Patrick Industries Inc.

11/05/2026 | Press release | Distributed by Public on 11/05/2026 07:52

Quarterly Report for Quarter Ending September 27, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the results of operations, financial condition and cash flows of Patrick Industries, Inc. This MD&A should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-Looking Statements" on page 37 of this Report. The Company undertakes no obligation to update these forward-looking statements.
EXECUTIVE SUMMARY
Recent Events
On June 30, 2026, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with LCI Industries ("LCI") and two wholly owned merger subsidiaries of the Company. The boards of directors of both the Company and LCI unanimously approved the Merger Agreement and the transactions contemplated thereby. Under the Merger Agreement, and subject to customary closing conditions, LCI will merge with subsidiaries of the Company and become a wholly owned subsidiary of the Company. At the effective time of the merger, each issued and outstanding share of LCI common stock, par value $0.01 per share, other than certain excluded shares, will be converted into the right to receive 1.2440 shares of the Company's common stock, no par value, plus cash in lieu of fractional shares. Following completion of the transaction, existing Company shareholders are expected to own approximately 52% of the combined company, and existing LCI shareholders are expected to own approximately 48%. The transaction remains subject to customary closing conditions, including shareholder and regulatory approvals, and has not been completed as of the date of this filing.
In connection with the pending merger, the Company expects to incur additional transaction and integration-related costs, including legal, financial advisory, accounting, consulting, regulatory, filing and other related costs, some of which will be incurred regardless of whether the transaction is completed. The amount and timing of these costs cannot be estimated with certainty at this time and will depend on, among other things, the timing and outcome of required shareholder and regulatory approvals and integration planning. In addition, if the Merger Agreement is terminated under specified circumstances, the Company may be required to pay LCI a termination fee of $94.2 million. The Company expects to fund merger-related costs from cash on hand, cash from operations and/or borrowings under the revolving credit and term loan facility (the "2024 Credit Facility").
Restructuring Activities
During the third quarter of 2026, we initiated a restructuring program affecting our Manufacturing segment to align our manufacturing footprint and workforce with demand and consolidate underutilized operations. Charges totaled $2.0 million for each of the three and nine months ended September 27, 2026. We expect total program costs of approximately $4.5 million and annualized savings of approximately $10.0 million upon substantial completion of the program in the second quarter of 2027. Payments for charges incurred through September 27, 2026 are expected to be substantially completed by December 31, 2026.
Overview of Markets and Related Industry Performance
Three and Nine Months Ended September 27, 2026 Financial Overview
Recreational Vehicle ("RV") Industry
The RV industry is the Company's primary market, and the Company's RV products are sold primarily to major manufacturers of RVs, smaller original equipment manufacturers ("OEMs"), and to a lesser extent, manufacturers in adjacent industries. The principal types of recreational vehicles include (1) towables: conventional travel trailers, fifth wheels, folding camping trailers, and truck campers; and (2) motorized: class A (large motor homes), class B (van campers), and class C (small-to-mid size motor homes).
Net sales to the RV industry were 37% and 40% of the Company's net sales for the three and nine months ended September 27, 2026, respectively, and 44% and 46% for the three and nine months ended September 28, 2025, respectively. Net sales to the RV industry decreased 15% and 12% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
According to the RV Industry Association ("RVIA"), RV wholesale unit shipments for the three months ended September 27, 2026 totaled approximately 66,900 units, a decrease of 13% compared to approximately 76,500 units for the three months ended September 28, 2025. We estimate that RV industry retail unit sales decreased 14% for the three months ended September 27, 2026 compared to the prior year period. We estimate retail unit sales exceeded wholesale unit shipments in the three months ended September 27, 2026 as RV OEMs maintained lower production volumes.
According to the RVIA, RV wholesale unit shipments for the first nine months of 2026 totaled approximately 230,500 units, a decrease of 14% from approximately 267,200 units for the first nine months of 2025. While we estimate RV industry retail unit sales for the first nine months of 2026 decreased by approximately 14% compared to the first nine months of 2025, we estimate that retail unit sales exceeded wholesale unit shipments during the period as RV OEMs maintained lower production volumes.
Marine Industry
The Company's sales to the marine industry are primarily focused on the powerboat sector of the market which is comprised of four main categories: fiberglass, aluminum fishing, pontoon and ski & wake.
