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Patrick Industries Inc. (NASDAQ: PATK) Third Quarter 2021 Earnings Conference Call, October 28, 2021, 10:00 AM Eastern Time
Good morning, ladies and gentlemen, and welcome to Patrick Industries' third quarter 2021 earnings conference call. My name is Robert, and I will be the operator of your call today. 【Instructions】
I will now transfer the call to Ms. Julie Ann Kotowski from the Investor Relations Department. Thank you. You can start.
Julie Ann Kotowski - Investor Relations
Good morning everyone, and welcome to call us this morning. Today, CEO Andy Nemeth (Andy Nemeth) joined my conference call; Jeff Rodino, President; and CFO Jack Petkovic. In accordance with securities laws, certain statements regarding Patrick Industries and its operations made during today's conference call may be considered forward-looking statements. There are many factors (many of which are beyond the company's control) that could cause actual results and events to differ materially from those described in the forward-looking statements. These factors have been identified in our press release, form 10-K as of 2020, and other documents we file with the U.S. Securities and Exchange Commission. We assume no obligation to update these statements to reflect circumstances or events that occurred after the date of the forward-looking statement.
I now want to forward the call to Andy Nemeth.
Andy L. Nemeth - CEO
Thank you, Julianne. Good morning, ladies and gentlemen, thank you for joining our conference call today. Once again, we are pleased to report strong growth in revenue and profit this quarter, and the end market backlog of orders for all our major market platforms continues to grow. The tremendous effort, dedication and flexibility of our team in this highly turbulent supply chain and labor environment proves their willingness to take care of customers and their ingenuity to navigate difficult trends ingeniously.
The partnership with our customers is very real and tangible. Our sales and operations professionals tirelessly continue to work closely with their counterparts in customer operations to understand what is happening in real time, manage changing production schedules, and work hard to predict demand in this ever-changing dynamic environment. On this basis, we focus on investing in our culture, infrastructure and automation tools, which will enable our team members to complete their work better and more efficiently, and create better products based on customer needs and business models Balance and scale up. .
Technology and data-driven solutions are just one of the strategic initiatives we are investing in, and are our main focus to support and empower our team and customers to collaborate, analyze opportunities, and improve the quality and delivery of our products and services. This includes artificial intelligence and machine learning and cloud-based solutions that transform low-resolution decision-making and data silos into high-resolution collaborative solutions and deliverables.
Our employees and our high value on human capital and its significance for our future success remain the focus of our business. Our community and team member initiatives continue to strengthen our better cooperation, better community philosophy, and provide our team members with opportunities to seek charity and volunteer opportunities at the organizational and brand level. In addition, our new community outreach committee is entirely initiated, created and led by employees, and promotes our team’s commitment to serving the community through the development of charity programs and volunteer activities using grassroots methods.
Our geographic footprint continues to expand organically and strategically to meet the needs of the markets we serve. We continue to actively cultivate our acquisition channels and evaluation opportunities to complement our leisure lifestyle and housing solution portfolio, and expand our existing product capabilities and solution models in other parts of the country to better serve our Customer base. Trends in our main end markets are still very positive, all industries need to carry out channel replenishment, and the visibility of wholesale demand is likely to continue until 2022 and 2023.
Although the shortage of raw materials for many different commodities and products currently restricts retail sales, among new and old buyers, the retail traffic of RVs and marine dealers is still strong. The benefits of a casual lifestyle are now part of the mainstream narrative, and this narrative is growing on its own. The strong state of the residential market continues to ideally position our industrial and manufactured housing business model as a viable component solution, with the exception of expensive and widespread DIY and home renovation activities.
The casual lifestyle market accounted for 76% of our revenue this quarter and continues to be driven by strong consumer demand, traffic and momentum, which continues to deplete dealer inventory. In terms of RVs, private campgrounds are planned to continue to develop to accommodate new populations entering the RV space and to absorb overflow from national parks, which continue to maintain capacity. At the same time, federal and state agencies are increasingly seeking to provide camping opportunities to expand the fun of RV camping.
