LCI Indus (NYSE:LCII) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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View the webcast at https://events.q4inc.com/attendee/861420926
Summary
LCI Indus reported a 4% year-over-year revenue increase to $1.1 billion for Q1 2026, with an 11.5% EBITDA margin.
The company's diversification strategy, particularly in European operations and transportation business, contributed significantly to its performance.
Adjusted diluted EPS grew by 18%, driven by manufacturing optimization, GNA cost reductions, and innovation.
RV OEM revenue decreased by 4% due to lower shipments, while adjacent industry OEM sales rose by 17%, with notable gains in the North American marine OEM sector.
The company expects RV wholesale shipments between 315,000 to 330,000 units for 2026, with aftermarket sales growing 7% despite a down retail environment.
LCI Indus continues to focus on innovation with new product launches, contributing to increased mobile RV content.
Operating margin improved to 8.7%, with plans to continue facility consolidations and focus on efficiency.
The balance sheet remains strong, with over $700 million in liquidity and a disciplined capital allocation strategy prioritizing shareholder returns.
The company decided to continue its strategy as a standalone entity after discussions with Patrick.
Management remains optimistic, expecting further margin improvements and growth through innovation and market expansion.
Full Transcript
Sami (Moderator)
Hello everyone and thank you for joining us today for the LCI Industriestries first quarter 2026 earnings call. My name is Sami and I'll be coordinating your call today. Before we begin, I would like to remind you that certain statements made on today's conference call regarding LCI Industriestries and its operations may be considered forward looking statements under securities laws and involve a number of risks and uncertainties. As a result, the Company cautions you that there are a number of factors, many of which are beyond the Company's control which could cause actual results and events to differ materially from those described in the forward looking statements. These factors are discussed in the Company's Earnings Release Form 10K and in other filings with the SEC. The company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur after the date of the forward looking statements are made, except required by law. In addition, during today's conference call, management will refer to certain non GAAP or adjusted financial measures. Reconciliations of these non GAAP financial measures to their most directly comparable GAAP financial measures are available in the Company's Earnings Release and Investor Relations presentation which have been posted on the Investor Relations section of the Company's website and are also available on Form 8K filed this morning with the SEC. On the call for management today are Jason Lippert, President and Chief Executive Officer, Lillian Etzcorn, Chief Financial Officer and Kip Ehmenhauser, Vice President of Finance and Treasurer. Later in the call we will conduct a question and answer session at which point you can register a question by pressing Star one and you may withdraw the queue by pressing Star two. With that, it's my pleasure to turn the call over to Jason Lippert. Please go ahead. Jason. Please go ahead.
Jason Lippert (President and Chief Executive Officer)
Hello and thank you to everyone for joining us on our Q1 2026 earnings call. We are energized by the momentum we have built in recent quarters as well as by the current strength of our performance in 2026 as we begin the new year with solid results despite continued sluggishness across both retail and wholesale leisure markets. Before diving into the details, I want to recognize the exceptional work our teams have done over the past decade to diversify our business against a very challenging industry backdrop. The diversification has clearly proven its value. Our well balanced portfolio continues to deliver strong results even in cyclical markets like RV experience volume pressure. Achieving this balance has taken time, discipline and continuous refinement of both our teams and our strategies. Our European operations delivered the strongest quarterly results we have seen since building that platform and our transportation business continues to perform very well as we integrate Freedom Seating and Transair climate control systems. Altogether, our diversified performance meaningfully contributed to LCI achieving an 11.5% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin in our Q1 in what we call a pretty turbulent quarter. For the first quarter of 2026, revenue grew 4% year over year to $1.1 billion. We expanded profit margins by nearly 100 basis points and grew adjusted diluted EPS by a robust 18%. This outperformance reflects our ongoing investments and the strong execution of our teams as we continue to focus on operational excellence, manufacturing optimization and self help initiatives. These efforts include significant plan optimizations, disciplined General and Administrative (G&A) cost reduction and continued volume gains across the increasingly diverse end markets we serve, all while maintaining a strong focus on innovation and customer service which remain core pillars of our success. Looking at performance by segment OEM net sales increased 4% to $853 million. RV OEM revenue declined 4% due to lower North American travel trailer and fifth wheel shipments, which is a strong outcome considering RV wholesale shipments are down more than 12% through the first quarter. At the same time, we grew our adjacent industry OEM sales by 17% driven primarily by higher demand from North American marine OEMs as well as from bus and utility trailer OEM share growth. In addition, Friedman Seating and Transair continue to outperform plan on both integration and synergy realization. As I previously mentioned, our European business also contributed meaningfully following extensive restructuring efforts over the last 18 months that have positioned the region for improved bottom line performance in housing. Sales were flat year over year, outperforming a down market due to continued strength in our residential windows which helped offset lower manufactured housing demand. As we move through 2026, we expect to further accelerate content gains and expand across our four OEM markets while continuing to outperform the broader RV industry. We now expect RV wholesale shipments to be in the range of 315 to 330,000 units, which reflects a reduction of 20,000 units at both the high and the low ends of prior expectations for the marine industry. We continue to anticipate flat to low single digit OEM growth this year. Innovation remains the cornerstone of LCI's long term success and has driven a significant increase in towable content of 73% since 2020. Recent product introductions including analog braking systems, touring coil suspensions, sun decks, Chill cubes and our 4000 series windows continue to gain traction as customers look to enhance the end user experience. Mobile RV content increased 13% over the past year to $5,826 per unit, representing the largest year over year increase in our history. As we close in on the $6,000 content per unit mark, our five most recently launched products are now generating an annualized revenue run rate exceeding 270 million doll. Looking ahead, we expect approximately 140 million incremental annualized run rate gains from new product placements during this 2027 model change as well as from market share expansion in the RV space. Our newest product launch is the next generation leveling and stabilization system for travel trailers that will be more affordable than past generations and will also be featured as standard equipment across all Brinkley Travel trailers. At this year's model change, Brinsley's Model I trailers rank among the industry's top five trailer brands which will provide strong visibility for this product. We believe this launch represents $100 million total addressable market opportunity for LCI and a natural for customers as we are the standout leader in leveling systems for towables and motorhomes. This ongoing innovation combined with our scale advantages, advanced manufacturing technologies and deep expertise in complex mission critical components has created customer loyalty that continues to differentiate lci. Our customers consistently look to us to help them stand out in their respective brands. Turning to Aftermarket the same customer loyalty continues to drive consistent outperformance. During the quarter Aftermarket net sales grew 7% in a down retail environment for both automotive and RV. Over the past decade we have embedded more than $15 billion of replaceable content into RVs that will ultimately enter the service and repair cycles over the next three years. Approximately 1.5 million of these RVs are expected to do so, each requiring LCI parts and service solutions across key categories including chassis leveling systems, slide out systems, awnings, suspensions, windows, furniture, doors and appliances, all of which are critical components. Our RV and marine aftermarket care center and technical teams, now more than 400 team members strong, has been built from the ground up over the past decade. Today our teams support thousands of dealer, service and repair locations nationwide and manage more than 2 million customer interactions annually. As a result, LCI remains one of the most visible and trusted brands in the RV aftermarket. A recent milestone in our growth is the launch of our first in store Lippert product setup within Blue Compass rv, the second largest RV dealer in the country. As we expand these in store concepts, we create incremental sales opportunities for both LCI and our great dealer partners. The Lippert upgrade experience delivered through our brand new Lipper factory service centers continues to gain traction by providing consumers and dealers direct access to advanced upgrades such as touring coil suspension, analog braking systems and other advanced Lippert products. As for mobile service and in factory upgrades, we are now performing more than 200 service appointments each week and we expect this initiative to become increasingly impactful as continues to scale, Our automotive aftermarket business is benefiting from a market disruption as First Brands, previously our largest competitor in the hitch and towing space, moved through bankruptcy, we are actively working to capture displaced OEM and aftermarket demand, representing an estimated 70 million incremental annual revenue opportunity. Our automotive aftermarket business is currently trending up high teens year over year in the second quarter of 2026, reflecting early success