Net sales to the marine industry were 18% of the Company's net sales for both the three and nine months ended September 27, 2026, and 15% for both the three and nine months ended September 28, 2025. Net sales to the marine industry increased 14% and 17% in the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
Our marine revenue is generally correlated to marine industry wholesale powerboat unit shipments. According to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), wholesale powerboat unit shipments increased 8% and 1% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods. We estimate that marine industry retail powerboat unit sales decreased 10% and 6% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods, primarily due to the current macroeconomic environment faced by the end consumer, such as economic uncertainty and volatile oil prices.
Powersports Industry
Powersports is a category of motorsports which includes vehicles such as motorcycles, all-terrain vehicles ("ATVs"), side-by-sides, snowmobiles, scooters, golf carts and other personal transportation vehicles, and other related categories. Our powersports business is primarily focused on the utility and premium segments of the side-by-side market, which have been outperforming the more discretionary recreational segment. We also participate in the motorcycle and golf cart segments of the market. OEMs and dealers are actively managing field inventory levels to align dealer inventories with retail demand.
Net sales to the powersports industry were 13% and 12% of the Company's net sales for the three and nine months ended September 27, 2026, respectively, and 10% and 9% for the three and nine months ended September 28, 2025, respectively. Net sales to the powersports industry increased 30% and 29% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
Manufactured Housing ("MH") Industry
The Company's products for this market are sold primarily to major manufacturers of manufactured homes, other OEMs, and to a lesser extent, manufacturers in adjacent industries. Factors that may favorably impact demand in this industry include jobs growth, consumer confidence, favorable changes in financing regulations, a narrowing in the difference between interest rates on MH loans and mortgages on traditional residential "site-built" housing, and any improvement in conditions in the asset-backed securities markets for manufactured housing loans.
Net sales to the MH industry were 18% and 17% of the Company's net sales for the three and nine months ended September 27, 2026, respectively, and 18% and 17% for the three and nine months ended September 28, 2025, respectively. Net sales to the MH industry decreased less than 1% and 5% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
According to Company estimates based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments increased 2% and decreased 4% in the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
Industrial Market
The industrial market is comprised primarily of U.S. residential housing market and non-housing market categories and includes kitchen cabinet, countertop, hospitality, retail and commercial fixtures, and office and household furniture markets and regional distributors.
Net sales to the industrial market were 14% and 13% of the Company's net sales for the three and nine months ended September 27, 2026, respectively, and 13% in both the three and nine months ended September 28, 2025. Net sales to the industrial market increased 10% and 7% for the three and nine months ended September 27, 2026, respectively, compared to the prior year periods.
Based on U.S. Census Bureau data, combined new housing starts decreased 4% for the third quarter of 2026 compared to the prior year period, reflecting a decrease in multifamily housing starts of 9% and a decrease in single-family housing starts of 2%.
For the first nine months of 2026, combined new housing starts decreased 1% compared to the prior year period, reflecting a decrease in single-family housing starts of 4%, partially offset by an increase in multifamily housing starts of 6%. Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to six months.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 27, 2026 Compared to 2025
The following table sets forth the percentage relationship to net sales of certain items on the Company's Condensed Consolidated Statements of Income.