Transportation policies for the migration of RVs and marine cities to suburbs and rural areas and work from anywhere are becoming more and more common, which has also translated into demand for all types of RVs and boats. In our housing and industrial markets, which together accounted for approximately 24% of our revenue in the third quarter, fiercely competitive housing demand continues to exist. The popularity of DIY, renovation and home improvement trends continues to inspire home consumers.
As we used a fixed cost structure to increase gross profit margin and operating profit margin, operating income, net income and diluted earnings per share, the above-mentioned strong terminal market conditions once again released profitability. Compared with the third quarter of 2020, our third quarter revenue was US$1.1 billion, an increase of 51%, or US$360 million. Our net income increased by 54% to more than US$57 million, and our diluted earnings per share was US$2.45.
I will now forward the call to Jeff Rodino, who will provide more detailed information about our terminal market.
Jeffrey M. Rodino - President
Thanks, Andy, good morning everyone. Our RV revenue increased by US$212 million or 50% in the third quarter, accounting for 60% of our consolidated sales. RV wholesale unit shipments increased by 23%, totaling approximately 152,000 units this quarter. We currently estimate that retail unit shipments will drop by 15% to 20%, mainly due to low channel inventory or approximately 145,000 to 155,000 units sold during the same period. Although retail shipments have declined compared with the third quarter of 2020, since the beginning of the year, retail still surpasses wholesale, and matches with wholesale every quarter.
The speed of dealer inventory turnover continues to indicate that wholesale shipments cannot meet potential consumer demand, especially considering the growing OEM backlog and the further extension of dealer inventory replenishment cycles. Replenishment to meet customer needs has not yet occurred. Our estimates indicate that due to the 15% to 20% increase in TTM retail shipments over the same period, dealer inventory has declined slightly year-on-year. In the maritime business, the retail trend is parallel to RV and continues to exceed wholesale shipments. The difference between wholesale and retail shipments indicates that the motorboat inventory of dealer batches continues to deplete, resulting in a similarly extended replenishment cycle.
Our shipping revenue was US$173 million, which accounted for 16% of our sales, and due to our organic and strategic efforts, the percentage of our portfolio increased by US$80 million or 85% during the quarter. It is estimated that shipments of seaborne wholesale units have increased by 15% during the same period. We estimate that ocean retail shipments fell by 35% to 40% during the quarter, transforming to 47,000 to 52,000 units, again not due to insufficient demand, but due to lack of available-for-sale inventory. Compared with the estimated 35,000 seaborne wholesale shipments, based on our estimates of OEM and distributor channel inspections, this channel continues to be severely depleted and may be replenished until 2023.
As the dynamics of wealth and family formation reach the desired level, new entrants to the marine market are further promoting network effects and generating demand at key population touchpoints. Outdoor leisure trends such as fiberglass, pontoons, skiing, wakes, and fishing continue to be driven by the desire to use marine leisure activities as a way to spend time with family and friends, supported by favorable weather conditions, which are expanding retail demand trends. Our estimates indicate that marine distributor inventories for TTM retail shipments fell by 50% to 55%, and were roughly flat to a drop of 5% during the same period.
As manufacturers in the marine sector are striving to increase production levels to support huge demand, the demand trajectory for marine wholesale unit shipments is smooth. Overall, our leisure lifestyle market is ideally positioned to support continued growth and is expected to continue to benefit from the tailwind of lean inventory, attractive interest rate environment, attractive outdoor leisure value proposition, strong demographic trends, and consumption Credit and liquidity and expansion have new buyers entering the market every day. According to our inspection, price inflation has yet to have an impact on consumers.
