Patrick Industries Q3 2025: Contradictions Emerge on Production, Tariff Mitigation, Operating Margins, and OEM Trends

Date of Call: October 30, 2025

Financials Results

• Revenue: $976.0M for Q3 2025, up 6% YOY (organic +4%, acquisition +4%, industry -2%)
• EPS: $1.01 per diluted share (net income $35M), compared to net income $41M in prior-year quarter; EPS included ~ $0.07 dilution from convertible notes (prior year ~$0.04)
• Gross Margin: 22.6%, compared to 23.1% in Q3 2024 (down 50 bps; decline driven by short-term model-year changeover inefficiencies)
• Operating Margin: 6.8%, compared to 8.1% in Q3 2024

Guidance:

• Full-year 2025 adjusted operating margin ~7%.
• 2025 effective tax rate ~24%–25% (Q4 ~26%).
• 2025 operating cash flow $330M–$350M; capital expenditures $75M–$85M; implied free cash flow ≥$245M.
• 2025 market outlook: RV retail down low-single digits; RV wholesale 335k–345k units; Marine retail down high-single digits, wholesale down low-single digits; Powersports wholesale down high-single digits with organic content up high-single digits; MH wholesale up low–mid-single digits; site-built starts down mid–high-single digits.
• 2026 initial view: RV wholesale up low–mid-single digits (retail flat); Marine wholesale up low-single digits (retail flat); Powersports low-single digit shipment and content growth; MH and housing starts flat to +5%; 2026 operating margin expected to improve ~70–90 bps.

Business Commentary:

* Revenue and Earnings Growth: - Patrick Industries reported net sales of $976 million for Q3 2025, up 6% from the previous year. - Organic growth accounted for more than 4% of this increase, offsetting a 2% decline in industry shipment levels.

• Operational and Strategic Investments:
• The company achieved significant content gains across all Outdoor Enthusiast markets, particularly in RVs and Marine, reflecting innovations and collaboration with OEM partners.

• Investments in digital tools, data analytics, and AI solutions are aimed at improving efficiency and reducing costs.

• End Market Performance:

• RV revenue increased 7% to $426 million, representing 44% of consolidated revenue, with RV content per unit rising 8% sequentially.

• Marine revenues grew 11% to $150 million, outperforming flat industry wholesale unit shipments, with content per unit up 15% sequentially.

• Balance Sheet and Financial Outlook:

• Total net liquidity at the end of Q3 was $779 million, enabling Patrick to support customer growth and execute a balanced capital allocation strategy.
• For 2026, the company anticipates low- to mid-single-digit RV and Marine wholesale shipments, with improved consumer confidence and lower interest rates expected to drive recovery.

Sentiment Analysis:

Overall Tone: Positive

• Management described a “solid third quarter” with net sales up 6% to $976M, highlighted content-per-unit gains across end markets, $779M net liquidity, and guidance that 2026 operating margin should improve 70–90 bps, signaling confidence in recovery and margin leverage.

Q&A:

• Question from Scott Stember (ROTH Capital Partners, LLC, Research Division): A lot has been made of some of the increased optimism coming out of Open House. What are you currently seeing from your OEM customers regarding production? What are they telegraphing as far as their desire to start ramping up production to potentially put more units into the field?
  Response: Jeff: Seeing slight production increases in October and more in November—early signs of a modest ramp, though only six production weeks remain in 2025 before year-end breaks.

• Question from Scott Stember (ROTH Capital Partners, LLC, Research Division): On the aftermarket/RecPro—can you give us an update of new SKUs or is that accelerating?
  Response: Jeff: Nearly 400–500 SKUs have been migrated into RecPro since acquisition, capacity has been added, and rollout into Marine channels is accelerating.

• Question from Scott Stember (ROTH Capital Partners, LLC, Research Division): On the 70–90 bps operating margin expansion for 2026—how much is sales leverage versus internal actions like automation and AI?
  Response: Andy Roeder: It's a combination—primarily sales leverage and content gains, plus automation/CapEx-driven efficiencies and incremental ‘nickels and dimes’ savings across the platform.