Three Months Ended Amount Change % Change
($ in thousands) September 27, 2026 September 28, 2025
Net sales $ 975,277 100.0 % $ 975,631 100.0 % $ (354) - %
Cost of goods sold 745,383 76.4 % 754,667 77.4 % (9,284) (1) %
Gross profit 229,894 23.6 % 220,964 22.6 % 8,930 4 %
Warehouse and delivery expenses 48,870 5.0 % 44,449 4.6 % 4,421 10 %
Selling, general and administrative expenses 107,900 11.1 % 86,022 8.8 % 21,878 25 %
Amortization of intangible assets 23,289 2.4 % 24,200 2.5 % (911) (4) %
Operating income 49,835 5.1 % 66,293 6.8 % (16,458) (25) %
Interest expense, net 18,828 1.9 % 18,451 1.9 % 377 2 %
Income taxes 9,951 1.0 % 12,539 1.3 % (2,588) (21) %
Net income $ 21,056 2.2 % $ 35,303 3.6 % $ (14,247) (40) %
Nine Months Ended
Amount Change % Change
($ in thousands) September 27, 2026 September 28, 2025
Net sales $ 3,014,153 100.0 % $ 3,026,605 100.0 % $ (12,452) - %
Cost of goods sold 2,309,824 76.6 % 2,326,418 76.9 % (16,594) (1) %
Gross profit 704,329 23.4 % 700,187 23.1 % 4,142 1 %
Warehouse and delivery expenses 144,510 4.8 % 135,106 4.5 % 9,404 7 %
Selling, general and administrative expenses 297,184 9.9 % 273,159 9.0 % 24,025 9 %
Amortization of intangible assets 71,043 2.4 % 73,338 2.4 % (2,295) (3) %
Operating income 191,592 6.4 % 218,584 7.2 % (26,992) (12) %
Interest expense, net 56,194 1.9 % 56,432 1.9 % (238) - %
Other expenses - - % 24,420 0.8 % (24,420) (100) %
Income taxes 31,441 1.0 % 31,755 1.0 % (314) (1) %
Net income $ 103,957 3.4 % $ 105,977 3.5 % $ (2,020) (2) %
Net Sales. Net sales decreased $0.4 million, or less than 1%, to $975.3 million for the three months ended September 27, 2026 compared to $975.6 million for the three months ended September 28, 2025. The decrease was driven by lower sales to the RV and MH markets, partially offset by increased sales to the powersports, marine, and industrial markets. Sales to the RV market decreased $63.6 million, or 15%, compared to the prior year period, primarily due to a decrease in wholesale unit shipments of approximately 13%. Sales to the MH market decreased $0.6 million, or less than 1%, compared to the prior year period. Sales to the powersports market increased $29.8 million, or 30%, compared to the prior year period, primarily reflecting higher attachment rates on premium utility vehicles, as well as continued solid demand for utility-focused units compared to the prior year period. Sales to the marine market increased $20.9 million, or 14%, primarily attributable to an increase in wholesale powerboat unit shipments of 8%, incremental sales from acquisitions completed in the prior year and organic growth. Sales to the industrial market increased $13.2 million, or 10%, compared to the prior year period, which is attributable to market share gains and product mix shifts by certain customers.
Net sales for the first nine months of 2026 decreased $12.5 million, or less than 1%, to $3.01 billion compared to $3.03 billion for the first nine months of 2025. The decrease was driven by lower sales to the RV and MH markets, partially offset by increased sales to the powersports, marine and industrial markets. Sales to the RV market decreased $168.2 million, or 12%, compared to the first nine months of 2025, due to a decrease in RV wholesale unit shipments of 14%. Sales to the MH market decreased $26.6 million, or 5%, compared to the first nine months of 2025, primarily due to a decrease in estimated MH industry wholesale unit shipments of approximately 4%. Sales to the powersports market increased $79.2 million, or 29%, compared to the first nine months of 2025, primarily reflecting higher attachment rates on premium utility vehicles, as well as continued solid demand for utility-focused units compared to the prior year period. Sales to the marine market increased $76.6 million, or 17%, compared to the first nine months of 2025, primarily attributable to incremental sales from acquisitions completed in 2025 and organic growth. Sales to the industrial market increased $26.6 million, or 7%, compared to the first nine months of 2025, primarily related to market share gains and product mix shifts by certain customers.
Revenue attributable to acquisitions completed in the first nine months of 2026 was $2.6 million and $4.4 million for the three and nine months ended September 27, 2026, respectively. Revenue attributable to acquisitions completed in the first nine months of 2025 was $11.0 million and $24.2 million for the three and nine months ended September 28, 2025, respectively.
Cost of Goods Sold. Cost of goods sold decreased $9.3 million, or 1%, to $745.4 million for the three months ended September 27, 2026 compared to $754.7 million for the three months ended September 28, 2025. As a percentage of net sales, cost of goods sold decreased 100 basis points in the three months ended September 27, 2026 to 76.4% compared to 77.4% in the prior year period.
For the three months ended September 27, 2026, cost of goods sold as a percentage of net sales decreased due to lower labor costs resulting from continued cost reduction and automation initiatives implemented throughout 2025 and into 2026, as well as lower material costs. Cost of goods sold as a percentage of net sales decreased in the third quarter of 2026 primarily as a result of decreases in labor and material costs of 90 and 30 basis points, respectively, partially offset by an increase in manufacturing overhead costs of 20 basis points.
Cost of goods sold decreased $16.6 million, or 1%, to $2.31 billion for the first nine months of 2026 compared to $2.33 billion for the first nine months of 2025. As a percentage of net sales, cost of goods sold decreased 30 basis points for the first nine months of 2026 to 76.6% compared to 76.9% for the first nine months of 2025.