Retail demand has not weakened. We believe that based on our estimates and current market conditions, the leisure lifestyle market is expected to continue to strengthen in 2022 and 2023. Now turning to the housing and industrial aspects of the business. In the quarter, new single-family housing starts increased by 5%, and multi-family housing starts increased by 19%. The demand for construction supplies remains strong, driven not only by the construction of single-family houses and multi-family houses, but also by home improvement projects and related DIY activities, indicating that the demand trajectory in 2022 will continue to improve. Housing demand is supported by structural and demographic trends, and low interest rates, supporting the rate of migration from urban to suburban areas and family formation patterns, providing more and more opportunities for our MH and industrial markets in the single- and multi-family improvement and repair/renovation markets. More verification.
The tightening of the housing market and the relative affordability of man-made housing represent a strong driving force for our housing and industrial markets. Changes in the migration of household expenditures between cities, suburbs and states and the continued increase in the backlog of builders and MH indicate supply demand trends, which we believe will lead to continued growth in our industrial and MH end markets in 2022 and beyond. Our manufactured home sales were US$135 million, accounting for 13% of total revenue for the quarter, an increase of 25% from the third quarter of 2020, and MH wholesale unit shipments are expected to increase by 9% to 10%.
OEMs continue to make progress in dealing with the large backlog of orders, as MH OEMs even reduce production levels by addressing the current supply chain challenges in all markets, and the run rate is now trending towards a wholesale unit shipment level that has not been seen since 2011. The revenue of our industrial market segment, mainly residential and home improvement-related sales, was US$119 million, accounting for 11% of our overall sales portfolio in the third quarter, an increase of 52% over the previous year. The rate of new housing starts in the third quarter increased by 9%. We continue to allocate resources based on trends in our four major markets and customer motivation.
Considering and creatively predicting and establishing inventory, paying attention to the convenience facilities and functions that customers continue to demand, we use human capital, technology and talent release capabilities to promote task dynamic navigation and forecast our supply chain and our strict capital allocation and financing strategies. Our business remains flexible and agile in 2022 and beyond. As Andy said, we are investing in data-driven solutions, automation, artificial intelligence, machine learning support solutions, and special equipment connected to a unified data platform. These high-resolution solutions can and will continue to enable our team members to better balance and serve our customers at the highest level.
I will now forward the call to Jack, who will provide more comments on our financial performance.
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Thanks, Jeff, good morning everyone. Driven by growth in all four major end markets, our consolidated net sales in the third quarter increased by 51% to US$1.1 billion. Revenue from our leisure lifestyle market (comprised of RV and nautical) increased by 57%, of which revenue from RV and nautical increased by 50% and 85%, respectively. The RV content per unit increased by 19% to US$3,735 per unit, and it is estimated that the ocean content per unit increased by approximately 66% to US$3,166 per unit. Revenue from our housing and industrial markets increased by 36% this quarter, of which MH revenue increased by 25% from the previous year, and industrial revenue increased by 52% from the previous year. It is estimated that the MH content per unit has increased by 10%, reaching US$4,961 per unit.
The gross profit margin in the third quarter was 19.6%, an increase of 50 basis points over the previous year. The increase in gross profit margin is mainly due to the leverage of our fixed costs and the tactical execution of our team’s production and operational efficiency. We continue to realize that due to our investment in processes and technologies, we maximize the efficiency of production and delivery of our products And the contribution of profit growth acquisitions. As our scale of operations benefited from the increase in activity and our associated leverage on fixed costs, warehousing and delivery expenses fell by 20 basis points.
Operating expenses accounted for 10.8% of sales, compared to 10.5% in 2020. This is attributable to the increase in SG&A, reflecting the investment in personnel and human capital management plans. As a result of the continued deliberate strategy implementation this quarter, operating income in the third quarter was US$93 million, an increase of 56%, and an operating profit margin of 8.8%, an increase of 30 basis points. Our diluted earnings per share for the second quarter was US$2.45, an increase of 51% from last year’s US$1.62. In the third quarter of 2021, our overall effective tax rate increased from 24.3% last year to 26.3%. We expect the overall effective tax rate for the full year of 2021 to be approximately 24% to 25%.