• Question from Joseph Altobello (Raymond James & Associates, Inc., Research Division): What's weighing on margin this year ahead of the 2026 improvement?
  Response: Andy Roeder: Q3 was impacted by model-change inefficiencies and short-term integration/OpEx from RecPro plus material and labor inefficiencies tied to new business wins.

• Question from Joseph Altobello (Raymond James & Associates, Inc., Research Division): What were you seeing in production and shipments in October and November—are you seeing a restock or is it noise?
  Response: Jeff: Early signs of restock potential heading into selling season given very low weeks-on-hand (14–16 wk earlier; exiting ~17–19 wk), so some restocking is expected.

• Question from Noah Zatzkin (KeyBanc Capital Markets Inc., Research Division): How are you thinking about CPU opportunity in 2026 and how do composites play into that?
  Response: Jeff: Expect 3%–5% organic growth; composites are a major driver—TAM ~ $1.5B (net addressable ~ $1B) with the team positioned to capture share through APG product development.

• Question from Noah Zatzkin (KeyBanc Capital Markets Inc., Research Division): Update on M&A and what you're seeing out there?
  Response: Andy Nemeth: Very active—pipeline cultivated across markets with increasing inbound deal flow over the past 30–45 days.

• Question from Dan Moore (CJS Securities, Inc.): Do you have a sense for what a new normal could look like for dealer weeks-on-hand when growth returns?
  Response: Andy Nemeth: Pre-pandemic was ~26–30 weeks (RV) and ~36–40 weeks (Marine); we expect levels above today but below pre-pandemic—roughly 22–24 weeks could be a reasonable range.

• Question from Dan Moore (CJS Securities, Inc.): Where do you see the most significant capacity and highest incremental margins as demand returns?
  Response: Andy Nemeth: Leverage exists across all segments; incremental opportunity is broad due to a lean operating structure and product/solutions mix.

• Question from Dan Moore (CJS Securities, Inc.): Can you quantify the impact of model-year changeover inefficiencies this quarter?
  Response: Andy Roeder: Q1–Q2 gross margin expanded ~100 bps (partly from RecPro); Q3 saw ~50 bps decline vs. prior year—expect future gross margin improvement on balance (~+50 bps ballpark).

• Question from Tristan Thomas-Martin (BMO Capital Markets Equity Research): With model year '26 pricing up mid- to high-single digits, how are consumers and dealers reacting?
  Response: Jeff: Pricing has been passed into the channel; retail activity showed pockets of strength (June/July), cooled in August; demand appears to absorb pricing with some interest-rate relief helping.

• Question from Tristan Thomas-Martin (BMO Capital Markets Equity Research): Is production mix shifting toward fifth wheels from single-axle?
  Response: Jeff: Saw modest shift toward fifth wheels in Q3 (typical seasonal pattern); expect that mix to persist into Q4.

• Question from Tristan Thomas-Martin (BMO Capital Markets Equity Research): How does the composite ~$1B addressable market break out across end markets?
  Response: Jeff: Primarily RV initially (roofing, flooring, slide-outs, interior/exterior skins), with emerging opportunity in Marine.

• Question from Craig Kennison (Robert W. Baird & Co., Research Division): What's driving Powersports' organic content growth?
  Response: Andy Nemeth: Higher attachment rates for enclosures, HVAC and other accessories plus product innovation and full-solution offerings (audio, wiring, instrumentation) are driving content gains.

• Question from Craig Kennison (Robert W. Baird & Co., Research Division): How do you manage channel conflict from RecPro direct-to-consumer?
  Response: Jeff: Minimal conflict expected—RecPro fills a prior aftermarket distribution gap and complements OEM/ dealer channels rather than displacing them.

• Question from Craig Kennison (Robert W. Baird & Co., Research Division): On Manufactured Housing, what will it take for a sustained recovery?
  Response: Andy Nemeth: Need an inflection—improved consumer confidence and lower interest rates to release pent-up demand; MH remains attractive as affordable housing with quality improvements.