in capturing this share as well as great incremental growth in this category given where retail demand is. We are also expanding our aftermarket infrastructure with the addition of two major facilities that we've mentioned on previous calls. Our new 600,000 square foot distribution center in South Bend came online last quarter, significantly increasing our national distribution capacity and a second facility, approximately 400,000 square feet, is expected to be completed by year end and will consolidate several less efficient manufacturing operations that support ranch hand branded products in Texas while also positioning us in a more favorable labor market in Seguin, Texas. Profitability remains a key highlight. Operating margin improved to 8.7% from 7.8% a year ago driven by efficiency, improved product mix, plan optimization and continued G and A discipline. We continue to evaluate divestiture opportunities for select lower margin businesses. As a result, we continue to target 70 to 120 basis points of operating margin improvement in 2026 as we progress toward our long term goal of achieving double digit margins. Our balance sheet remains very strong, supported by more than $250 million of operating cash flow over the last 12 months and total liquidity exceeding $700 million at quarter end. We remain disciplined in our capital allocation, prioritizing investment and operational excellence, innovation driven diversification and complementary M and A. Over the past 25 years we have completed 77 acquisitions and our pipeline of smaller tuck in opportunities remains active. Most importantly, returning capital to shareholders remains an important priority which has been supported by a dividend yield above 3.5% and opportunistic share repurchases. With regards to the discussions with Patrick, our board has determined that the best path forward is to continue executing our strategy as a standalone company, a strategy we feel has and will continue to position us and our stakeholders well into the future. In summary, we are confident in our ability to perform through a wide range of macro environments, our innovation driven content growth, higher margin aftermarket platform, expanding presence across adjacent OEM markets and disciplined execution continue to strengthen our competitive position. Most importantly, none of this would be possible without the dedication and talent of the incredible people of LCI who continue to drive our long term success. With that, I will turn it over to Lillian to walk through our financial results in more detail.
Lillian Etzcorn (Chief Financial Officer)
Thank you Jason and thank you all for joining us. We're off to a strong start in 2026. In the first quarter, LCI delivered revenue growth, margin expansion and significantly higher earnings per share. This performance comes despite weaker industry fundamentals and a full year RV unit outlook that has deteriorated in recent months. Our results reflect the strength of our operating model and the tremendous efforts of the LCI team as we continue to execute on our strategic initiatives to drive growth and profitability. Taking a closer look at quarterly results, Consolidated net sales grew 4% year over year to 1.1 billion. OEM net sales also grew 4% driven by a 17% increase in adjacent industries OEM. This growth was fueled by strategic investments in stronger sales to North American adjacent industries OEM. These gains more than offset a 4% decline in RV OEM net sales. The RV OEM performance reflects lower North American travel, trailer and fifth wheel shipments, partially offset by price increases to cover increased material costs, a change in our RV sales mix towards higher content fifth wheel units, growth in our North American motorhome RV unit shipments and progress in our ongoing efforts to take market share. Content per towable RV unit remains a tailwind for us, increasing to $5,826 which was up 13% year over year and 3% sequentially. This year over year increase was driven by approximately 3% organic growth from innovation and recent product launches, an improved mix of higher content fiscal units and increases in selling prices to cover increased material costs. Content per motorized unit increased 6% to $3,970. In our aftermarket business, net sales increased 7% year over year to 238 million. Growth was driven by price increases to cover higher material costs as well as contributions from strategic investments. Consolidated operating profit totaled 95 million, up a robust 17% over the prior year period with operating margin expanding 90 basis points to 8.7%. OEM operating profit margin expanded 150 basis points to 9%. This improvement was driven by higher prices on targeted products to cover increased material costs as well as our ongoing efforts to enhance operating efficiencies through footprint optimization, material sourcing strategies and other operating initiatives. Aftermarket operating Profit margin was 7.8% compared to 8.7% in the prior year period, primarily reflecting higher material costs related to tariff and steel as well as investments in capacity and distribution to support continued growth in the aftermarket segment. We were able to partially offset these factors by raising prices for targeted products in response to a higher material cost along with sourcing initiatives and favorable sales mix. Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for The quarter was 125 million, up 13% year over year with the margin expanding 90 basis points to 11.5%. GAAP net income increased 27% to $63 million resulting in GAAP EPS of $2.53. Adjusted diluted EPS was $2.59 reflecting a 6 cent accounting adjustment for dilution related to our 2030 convertible notes. We remain very well positioned from a balance sheet perspective. Cash and cash equivalents of 142 million at quarter end. Revolver availability was nearly 600 million and total liquidity excluding exceeded 700 million. Net debt to adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was 1.9 times within our targeted range of 1.5 to 2 times and reflecting a quarter end outstanding net debt of just over 800 million. Our approach to capital allocation remains balanced and disciplined. First quarter capital expenditures totaled just under 10 million in line with the prior year. We also look to opportunistically buy back shares under our $300 million repurchase program and we maintained our quarterly dividend of $1.15 per share with $28 million paid during the quarter. Finally, we continue to seek thoughtful and complementary investments as part of our balanced capital allocation. Turning to our updated full year outlook, RV wholesale shipments are now expected to be $315,000 to $330,000. As Jason mentioned, marine industry deliveries are still expected to be flat to up low single digits despite the subdued industry backdrop driven by our self help initiatives and growth platforms. We continue to expect full year revenue of $4.2 billion to $4.3 billion in an operating in the range of 7.5% to 8%. Reflecting our strong first quarter performance, we are tightening our full year guidance and now expect 2026 adjusted EPS of $8.75 to $9.25. Looking ahead, some of the key growth drivers include continued innovation and increasing content per unit aftermarket growth that's benefiting from the growing number of RVs entering the repair and replacement cycle, housing growth benefiting from our growing number of residential window products and increased automotive aftermarket demand. Our adjusted EPS range representing up to 24% annual growth at the high end is supported by continued margin expansion. We expect to continue our footprint optimization and address another eight to 10 facilities this year, alongside ongoing efficiency and cost containment initiatives. Rounding out our updated full year outlook, we expect capital expenditures to be 55 million to 75 million for the year, focused primarily on business investment and innovation. In closing, we are off to a strong start in 2026 with our team focused on executing strategies that drive growth, profitability and enhance shareholder value. With that operator, we'd be happy to take questions if you could please open up the line.
OPERATOR
Thank you very much. To ask a question, please press STAR followed by one on your telephone keypad. Now to change your mind, please press STAR followed by two. I'm preparing to ask your question. Please ensure your device is unmuted locally. Our first question comes from Nathan Jones from Stifel. The line is open, Nathan. Please go ahead.
Nathan Jones (Equity Analyst at Stifel)
Good morning, everyone. Good morning. I guess I'll start with my first question on the adjacent industries. OEM growth at 17%. Maybe give us a little bit more color on where you saw the strengths and weaknesses in that segment given that the growth there was so strong.
Jason Lippert (President and Chief Executive Officer)
I think a big piece of that came from the. We haven't lapsed the Friedman and transair acquisitions completely yet. That's part of it. All the, all the adjacent markets are growing a little bit. But that lapse created some, created some additional increase.
Lillian Etzcorn (Chief Financial Officer)
Nathan, specifically the revenue from the acquisitions was 47 million in the quarter. So that, that contains a good chunk of it.
Nathan Jones (Equity Analyst at Stifel)
Fair enough, I guess. Second question then on the margin performance, it was obviously also very strong. Can you talk about some of the contributors to that? I know you had, you obviously had some inflation going through the business this quarter and pricing going through. It was price cost positive to that or neutral to that? Just any color you can give on the contributors to the margin expansion.
Jason Lippert (President and Chief Executive Officer)
Well, I think the biggest piece of the 100 or near 100bps there is all the self help we're doing with the GNA improvements, all the facility consolidations and things we're doing there. And that's obviously going to continue on through this year. When we Talked about the 8 to 10 facility consolidations we have this year, there's some, there's some big ones wrapped up in there. We'll be able to give more color at second quarter because really we're waiting for July shutdown. There's usually a decent, decent time shutdown during the fourth of July where we can take the time and shut some of these facilities. Facilities down, consolidate them with others that are still standing.
Nathan Jones (Equity Analyst at Stifel)
And on the price cost equation, are you able to fully offset the inflationary costs, tariff costs with price, or is there a lag to that? And then I guess just the last one, the changes in tariffs, any incremental impact from those and I'll leave it there.