Expect cash flow. We generated approximately $69 million in operating cash flow in the third quarter of 2021, compared with $73 million in the same period last year. We actively ensured inventory for OEMs this quarter supported our strong operating performance. At the same time, as a standardized supply chain model begins to take shape, this inventory investment will eventually translate into an acceleration of the cash conversion cycle. The scale and scale of our business, coupled with our strong liquidity, enables us to strategically intervene in the context of a highly competitive and unstable supply chain to ensure materials and products for our customers.
In accordance with our strict capital allocation strategy, we invested US$18 million in capital expenditures during the quarter to support information technology plans, including automation and production capacity, and capacity expansion to support growing end market demand. Business acquisitions in the third quarter of 2021 include the previously announced acquisition of Coyote Manufacturing, which is a leading design manufacturer and manufacturer of various steel and aluminum products mainly for the marine OEM market, and Tumacs Covers, a leading custom design Manufacturers of boat covers, canvas frames and bimini tops, mainly serving original equipment manufacturers and distributors of ships.
Both acquisitions represent the continuation of our strategic expansion of our marine product portfolio and customer marine solutions capabilities. In the third quarter, according to our dividend policy, we returned $6 million to shareholders in the form of quarterly dividends, and further deployed $10 million in the form of opportunistic stock repurchases. As of the end of the third quarter, we had approximately US$454 million in total liquidity, including US$45 million in cash on hand, a revolving credit facility of US$409 million in unused capacity, and a total net leverage ratio of 2.2 times. Our comfortable leverage and strong liquidity enable us to promote our strategic growth plan while providing resources to support the success of our customers' production needs.
Our current RV wholesale shipments are estimated to point to a range of 595,000 to 605,000 units throughout the year. Based on current market conditions and trends, we currently estimate that RV retail sales will achieve low double-digit growth throughout the year. We currently predict that compared with the full year of 2020, the shipment volume of seaborne wholesale units will increase by 15% to 20%, and the retail volume will be between 190,000 and 200,000 pieces, which is expected to drop to the low single digits, that is, the sales volume will be 210,000. Between 220,000 pieces, available dealer inventory becomes a limiting factor in retail space. Based on these estimates and continued strong retail demand expectations, we believe that channel inventory in the RV and marine markets is still far below recent historical levels, and a new normal related to dealer-level inventory weeks has taken shape. We believe that according to us According to estimates, the expected new normal related to inventory levels may not be readjusted until the end of 2022 and 2023.
For fiscal year 2022, we currently estimate that RV wholesale unit shipments will rise to mid-single digits. We estimate that seaborne wholesale unit shipments will increase by 15% to 20%. For RV retail, we estimate it will drop to the mid-single digits. For seaborne retail, we estimate that it will reach mid-to-low single digits. In the manufactured housing and industrial markets, we currently expect MH wholesale unit shipments to grow in the mid-to-low double digits in 2021, and the start of new homes will continue to maintain a strong double-digit growth trajectory in 2021. For fiscal year 2022, we currently estimate that the current trends in our housing and industrial markets will continue, with unit growth in both markets reaching mid-to-high single digits.
Our strong cash flow and liquidity support investment in our terminal market platform. We estimate that the operating cash flow for the full year of 2021 will be approximately US$300 million, and capital expenditures will be between US$55 million and US$60 million. This reflects the increase in investment in automation projects to offset the expected continued tight labor market and long-term demand expectations. Can continue to support and promote the organic growth of all our end markets. This concludes my speech.
I want to kick the ball over the table to Andy.