• Question from Michael Albanese (The Benchmark Company, LLC, Research Division): What percent of utility side-by-sides come with enclosures?
  Response: Andy Nemeth/Jeff: Company customers suggest roughly 60%–70% carry enclosures today within the utility segment; higher than the broader market average.

Contradiction Point 1

Production and Inventory Levels

It involves differing perspectives on production and inventory levels, which can impact strategic decisions and investor expectations regarding supply chain management and demand forecasting.

What are your OEM customers currently seeing in production? - Scott Stember(ROTH Capital Partners, LLC)

2025Q3: We are seeing a slight increase in production from OEMs since October, with a small increase expected in November. The production numbers indicate potential ramping up, though with few weeks left in 2025, we'll see the impact in early 2026. - [Jeffrey Rodino](CEO)

Can you clarify the end market outlook you provided this morning, specifically for RV and marine? - Joseph Nicholas Altobello(Raymond James & Associates, Inc.)

2025Q2: We expect a seasonal slowdown due to OEMs working through inventories. - [Jeffrey M. Rodino](President)

Contradiction Point 2

Aftermarket Growth and Strategy

It addresses differing views on the growth and strategy of the aftermarket business, which is crucial for product innovation and revenue generation.

Can you provide any updates on new SKUs in the aftermarket and is this accelerating? - Scott Stember(ROTH Capital Partners, LLC)

2025Q3: We have added hundreds of SKUs from other divisions to RecPro this year, planning to accelerate this with more capacity added. We're seeing great results and expect to grow the marine portfolio within RecPro. - [Jeffrey Rodino](CEO)

What visibility do you have on aftermarket demand through RecPro, and how is it performing? - Michael Albanese(The Benchmark Company, LLC)

2025Q2: RecPro provides good aftermarket visibility. Sales are tied to new units and upgrades, benefiting from increased consumer demand. - [Jeffrey M. Rodino](President)

Contradiction Point 3

Tariff Mitigation

It involves the company's strategy and effectiveness in mitigating the impact of tariffs, which directly affects financial forecasts and operational efficiency.

What is the gross exposure to tariffs and how much is expected to be offset? - Mike Swartz (Truist Securities)

2025Q3: Tariffs are dynamic. The team is actively managing impacts. Exposure includes 5% from China, 5% from Canada and Mexico, and 5% from rest of the world. Mitigation efforts include alternative sourcing, strategic reductions, and inventory management. The goal is to minimize impacts. - [Andy Roeder](CFO)

Did the 85-bp operating margin decline stem from volume reduction or additional tariff impact? - Joe Altobello (Raymond James)

2025Q1: Andy Roeder: The biggest impact is volume reduction. This includes about 30,000 RV units and 17,000 marine units. Tariff impact is baked into our forecast, with exclusions being considered. - [Andy Roeder](CFO)

Contradiction Point 4

Operating Margin Expansion

It involves changes in financial forecasts, specifically regarding operating margin expectations, which are critical indicators for investors.

How much of the 70 to 90 bps operating margin expansion next year is due to sales leverage, and how much is internal self-help? - Scott Stember (ROTH Capital Partners, LLC)

2025Q3: Much of the margin expansion will be due to sales leverage. We'll continue to push automation initiatives and content gains, which are expected to help with margin expansion and reduce costs. - [Andrew Roeder](CFO)

Is the 85-bp operating margin decline due to volume reduction or incremental tariff impact? - Joe Altobello (Raymond James & amp; Associates, Inc.)

2025Q1: Operating margins for the fourth quarter will also be down by about 50 basis points due to the volume reduction. - [Andy Roeder](CFO)

Contradiction Point 5

Production Increase and OEM Ordering Trends

It involves the company's expectations for production increases and OEM ordering trends, which are crucial for understanding market demand and revenue projections.

What are you seeing from your OEM customers in production? - Scott Stember (ROTH Capital Partners, LLC)

2025Q3: We are seeing a slight increase in production from OEMs since October, with a small increase expected in November. - [Jeffrey Rodino](President)

What are your observations on Q1 RV OEM production rates? - Unknown Analyst (ROTH Capital)

2024Q4: We've seen an uptick in production, with a need for inventory to support the selling season. - [Jeffrey Rodino](President)