For the nine months ended September 27, 2026, cost of goods sold as a percentage of net sales decreased due to lower labor costs resulting from continued cost reduction and automation initiatives implemented throughout 2025 and into 2026, as well as lower material costs. The decrease in cost of goods sold as a percentage of net sales for the first nine months of 2026 primarily reflected decreases of 60 and 10 basis points in labor and material costs, respectively, partially offset by a 40 basis point increase in manufacturing overhead costs. In general, the Company's cost of goods sold as a percentage of net sales may fluctuate from quarter to quarter due to changes in demand across end markets and changes in the costs of raw materials and commodity-based components used in production.
Gross Profit. Gross profit increased $8.9 million, or 4%, to $229.9 million for the three months ended September 27, 2026 compared to $221.0 million for the three months ended September 28, 2025. As a percentage of net sales, gross profit increased 100 basis points to 23.6% for the three months ended September 27, 2026 compared to prior year period.
Gross profit increased $4.1 million, or 1%, to $704.3 million for the first nine months of 2026 compared to $700.2 million in the prior year period. As a percentage of net sales, gross profit increased 30 basis points to 23.4% for the first nine months of 2026 compared to 23.1% for the prior year period. The change in gross profit as a percentage of net sales in the third quarter and first nine months of 2026 compared to the same periods in 2025 reflects the impact of the factors discussed above under "Cost of Goods Sold".
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $4.4 million, or 10%, to $48.9 million for the three months ended September 27, 2026 compared to $44.4 million for the three months ended September 28, 2025. As a percentage of net sales, warehouse and delivery expenses increased 40 basis points to 5.0% for the three months ended September 27, 2026 compared to 4.6% for the three months ended September 28, 2025.
Warehouse and delivery expenses increased $9.4 million, or 7%, to $144.5 million for the first nine months of 2026 compared to $135.1 million for the prior year period. As a percentage of net sales, warehouse and delivery expenses increased 30 basis points to 4.8% for the first nine months of 2026 compared to 4.5% for the first nine months of 2025.
The increase in warehouse and delivery expenses and increase as a percentage of net sales for the three and nine months ended September 27, 2026 compared to the same periods in 2025 is primarily related to higher fuel and freight costs.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $21.9 million, or 25%, to $107.9 million for the three months ended September 27, 2026 compared to $86.0 million for the three months ended September 28, 2025. The increase in SG&A expenses for the three months ended September 27, 2026 compared to the prior year period is primarily related to increased professional fees, which include $14.6 million of merger-related costs, incentive compensation, restructuring costs, and insurance expenses.
As a percentage of net sales, SG&A expenses increased 230 basis points to 11.1% for the three months ended September 27, 2026 compared to 8.8% in the prior year period. The increase in SG&A expenses as a percentage of net sales for the three months ended September 27, 2026 is primarily attributable to increased professional fees, incentive compensation, restructuring costs, and insurance expenses.
SG&A expenses increased $24.0 million, or 9%, to $297.2 million for the first nine months of 2026 compared to $273.2 million in the prior year period. The increase in SG&A expenses for the first nine months of 2026 compared to 2025 is primarily attributable to increased professional fees, which include $15.1 million of merger-related costs, as well as incentive compensation, technology expenses and restructuring costs.
As a percentage of net sales, SG&A expenses increased 90 basis points to 9.9% for the first nine months of 2026 compared to 9.0% in the prior year period. The increase in SG&A expenses as a percentage of net sales for the first nine months of 2026 is primarily attributable to increased professional fees, incentive compensation, technology expenses and restructuring costs.
Amortization of Intangible Assets. Amortization of intangible assets decreased $0.9 million, or 4%, to $23.3 million for the three months ended September 27, 2026 compared to $24.2 million for the three months ended September 28, 2025. Amortization of intangible assets decreased $2.3 million, or 3%, to $71.0 million for the first nine months of 2026 compared to $73.3 million in the prior year period. The decrease in amortization of intangible assets for the three and nine months ended September 27, 2026 compared to the prior year periods primarily reflects certain intangible assets that were fully amortized in the prior year.
Operating Income. Operating income decreased $16.5 million, or 25%, to $49.8 million for the three months ended September 27, 2026 compared to $66.3 million for the three months ended September 28, 2025. As a percentage of net sales, operating income decreased to 5.1% compared to 6.8% for the prior year period. The decrease in operating income and operating income as a percentage of net sales is primarily attributable to the items discussed above.