Andy L. Nemeth - CEO
Thanks, Jack. As mentioned earlier, we are well-known in the terminal market. Retail and wholesale demand patterns and forecasts continue to point to dealer replenishment in 22 and 2023 and the resulting extension of OEM production demand. We have been actively paying attention to and investing in automation and innovation opportunities and initiatives across the platform, as we plan for fiscal year 2022 and beyond to enhance and promote scalability, flexibility, efficiency, and continuous improvement and cooperation with team members on our platform. balance.
In addition, supported by our strong liquidity and investment in technology, systems, and human capital, the ongoing supply chain plan will continue to serve our customers as they flexibly adjust models and work hard to replenish exhausted dealerships. Times and reduce the backlog of records. We will continue to maintain a patient, rigorous and focused capital allocation strategy based on data and detailed models to create long-term value for our customers, shareholders, team members, partners and the communities in which we operate.
As we work together to continuously improve and cultivate our team culture, the enhancement and well-being of our 11,000 and growing team members is an important focus of our resources. Their dedication and outstanding execution during the quarter complemented our investment and their success, and will drive us to innovate and provide quality products through a solution-based, customer-centric model, as well as reliable, focused, and trustworthy High-quality services to unlock fragmented markets.
This concludes our prepared comments. We are now ready to answer questions.
[Operator Instructions] Our first question comes from Daniel Moore of CJS Securities.
Daniel Moore-CJS Securities-Analyst
Good morning, congratulations on your strong performance. To quickly clarify, the outlook for 2022, let me see if I got it right, the wholesale price of RV has risen in the mid-single digits, and the retail sales have fallen to the mid-single digits. Is that correct?
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
That's right, Dan. Good morning!
Daniel Moore-CJS Securities-Analyst
And ocean in the retail teens, maybe single digits?
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
this is correct. We believe that the retail industry has grown in low to mid-single digits.
Daniel Moore-CJS Securities-Analyst
understood. It is very helpful to make sure that I type fast enough. Let's go back to the profit margin, which was very strong this quarter, especially considering the rampant inflation and supply chain challenges that everyone sees.
I want to know if you can quantify the impact of these on gross margins and operating margins this quarter. In other words, what might the profit margin be in a more stable or normal operating environment?
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Burden. Again, this is Jack. Therefore, we continue to see profit margins, as we have seen this year-our business has seen a fairly strong increase in raw material costs, but our team in this area is able to work closely with our customers to ensure that we This information can be passed on. As you know, these products are passing through the entire value chain and are still serving consumers. So those-the ability to pass these prices and include them in the pricing of our products-continue to be successful. As we have discussed in the past, there is a slight 30-day delay, which works well with our inventory days and can help us solve these problems. As we have said for a long time, we have a highly variable cost structure, and we consider it in the context of these key variable costs, namely the cost of materials, then the labor itself, and then the overhead.
With the decline and flow of production, we have many good opportunities to continue to manage these costs. However, when I consider the gross margin, one of our most concerned areas is this quarter, you will see some tensions are happening, we have seen some raw material pricing, which must have risen, but sometimes there are availability, we are on the spot Purchase to make up for some of the availability of some of our distribution suppliers. But at other times, we saw some freight, freight has always been a considerable headline news, which will definitely lead to increased costs. But you start to strip away those more plots or current topics. I will tell you that at that level, we may see a little improvement of about twenty or thirty basis points.
Daniel Moore-CJS Securities-Analyst
It's really helpful. Then, when we consider the operating profit margin in the fourth quarter, considering the typical seasonal and holiday shutdowns, there may be a slight decline? Or do we think the level in the third quarter is sustainable?
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Yes. Good question, Dan. Again, this is Jack. We expected at the beginning of this year that we would increase our operating margins. I think we start with 100 basis points in fiscal 2020. We have adjusted it to 130 to 150 basis points, which is 130 to 150 basis points higher than the 7% figure we have, and we will continue to support this. As far as you are concerned, we see some downtime in the fourth quarter. We will see this in November, and around the Thanksgiving holiday, we hope that all of our customers and ourselves will be able to take a break around Christmas and other holidays in late December. With this, you will see a little less absorption, but you will also see a large amount of working capital monetization, which is moving towards our $300 million operating cash flow figure. But in this way, the average operating margin will drop from its 8.8%, but we are still very satisfied with the 130 to 150 we have been talking about since the first quarter.