Jason Lippert (President and Chief Executive Officer)
Yeah, there's a lot of puts and takes happening at the moment, obviously, I mean, with the new tariff stack after, you know, the Supreme Court struck down the old tariffs, you know, there's a little bit of a stack on top of where we were before and we'll be dealing with that over the next months. But our assumption is we're not going to have any different approach or results to dealing with the tariffs that we did in the last few years that we've been dealing with it. So same strategy going to continue to work on our strategic sourcing, make sure that we're buying from places and buying from countries strategically so that we're not overpaying on tariffs. And if we've got to pass some things along, we're going to do that and do that carefully with our customers. And there will be, there always is just a little bit of lag as we sort these things out. But it's, it's not meaningful.
Nathan Jones (Equity Analyst at Stifel)
Thanks for taking the questions.
OPERATOR
Our next question comes from Daniel Moore from CGS Securities. Your line is open, Daniel, Please go ahead.
Daniel Moore (Equity Analyst at CGS Securities)
Thank you. Morning, Casey. Good morning, Lillian. Looking at the revenue guide unchanged despite, you know, obviously a softer RV outlook. Just in terms of where you see the opportunity to make it up, it sounds like you raised the aftermarket opportunity for first brands. Are there other things that are trending stronger, be it pricing, content, adjacent markets, where's the kind of the makeup there? Thank you.
Jason Lippert (President and Chief Executive Officer)
Yeah. So first brands and the aftermarket piece is a piece of that. Obviously, we mentioned in the prepared remarks that revenues for our automotive aftermarket division, you know, mid teens for the second quarter, we've obviously got good visibility in April and May, so we feel comfortable about that. I think the other big piece is the product placement that we've done on the RV side and the marine side for model year change that's coming up here in June. For just the RV piece alone, it was $140 million of new product placement. So that's new products that we've, we've launched and put in the model year change cycles and also some market share improvements in different areas in the business. And we're winning in some of the other diversified adjacent businesses. But 140 million piece, you know, from June forward, you know, annualized is probably the other big piece to offset any kind of softness in rv.
Daniel Moore (Equity Analyst at CGS Securities)
Yeah, really helpful. You mentioned the obvious momentum in aftermarket April revenue as a whole down 4%. Just talk about the cadence of revenue entering May and expectations for Q2 more generally. That's kind of embedded in your 26 revenue guide.
Jason Lippert (President and Chief Executive Officer)
Sure. So, as you know, Q2 historically is probably the strongest quarter for us in any given year. And that is what we're expecting for this year as well. So despite April being a little bit softer, we are expecting sequential to be up and also to be up year over year for the second quarter. And then I would say really just normal seasonality as we move through the balance of the year, third quarter, you know, we tend to have more of the shutdowns, Europe has shutdowns, and then fourth quarter we taper off. But yes, second quarter, we're expecting it to be, to be nice and strong.
Daniel Moore (Equity Analyst at CGS Securities)
Really helpful. Lillian, last one for me, a little long winded, I apologize. But you know, you're clearly incurring incremental costs from tariffs from steel, aluminum, still maintaining 7 and a half to 8% margin for the year. Given that a lot of these will likely be passed on with a little bit of a lag and ongoing facility consolidation throughout the year and lower fixed cost absorption. Let's say we entered the year, ended the year at kind of that midpoint, 7 1/4 percent. What would that imply on a run rate basis entering fiscal 27, you know, assuming inflationary pressures start to level off?
Lillian Etzcorn (Chief Financial Officer)
Yeah. So with that, again, kind of from the seasonality perspective, the fourth quarter in terms of a jump point, in absolute terms, is always going to be the lightest quarter. So I wouldn't necessarily use the fourth quarter as the run rate into next year just because that is the low point. What I would say, and I think it's reasonable to assume is as you're seeing the year over year improvement in margin by quarter, to continue to see that improvement kind of as that delta year to year as your start point for the following year, I think is reasonable. And I think the other thing to point out, just in terms of the self help, yes, it's a lot of the cost activities that Jason's highlighting, but I would also say just from efficiencies and how we're operating within our facilities, the team has done a really nice job of executing on that in some really difficult environments right now.