Operating income decreased $27.0 million to $191.6 million for the first nine months of 2026 compared to $218.6 million in the prior year period. Operating income as a percentage of net sales decreased to 6.4% for the first nine months of 2026 compared to 7.2% for the first nine months of 2025. The decrease in operating income and operating income as a percentage of net sales is primarily attributable to the items discussed above.
Interest Expense, Net. Interest expense increased $0.4 million, or 2%, to $18.8 million for the three months ended September 27, 2026 compared to $18.5 million for the three months ended September 28, 2025. Interest expense decreased $0.2 million, or less than 1%, to $56.2 million for the first nine months of 2026 compared to $56.4 million for the first nine months of 2025.
Other Expenses. Other expenses were $24.4 million for the nine months ended September 28, 2025, reflecting expenses related to a legal settlement.
Income Taxes. Income tax expense decreased $2.6 million for the three months ended September 27, 2026, to $10.0 million, compared to $12.5 million for the three months ended September 28, 2025. Income tax expense decreased $0.3 million for the first nine months of 2026 to $31.4 million compared to $31.8 million in the prior year period. The effective tax rate was 32.1% and 23.2% in the three and nine months ended September 27, 2026, respectively, and 26.2% and 23.1% in the three and nine months ended September 28, 2025, respectively.
The decrease in income tax expense for the three and nine months ended September 27, 2026 compared to the three and nine months ended September 28, 2025 is primarily attributable to decreased income before income taxes.
SEGMENT REPORTING
The Company's reportable segments, Manufacturing and Distribution, are based on its method of internal reporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on a variety of indicators including sales, gross profit and operating income. The Company does not measure profitability at the customer end market (RV, marine, powersports, MH and industrial) level.
Three and Nine Months Ended September 27, 2026 Compared to 2025
General
In the discussion that follows, sales attributable to the Company's reportable segments include inter-segment sales and gross profit includes the impact of inter-segment operating activity.
The table below presents information about the sales, gross profit and operating income of the Company's reportable segments. A reconciliation of consolidated net sales and operating income is presented in Note 11 "Segment Information" of the Notes to Condensed Consolidated Financial Statements.
Three Months Ended Amount Change % Change
($ in thousands) September 27, 2026 September 28, 2025
Sales
Manufacturing $ 755,018 $ 722,826 $ 32,192 4%
Distribution $ 225,205 $ 259,037 $ (33,832) (13)%
Gross Profit
Manufacturing $ 169,743 $ 158,785 $ 10,958 7%
Distribution $ 62,623 $ 59,767 $ 2,856 5%
Operating Income
Manufacturing $ 90,810 $ 84,405 $ 6,405 8%
Distribution $ 25,399 $ 23,183 $ 2,216 10%
Nine Months Ended Amount Change % Change
($ in thousands) September 27, 2026 September 28, 2025
Sales
Manufacturing $ 2,341,959 $ 2,253,833 $ 88,126 4%
Distribution $ 688,511 $ 790,611 $ (102,100) (13)%
Gross Profit
Manufacturing $ 524,162 $ 507,464 $ 16,698 3%
Distribution $ 180,138 $ 193,642 $ (13,504) (7)%
Operating Income
Manufacturing $ 289,061 $ 285,649 $ 3,412 1%
Distribution $ 67,291 $ 80,601 $ (13,310) (17)%
Manufacturing
Sales. Manufacturing segment sales increased $32.2 million, or 4%, to $755.0 million for the three months ended September 27, 2026 compared to $722.8 million for the three months ended September 28, 2025. For the first nine months of 2026, sales increased $88.1 million, or 4%, to $2.34 billion compared to $2.25 billion in the prior year period. The manufacturing segment accounted for approximately 77% and 74% of the Company's sales for the three months ended September 27, 2026 and September 28, 2025, respectively, and approximately 77% and 74% of the Company's sales for the nine months ended September 27, 2026 and September 28, 2025, respectively.