Our next question comes from Scott Stember and CL King.
Scott Stember - CL King - Analyst
morning everyone! Congratulations also on the great quarter. Can you analyze a little bit about the expectations of the retail industry in the leisure market, RV and the ocean. You talked about, I think, in terms of RV, availability will be one of the biggest limiting factors. However, next year there will be such a big difference between RV and the ocean, is there any other reason?
Andy L. Nemeth - CEO
Scott, this is Andy. Thank you for your question. I think when we look at inventory calibration and inventory availability, what we see is that seaborne retail is very strong, and RV retail is very strong. Seaborne retail has increased inventory at a faster rate and reduced inventory. A few months ago, we started to see a decline in seaborne retail, and as we mentioned, this is indeed a result of availability. Two months later, RV followed closely. So what we see today is definitely that availability is a problem for dealers and the traffic is still strong. One thing-actually we got a little COVID or surge from the variant earlier this year, and then it settled down, and we still see strong new buyer traffic from all the lots where we are today. So our point is, first of all, as we mentioned, the inventory channel is severely depleted. Second, it is now restricting retail, but we have not seen any decline in retail traffic and interest. So from our point of view, this is purely related to today's inventory.
Scott Stember - CL King - Analyst
understood. And then related to price increases, OEM manufacturers continue to push prices up, and worry about protecting the backlog as the backlog continues to be launched more and more. What are you listening to? If the OEM eventually has to work with distributors to protect the backlog, do you expect any potential resistance from the OEM? Do you have anything to get back?
Andy L. Nemeth - CEO
I think our current expectation is that the raw material market is still really rising in the commodity areas we are dealing with and the products we are dealing with. So I want to say that they are somewhat stable, but they are still at a high level. Therefore, we will continue to work with our customers and remain proactive in this partnership, because we are able to manage costs and input costs, so we will definitely share this in both positive and negative aspects. Therefore, our expectation is that we will continue to work with the customer base again to ensure that we stay in touch with them and help them as they continue to push for pricing and can recover the pricing. I think everyone will definitely be pleased with the decline in commodity prices in order to be able to continue to stimulate the huge activity there. Therefore, no matter which way, we will cooperate.
Scott Stember - CL King - Analyst
understood. Then, Jack, the last chore. Organic sales, what is this quarter, just filling between industry and Patrick-specific growth?
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Yes. Of course, Scott. It's Jack again. As we said, it increased by 51% month-on-month and 4% month-on-month. Therefore, this kind of chain growth of 51%, I will tell you that the way to consider 16% to 18% is acquisition, so acquisitions that did not appear in the acquisition increased by 16% to 18% in the third quarter of 2020. Industry growth is about 19% to 20%. We take into account the net value of the industry and acquisitions, of which approximately 3% is due to some market share growth, and the rest comes from pricing and other activities.
Our next question comes from Daniel Moore of CJS Securities.
Daniel Moore-CJS Securities-Analyst
thanks again. When you talk about the new normal in terms of inventory levels, based on your outlook for retail, in terms of units, from your point of view, we need to replenish in the next year as well as RV and shipping.
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Yes, Dan, thank you. We have thought a lot about this and where it will take us. But at the same time, we are thinking about the trend this year. Maybe you can go back a little bit. As we transition this year, I think at the beginning, we expect the retail industry to - or rather, the wholesale industry to surpass the retail industry. Many factors, including the delta proliferation mentioned by Andy, have led to the adoption of leisure lifestyle activities for the outdoors, friends and family, and all these wonderful things that really change the way people interact with us and our customers continue to show strong retail sales this year. Push us.