Jason Lippert (President and Chief Executive Officer)
a lot of pent up Demand out there, we're obviously not seeing it, you know, in the beginning part of the year here on the retail side. Although, you know, used, you know, used seems to be a pretty, pretty heavy, much, much bigger than what new is new seems. Obviously it's flat to down in most places, but used is up anywhere from, you know, high singles to mid teens on most counts where we're taking those, you know, taking those points and talking to dealers. So yeah, I think it really depends a lot on, you know, where retail falls and if we can get new going again. And we're certainly gonna be working with our customers to make sure that we're giving them every opportunity to get at affordability because that's the biggest headache out there when it comes to some of the sluggishness on the new purchases.
Daniel Moore (Equity Analyst at CGS Securities)
Yeah, I guess my thought was given the lag in some of the pricing and some of the initiatives, you'd probably be entering 27, you know, at an even higher level on an annualized basis. But I'll take the rest offline. Thanks again for the color.
OPERATOR
Thanks, Dan. Our next question comes from Joe Attebello from Raymond James. Your line is open, Joe, please go ahead.
Joe Attebello (Equity Analyst at Raymond James)
Thanks. Hey guys, good morning. Once this follow up on that line of questioning along operating margin and the improvement you're seeing this year, obviously it sounds like most of that is not volume dependent and it's largely in your control. You're talking about 8 to 10 facilities closures this year. How much Runway do you see into 27 on that self help side?
Jason Lippert (President and Chief Executive Officer)
Yeah. So you know, obviously we've got, you know, we've got flow through from all the changes we made last year that are kind of happening throughout this year. And we've got some carryover from that. And then like I said, these eight to 10, I mean, we're literally just getting ready to start making these moves and changes and consolidations in July. So, you know, you can anticipate the benefits from all those moves to impact our PNLs from, you know, July of this year through July of next year. And then we've got, you know, more self help initiatives and some other facility consolidations on tap for next year already lined up. So the way I'd categorize what we've done here is we, you know, we started thinking really hot and heavy about this in the middle of 24 and started making changes just in the event that things didn't get better and the environment didn't improve. I'm glad we did that. I think a lot of People were thinking that, you know, they come into, you know, 26 and that volume would have to get better because it's been such a long depressed period of low retail and wholesale activity. But you know, as we've dug into these self help initiatives and around GNA specifically and around our plant consolidations and optimizations specifically, we just continue to find more and more things. I mean, the low hanging fruit we're kind of taken care of this year, but there's still some things we can do next year and that'll continue to benefit us through, you know, 27 and maybe even into 28.
Joe Attebello (Equity Analyst at Raymond James)
Well, that's sort of what I was getting at, which is, you know, the industry looks next year like it does this year. You still see some pretty good margin expansion.
Jason Lippert (President and Chief Executive Officer)
Yes, I think that's reasonable. I mean, you know, Joe, as we've talked before, you know, we've put out there the target of double digit EBIT margins and really a lot of the self help that we're doing puts us on a nice glide path towards that. You know, obviously as we've spoken before, we do need to see some industry recoveries for the markets that we participate in, but we feel real good with the actions that we can take independent of the industry movements to put us on continued progression from margin aspect. And I think the self help and the consolidations and optimizations are helping a lot more than what we thought. We've had to rip the band aid off in some spots and get uncomfortable, but at the end of the day, we're starting to scratch double digits without the improvement in the market right now. So I think that that's a good sign.
Joe Attebello (Equity Analyst at Raymond James)
Got it. And maybe last one for me. You know, Jason, I'm not sure how much you want to comment on the discussions with Patrick, but maybe talk about what initially attracted you to the deal. And I don't know if you want to talk about why it ultimately fell apart.
Jason Lippert (President and Chief Executive Officer)
I mean, as you know, I mean, we've done, you know, as we said in the prepared remarks, 77 acquisitions over the, over the course of at least, you know, my last 20 years or so in the seat. And we're looking at stuff all the time and our board's always challenging us to look at everything from small tuck ins to large transformational deals. And this just happened to be one that you heard about that got into discussions. But at the end of the day, I mean, of the 77 we've done, we probably talked to, you know, 400 people and there's been, you know, 300 that haven't gotten done. So we're always looking at these things and we're always looking to, you know, whether it's transformational or small tuck ins, these things pop up. You just don't necessarily hear about all of them. But that's about all we're willing to comment on. Joe.