Manufacturing segment sales increased for the three months ended September 27, 2026 due to higher sales to the powersports, marine, industrial and MH markets, partially offset by decreased sales to the RV market. Sales to the powersports market increased $28.5 million, or 30%, compared to the prior year period, primarily reflecting higher attachment rates on premium utility vehicles, as well as continued solid demand for utility-focused units compared to the prior year period. Sales to the marine market increased $19.0 million, or 13%, compared to the prior year period, attributable to incremental sales from acquisitions completed in the prior year and organic growth. Sales to the industrial market increased $12.5 million, or 11%, compared to the prior year period due to market share gains and product mix shifts by certain customers. Sales to the MH market increased $7.5 million, or 10%, compared to the prior year period, primarily due to market share gains and an increase in estimated MH industry wholesale unit shipments of approximately 2%. Sales to the RV market decreased $34.6 million, or 12%, compared to the prior year period, primarily due to a decrease in estimated RV industry wholesale unit shipments of approximately 13%.
Manufacturing segment sales increased for the first nine months of 2026 compared to the same prior year period due to increased sales to the powersports, marine, industrial and MH markets, partially offset by decreased sales to the RV market. Sales to the powersports market increased $75.2 million, or 29% compared to the prior year period, primarily reflecting higher attachment rates on premium utility vehicles compared to the prior year period. Sales to the marine market increased $74.5 million, or 18%, compared to the prior year period, primarily attributable to incremental sales from acquisitions completed in the prior year and organic growth. Sales to the industrial market increased $27.0 million, or 8%, compared to the prior year period, primarily due to market share gains and product mix shifts of certain customers. Sales to the MH market increased $1.4 million, or 1%, compared to the prior year period. Sales to the RV market decreased $88.9 million, or 9%, compared to the prior year period, primarily attributable to a decrease in estimated wholesale unit shipments of 14%, partially offset by market share gains.
Manufacturing segment sales attributable to acquisitions completed in the first nine months of 2026 were $1.5 million and $2.2 million for the three and nine months ended September 27, 2026, respectively. Manufacturing segment sales attributable to acquisitions completed in the first nine months of 2025 were $11.0 million and $24.2 million for the three and nine months ended September 28, 2025, respectively.
Gross Profit. Manufacturing segment gross profit increased $11.0 million, or 7%, to $169.7 million for the three months ended September 27, 2026 compared to $158.8 million for the three months ended September 28, 2025. As a percentage of sales, gross profit increased 50 basis points to 22.5% for the three months ended September 27, 2026 compared to 22.0% for the three months ended September 28, 2025. The increase in gross profit as a percentage of sales for the three months ended September 27, 2026 compared to the prior year period is attributable to decreased manufacturing overhead, labor and material costs as a percentage of sales.
Manufacturing segment gross profit increased $16.7 million, or 3%, to $524.2 million in the first nine months of 2026 compared to $507.5 million in the first nine months of 2025. As a percentage of sales, gross profit decreased 10 basis points to 22.4% in the first nine months of 2026 compared to 22.5% in the prior year period. The decrease in gross profit as a percentage of sales in the first nine months of 2026 compared to the same period in 2025 is attributable to increased labor and overhead costs as a percentage of sales, partially offset by decreased material costs as a percentage of sales.
Operating Income. Operating income increased $6.4 million, or 8%, to $90.8 million for the three months ended September 27, 2026 compared to $84.4 million for the three months ended September 28, 2025. As a percentage of sales, operating income increased 30 basis points to 12.0% for the three months ended September 27, 2026 compared to 11.7% for the three months ended September 28, 2025. The increase in operating income and operating income as a percentage of sales is primarily attributable to the items discussed above, partially offset by an increase in operating expenses and operating expenses as a percentage of sales compared to the prior year period.
Operating income increased $3.4 million, or 1%, to $289.1 million for the first nine months of 2026 compared to $285.6 million in the prior year period. As a percentage of sales, operating income decreased 40 basis points to 12.3% in the first nine months of 2026 compared to 12.7% in the prior year period. The increase in operating income is primarily attributable to the items discussed above, partially offset by increased operating expenses, including the restructuring costs discussed above under Restructuring Activities. The decrease in operating income as a percentage of sales is primarily attributable to the items discussed above and an increase in operating expenses, including restructuring costs, as a percentage of sales compared to the prior year period.
Distribution
Sales. Distribution segment sales decreased $33.8 million, or 13%, to $225.2 million for the three months ended September 27, 2026 compared to $259.0 million for the three months ended September 28, 2025. For the first nine months of 2026, sales decreased $102.1 million, or 13%, to $688.5 million compared to $790.6 million in the prior year period. The distribution segment accounted for approximately 23% and 26% of the Company's sales for the three months ended September 27, 2026 and September 28, 2025, respectively, and approximately 23% and 26% of the Company's sales for the nine months ended September 27, 2026 and September 28, 2025, respectively.