Therefore, as we have passed the year to date, we have just reached the point where wholesale and retail have reached a certain level. I think this quarter, especially if you think that September is a record year for wholesale shipments, a record month instead of 55,000 wholesale shipments. It has finally reached the point where there is a little replenishment activity. But we still consider inventory levels. Those who sell at retail outlets are still 60% to 70% below pre-pandemic levels. And there are a lot of discussions about units that have been eliminated over time due to the imbalance between supply and demand, which involves RVs and shipping.
When it comes to lack of inventory and backward value chain work, we have very similar views on them, how to try to improve some. When we consider this, it brings us into-2023 is still a pretty strong production year, as evidenced by some facts and data we think, who we think will rise and who will be flat. This really means So, by 2023, we will still see a very strong production year. Therefore, in the balance of 2022 and 2023, we will make up for the loss of inventory, which will take us to complete our replenishment activities. Many things have been talked about in the past year, which has become the new normal.
I think when people find the right inventory speed, it looks more like a pendulum swing. But in the final analysis, we fully expect it to be somewhere north of today's location, and at a lower level than before the pandemic. Whether 80,000 or 90,000 units have been added to the RV, this may be an accurate landing place. I think it will take a while to get used to where you input the unit and output the equivalent unit again. So when people find the right rhythm, it will be a little wobbly. But we expect that until we enter-possibly the end of 2022, we may start to see more of this in the first quarter-the first half of 2023.
Marine, fully expects to follow the same rhythm. In past conference calls, we have talked many times that RV really benefits from its ability to scale up very, very quickly, because its geographic concentration is not only the original equipment manufacturer, but also the entirety of us and others like us. Supply base. Marine is more dispersed among different types of offshore units and their sales to different regions across the United States. This is why it slowed down a little bit. Therefore, when you encounter this situation, COVID will hit and you will switch to a casual lifestyle, we again tend to believe that it has some real legs and is very long lasting.
It does consume faster than other methods, and its ability to replenish inventory levels is slower. Therefore, we believe that this will take longer than RV before you start looking for a new normal, and it may go deeper into 2023. Again, I think that is lower than today's level before the pandemic. I think the shortage in many places is a little bit-even worse than what you see in RV. But if you think about the units again, is there an increase of about 70,000 units, that is-it still needs these numbers to reach a certain level, they are in a certain middle ground and feel good in and out of speed, everyone is in This level has been reached throughout the entire value chain.
Andy L. Nemeth - CEO
Dan, this is Andy. I just want to add one point. When we look at our numbers and our expectations for 2021 and 2022, we include the new normal in where we estimate the end of 2022. I think we would like to see some seasonality at this point in time to give our team a break in the fourth quarter. Therefore, when you see some fluctuations in OEM shipments and retail sales, the backlog is still strong. People take units. We want to see a little seasonality and give the team a break. Therefore, we are not so focused on each month and annualize it because we have simulated some seasonality in our plan, but it still did not let us meet our expectations until the end of 2022.
Daniel Moore-CJS Securities-Analyst
excellent. When you look at the supply chain, labor, and everything else, your RV outlook will mean that the average monthly shipments are between more than 500,000, 52,000, 53,000, and 54,000. What you see now makes you and your -You and your OEM are satisfied and can handle it.
Jeffrey M. Rodino - President
Yes. Dan, this is Jeff. We agree with this. We maintain a good grasp of the production level of the ship and RV industry, and believe that there is still strong activity, but for the rest of this year, its output will be between 48,000 and 52,000, and then we will see as we enter 2022 , Things will start to rise from there.
Daniel Moore-CJS Securities-Analyst
understood. If you indulge me one or two more. Does it make any sense to some of the automation and artificial intelligence initiatives and potential benefits you are pursuing? Any comments there will be interesting and helpful.
