermarket Sales and Service Expansion:

• Aftermarket net sales increased by 7% year over year to $246 million.
• This growth was fueled by increased OEM content, which drives additional aftermarket demand for product enhancement and services.

Sentiment Analysis:

Overall Tone: Positive

• “We delivered an exceptionally strong quarter with sales growth of 13% to more than $1 billion.” “Operating margins improved 140 basis points year over year to 7.3%.” Guidance: “October net sales of approximately $380 million, up 15% from prior year,” and CapEx narrowed to $45M–$55M, supporting a positive outlook.

Q&A:

• Question from Daniel Moore (CJS Securities): Can you rank order the drivers of margin improvement (volume, options, optimization, mix, tariffs)? Also clarify Q4 outlook/margin profile, potential proceeds from facility sales, and any marine outlook?
  Response: Margin improvement was driven primarily by tariff mitigation, volume uplift and productivity/footprint optimization; Q4 is expected to match Q3’s YOY margin expansion (~150 bps); facility-sale proceeds uncertain and no marine outlook provided yet.

• Question from Joseph Altobello (Raymond James): Do you expect retail to be up next year? And can you parse how much of the 13% revenue growth was pricing versus volume/acquisitions? Any incremental mix improvement beyond normal seasonality?
  Response: Retail is expected to remain roughly in line next year; the quarter's revenue growth reflects a mix of volume, pricing and ~$42M of acquisitions (not separately parsed); mix has improved with fewer single-axle trailers.

• Question from Scott Stember (Roth Capital): Have you seen dealer or OEM pushback on price increases (elasticity), and how effective was passing through steel/aluminum cost increases this cycle? Also, any color on aftermarket growth split between RV and automotive?
  Response: Dealer comments seem episodic; industry capacity constraints and low inventories support continued ordering; steel costs are easing while aluminum remains elevated, tariffs have stabilized and were largely mitigated; aftermarket strength is driven by OEM penetration (notably RV ACs) and opportunities vs. weakened competitors in auto.

• Question from Tristan Thomas-Martin (BMO): How much did acquisitions contribute this quarter and what do you expect from Bigfoot Leveling? How should we think about tariff impact next year?
  Response: Quarterly acquisition contribution was ~$42M; Bigfoot/Moss are small (<$25M combined) and not separately quantified for annual run-rate; tariffs are expected to remain stabilized and largely mitigated next year due to actions already taken.

• Question from Bret Jordan (Jefferies) — asked by Craig Kennison: Can you describe dealer sentiment and likely timing of restocking into the new year? Also, have you seen decontenting stabilize?
  Response: Dealers report low inventories and cautious restocking, but constrained industry capacity and strong innovation-driven content gains suggest modest wholesale increases next year; decontenting has stabilized and mix is improving.

Contradiction Point 1

Tariff Impact Mitigation Strategies

It involves differing perspectives on the impact of tariffs and the strategies employed to mitigate those impacts, which are crucial for understanding the company's financial health and operational resilience.

Can you break down the factors contributing to the increase in adjusted operating margins, including leverage from higher volumes, options, optimization, product mix, and tariffs? - Daniel Moore(CJS Securities)

2025Q3: Improvements were due to both volume uplift and productivity gains, with productivity showing significant increases despite acquisitions. Tariffs were mitigated effectively through strategic sourcing and customer negotiations. - Lillian Etzkorn(CFO)

How does the 180-basis-point risk metric reflect the reduction in China exposure? - Michael Swartz(Truist Securities)

2025Q1: The 180 basis points represents ongoing efforts to reduce China exposure. The impact is being mitigated as we shift production to other regions. - Lillian Etzkorn(CFO)

Contradiction Point 2

Single Axle Market Share and Trends

It pertains to market trends and the company's positioning within those trends, which can influence business strategies and investor expectations.

What is the outlook for single-axle versus multi-axle and fifth-wheel vehicle mix? - Tristan Thomas-Martin(BMO)

2025Q3: The single axle trend has shifted, and we expect it to stabilize in the 16% range, as dealers focus on larger units. - Jason Lippert(CEO)

What is the pro forma annualized revenue for Trans/Air’s climate control systems, and how do you assess the TAM and potential for increasing market penetration in these markets? - Daniel Moore(CJS Securities)

2025Q1: We continue to see strong interest in larger towable units with single axle accounting for 17% of retail unit sales. - Jason Lippert(CEO)

Contradiction Point 3

Tariff Impact Mitigation

It highlights differing approaches and effectiveness in mitigating tariff impacts, which could affect cost management and financial performance.

How are you assessing tariff impacts on a gross vs. net basis next year? - Tristan Thomas-Martin(BMO)

2025Q3: We expect tariffs to continue at current levels, with mitigations already in place. - Lillian Etzkorn(CFO)

What is the current impact of steel and aluminum tariffs on your plans? How are you considering pass-through? - Fred Wightman(Wolfe Research)

2024Q4: We work with suppliers to mitigate this impact through pricing and indexing. - Jason Lippert(CEO)

Contradiction Point 4

Retail Growth Expectations

It involves differing expectations for retail growth, which directly impacts revenue projections and market positioning.

Do you expect retail to increase next year? - Joseph Altobello(Raymond James)

2025Q3: We are not forecasting any significant increase in retail, anticipating it to stay in line with recent years. - Jason Lippert(CEO)

Can you explain the disconnect between flat retail expectations and retail growth comments? - Joseph Altobello(Raymond James)

2024Q4: We believe retail numbers will be mid- to high-end of the range due to strong retail traffic and growth in key areas like FEMA. - Jason Lippert(CEO)

Contradiction Point 5

Dealer Inventory Levels and Restocking

It involves the company's outlook on dealer inventory levels and restocking, which influences demand expectations and revenue projections.

Can you share insights on dealer sentiment and the restocking cycle timing? - Bret Jordan(Jefferies)

2025Q3: Dealers are cautious due to reduced OEM capacity, focusing on strategic restocking for the spring selling season. - Jason Lippert(CEO)

What are current dealer inventory levels in the RV and marine sectors, and how could restocking affect demand improvement? - Daniel Joseph Moore(CJS Securities)

2025Q2: Lippert: Dealers and OEMs are being cautious with inventory, leading to a slow and gradual rise in demand. RV dealers saw strong sales in May and June, reflecting a positive shift. - Jason D. Lippert(CEO)