Distribution segment sales decreased for the three months ended September 27, 2026 compared to the prior year period due to lower sales to the RV and MH markets, partially offset by increased sales to the marine, powersports, and industrial markets. Sales to the RV market decreased $29.0 million, or 22%, compared to the prior year period, primarily attributable to a decrease in estimated RV industry wholesale unit shipments of approximately 13% and product mix shifts by certain customers. Sales to the MH market decreased $8.1 million, or 8%, compared to the prior year period, primarily due to product mix shifts by certain customers, partially offset by an increase in estimated MH industry wholesale unit shipments of approximately 2%. Sales to the marine market increased $1.8 million, or 19%, compared to the prior year period. Sales to the powersports market increased $1.3 million, or 34%, compared to the prior year period. Sales to the industrial market increased $0.7 million, or 7%, compared to the prior year period.
Distribution segment sales decreased for the first nine months of 2026 compared to the first nine months of 2025 due to lower sales to the RV, MH and industrial markets, partially offset by increased sales to the powersports and marine markets. Sales to the RV market decreased $79.3 million, or 19%, compared to the first nine months of 2025, due to a decrease in estimated RV industry wholesale unit shipments of approximately 14% and product mix shifts by certain customers. Sales to the MH market decreased $28.0 million, or 9%, compared to the first nine months of 2025, primarily due to a decrease in estimated MH industry wholesale unit shipments of approximately 4%. Sales to the industrial market decreased $0.4 million, or 1%, compared to the first nine months of 2025. Sales to the powersports market increased $3.9 million, or 32%, compared to the first nine months of 2025, primarily reflecting higher attachment rates on premium
utility vehicles compared to the prior year period. Sales to the marine market increased $2.0 million, or 7%, compared to the first nine months of 2025.
Distribution segment sales attributable to acquisitions completed in the first nine months of 2026 were $1.1 million and $2.1 million for the three and nine months ended September 27, 2026, respectively.
Gross Profit. Distribution segment gross profit increased $2.9 million, or 5%, to $62.6 million for the three months ended September 27, 2026 compared to $59.8 million for the three months ended September 28, 2025. As a percentage of sales, gross profit increased 470 basis points to 27.8% for the three months ended September 27, 2026 compared to 23.1% in the prior year period. The increase in gross profit as a percentage of sales for the three months ended September 27, 2026 compared to the prior year period is attributable to a decrease in labor and material costs as a percentage of sales.
Distribution segment gross profit decreased $13.5 million, or 7%, to $180.1 million for the first nine months of 2026 compared to $193.6 million for the first nine months of 2025. As a percentage of sales, gross profit increased 170 basis points to 26.2% for the first nine months of 2026 compared to 24.5% in the prior year period. The increase in gross profit as a percentage of sales for the first nine months of 2026 compared to the prior year period is attributable to a decrease in labor as a percentage of sales, partially offset by an increase in material costs as a percentage of sales.
Operating Income. Operating income increased $2.2 million, or 10%, to $25.4 million for the three months ended September 27, 2026 compared to $23.2 million for the three months ended September 28, 2025. As a percentage of sales, operating income increased 240 basis points to 11.3% for the three months ended September 27, 2026 compared to 8.9% in the same period in 2025. The increase in operating income and operating income as a percentage of sales is primarily related to the items discussed above, partially offset by higher operating expenses and operating expenses as a percentage of sales compared to the prior year period.
Operating income decreased $13.3 million, or 17%, to $67.3 million in the first nine months of 2026 compared to $80.6 million in the prior year period. As a percentage of sales, operating income decreased 40 basis points to 9.8% in the first nine months of 2026 compared to 10.2% in the same period in 2025. The decrease in operating income primarily reflects the items discussed above, partially offset by a decrease in operating expenses. The decrease in operating income as a percentage of sales is primarily attributable to the items discussed above and an increase in operating expenses as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations, available cash reserves and borrowing capacity available under the 2024 Credit Facility, as discussed in Note 8 "Debt" of the Notes to Condensed Consolidated Financial Statements. Our liquidity as of September 27, 2026 consisted of cash and cash equivalents of $16.0 million and $700.4 million of availability under the 2024 Credit Facility, net of $8.6 million of outstanding letters of credit.