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Yes. Say it again, Dan, this is Jack. So if you look at our capital expenditures, we have already made $18 million in this quarter and about $44 million this year. Using year-to-date figures, 44 million U.S. dollars, of which approximately 30 million U.S. dollars is used for capacity expansion. In capacity expansion, about US$20 million to US$21 million have moved away from an absolute physical factory. We purchased a lot for our transportation business and then improved it so that they can efficiently move around their new building and carry out Ventilation, for example.
Therefore, more than 200,000 US dollars of this are real mechanical capital expenditures and expansion, productivity improvement, in fact all of these include some heavy-duty automation elements with software and various robotics, because we are trying to find one that uses less Money is a better way to do more things, so that we can reduce waste, increase our productivity, and alleviate some of the difficulties in hiring people to meet increased production demands. So we are really focused. There is also a software element.
We are investing in the entire enterprise, from the machinery to the workshop to the factory level of the supervisor's office, all the way to our so-called headquarters in Elkhart. What do we think about our ability to acquire and analyze information-in a more complex way, whether it is the automation of the accounting prepayment function, or the implementation of the first stage to the second stage as we think, which includes some more robotic processes Automation type application.
So many things are happening. We hope this situation will continue. I think these will bring huge benefits, or not only now, we are trying to use the existing things to do more, but also to meet the customer's production plan, and in the future will be so, because it will make We become better and more flexible. I hope you can come out and see some of the work people are doing, especially in our North American forest products business. They created this way of going back to the future, which I call this may not even be the right thing, but you start from a facility, which is the old way of doing the heavy manual content of bow trusses and other things, you walk through parking Field and gleaming highly automated new production line.
It has robotics and can move things. This really has an impact on us. It relieves some of the pressure on people and allows us to do better in what we do every day. So we are really excited about it. It is definitely worth the price and the rewards are good. To be honest, with almost all the increase in labor and material costs that we have seen in the past 1.5 years, it does make sense to invest in the future now and then.
Daniel Moore-CJS Securities-Analyst
excellent. The last one is just a little report problem, but the amortization cost is now more than 60 million U.S. dollars per year. If you tax it, you will get results similar to what Winnebago just reported last week, and you will get adjusted earnings per share for the quarter, which is close to $3. Just want to know if this is something you consider on the basis of moving forward.
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
This is a good question, Dan. It's Jack again. In fact, Andy and I were only talking about this yesterday. One thing we are really proud of is the cash flow yield of our stocks and our ability to convert any financial reporting metrics from EBITDA to operating income to free cash flow. This drives our capital allocation strategy, whether it is our return of capital to shareholders, which is $16 million this quarter, or our continued investment in our business, you can see that as of this year, the amount of strategic acquisitions is slightly less than 3 One hundred million U.S. dollars. This is a good measure of how we can generate cash flow. According to my experience, this is very atypical for industrial companies, but we have been doing this for a long time.
It illustrates the flexibility and controllable cost elements of our platform, of which 70% to 80% (measured as a percentage of revenue) are manufacturing controllable and variable costs. So we are considering things. there are more. We take this and everything else into account a lot and incorporate it into these calculations, and make sure that people appreciate the earnings and cash flow capabilities of our business.
[Operator Instructions] Currently we have no further questions. Now, I will turn the call back to Ms. Julie Ann Kotowski for further comments.
Julie Ann Kotowski - Investor Relations
Thanks, Robert. We thank you all for participating in the conference call today and look forward to speaking with you again on the conference call in the fourth quarter of 2021. A replay of today's conference call will be archived under For Investors under Patrick's website www.patrickind.com. I will now turn the call back to our operator.
Julie Ann Kotowski - Investor Relations
Andy L. Nemeth - CEO
Jeffrey M. Rodino - President
Jacob R. Petkovich - Executive Vice President of Finance, Chief Financial Officer and Treasurer
Daniel Moore-CJS Securities-Analyst
Scott Stember - CL King - Analyst
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