As of September 27, 2026, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under the 2024 Credit Facility are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on the Company's current cash flow budgets and forecast of short-term and long-term liquidity needs.
Principal uses of cash are to support working capital demands, meet debt service requirements and support the Company's capital allocation strategy, which includes acquisitions, capital expenditures, dividends and repurchases of the Company's common stock, among others.
Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, marine, powersports, MH and industrial markets we serve, the timing of deliveries, and the payment cycles of customers. In the event that operating cash flow is inadequate and one or more of the Company's capital resources were to become unavailable, the Company would seek to revise its operating strategies accordingly. The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capital market conditions, and other relevant circumstances.
As of and for the reporting period ended September 27, 2026, the Company was in compliance with its financial covenants as required under the terms of the credit agreement that established the 2024 Credit Facility (the "2024 Credit Agreement"). The required maximum consolidated secured net leverage ratio and the required minimum consolidated interest coverage ratio, as such ratios are defined in the 2024 Credit Agreement, compared to the actual amounts as of September 27, 2026 and for the fiscal period then ended are as follows:
Required Actual
Consolidated secured net leverage ratio (12-month period) 2.75 0.55
Consolidated interest coverage ratio (12-month period) 3.00 6.52
In addition, as of September 27, 2026, the Company's consolidated total net leverage ratio (12-month period) was 2.91. While this ratio is not a covenant under the 2024 Credit Agreement, it is used in determining the applicable borrowing margin under the 2024 Credit Agreement.
Cash Flows
Operating Activities: Cash flows from operating activities are one of the Company's primary sources of liquidity, representing the net income the Company earned in the reported periods, adjusted for certain non-cash items and changes in operating assets and liabilities.
Net cash provided by operating activities was $146.6 million for the nine months ended September 27, 2026 compared to $198.6 million for the nine months ended September 28, 2025. The decrease in operating cash flows is primarily attributable to a $102.0 million use of cash from operating assets and liabilities, net of business acquisitions, compared to a $74.8 million use of cash in the prior year period, a use of cash of $6.2 million relating to deferred income taxes in 2026 compared to a source of cash of $21.8 million in the prior year period, and a $2.0 million decrease in net income compared to the nine months ended September 28, 2025.
Investing Activities: Net cash used in investing activities decreased $57.5 million to $79.4 million for the nine months ended September 27, 2026 compared to $136.9 million for the nine months ended September 28, 2025 due to a decrease in cash used in business acquisitions, which were $23.1 million for the nine months ended September 27, 2026 compared to $70.3 million for the nine months ended September 28, 2025 and a decrease in purchases of property, plant and equipment, which were $55.8 million for the nine months ended September 27, 2026 compared to $64.7 million for the nine months ended September 28, 2025.
Financing Activities: Net cash used in financing activities increased $3.0 million to $77.6 million for the nine months ended September 27, 2026 compared to $74.5 million for the nine months ended September 28, 2025, primarily due to increased stock repurchases of $106.1 million compared to $32.0 million in the prior year period and increased cash dividends of $46.1 million compared to $40.0 million in the prior year period, partially offset by net borrowings under our revolving credit facility of $91.0 million compared to net borrowings of $10.0 million for the nine months ended September 28, 2025.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1, "Basis of Presentation and Significant Accounting Policies" to the accompanying Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 19, 2026.
OTHER
Seasonality
Manufacturing operations in the RV, marine, powersports and MH industries historically have been seasonal and at their highest levels when the weather is moderate. Accordingly, the Company's sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August-September timeframe and marine open houses in the December-February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs, powersports and marine units and other products for which the Company sells its components, as well as fluctuations in RV, powersports and marine dealer inventories, increased volatility in demand from RV, powersports and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc., the pending business combination of the Company and LCI Industries, including the expected timing of the consummation of the business combination, and other matters from time to time and desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing "Management's Discussion and Analysis of Financial Condition and Results of Operations", as well as other statements contained in this quarterly report and statements contained in future filings with the Securities and Exchange Commission ("SEC"), publicly disseminated press releases, quarterly earnings conference calls, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from those set forth in such forward-looking statement. The Company does not undertake to publicly update or revise any forward-looking statements. Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025, and in the Company's Forms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC's website at www.sec.gov.
Patrick Industries Inc. published this content on November 05, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 05, 2026 at 13:52 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]