OPERATOR
Okay, thank you guys. Thanks.
Patrick Buckley (Equity Analyst at Jefferies)
Our next question comes from Patrick Buckley from Jefferies. Your line is open. Patrick, please go ahead.
Jason Lippert (President and Chief Executive Officer)
Hey, good morning guys. Thanks for taking our questions. I think you called out strong European results in your prepared remarks. What's driving that improvement over there? Is the broader consumer environment showing signs of improvement from what you're seeing? So I would tell you that is, you know, we've been over there since 2016 starting to, you know, accumulate a platform over there. We bought several businesses and put them together to create a little consolidated supply business over there. Since we've been over there, you know, the market doesn't ever grow big or drop fast. It's pretty, pretty consistent. So I wouldn't say it's, it's market conditions. But 18 months ago we decided to completely restructure the business over there, really decentralize it and took away a bunch of a corporate structure we had put together and then again done some of the same self help initiatives and plant consolidations and optimizations over there that we've done here in the last 18 months. And it's starting to show through on results. Really nice.
Patrick Buckley (Equity Analyst at Jefferies)
Got it. And then on the Lippert factory service, could you talk a bit more about the size of that today and what you view as the ultimate size and growth potential, that opportunity and maybe the timeline there?
Jason Lippert (President and Chief Executive Officer)
Yeah, so it was more of a thought we had last year. We kind of implemented this concept last year to say, look, there's just as long as we've been in the business, you know, service continues to be a pain point for the consumers. So we decided to put a few of our own up. We had had one here in Goshen for a long time, but we, we moved out to how right off the toll road, bought a bigger facility with some camping spots and things like that. So it's just more of a destination for people to come to. And, and we've added two more facilities at the beginning of this year, tail end of last year. So it's small today. It's not bigger than 10 million, but we've got like I said, 200 appointments per week right now. And that's continuing to grow as we get the word out and advertise about this and we're really taking really good care of consumers that come. So our hope is that over the next several years we can grow this into a bigger platform that's more meaningful. And we'll continue to give you updates as we move along quarter to quarter.
OPERATOR
Great. That's all for us. Thanks, guys. Yep.
Scott Stember (Equity Analyst at Roth Capital)
Our next question comes from Scott Stember from Roth Capital. Your eyes open, Scott, Please go ahead. Good morning and thanks for taking my questions. Morning, Scott. A lot of facility consolidation going on over the last six to nine months. I know that there's a bunch that took place in 4Q and another 8 to 10 for this year. Can you maybe size up the actual benefit that we'll see down to the bottom line this year just from that? Because that's a huge part of the story for your results this year.
Lillian Etzcorn (Chief Financial Officer)
Yeah. Now that is a key part of the story for the results. And you're seeing it in the first quarter we had 80 basis points improvement from cost enhancements. So a good portion of that is going to be from the consolidations that we've done. And you know, like Jason was saying, we expect that to continue as we progress through this year in the second half, similar to last year, second half is really where you'll see more of the consolidation activity and the benefits starting to realize. Call it towards the end of this year and more so materially as we get into 2027 is where you'll see the greater impact from our actions in 2026.
Scott Stember (Equity Analyst at Roth Capital)
Got it. And then, Jason, you made some comments about. I jumped on the call late, so I'm not sure if I heard everything, but some comments about how the aftermarket is trending currently for you, I think in April and May. Can you maybe just talk about that again? And then Also with used RVs outperforming new, could you maybe just remind us of how much of a benefit that could be for LCI in the aftermarket with refurbishing, you know, reconditioning units?
Jason Lippert (President and Chief Executive Officer)
Yeah. So first, you know, what I mentioned earlier was that the auto aftermarket is trending revenue Q2 up mid teens from last year. And as you know, we've got two key components to our aftermarket business. We've got the automotive aftermarket, which is roughly half of our aftermarket business. And we have the RV and marine piece, which, you know, RV is the big piece of that. I would say the RV side is still, you know, it kind of follows new units. So if there's less used units, there's a little bit of sluggishness on the, on the aftermarket side for rv, but with respect to the used units. And Waggoner says it best, I mean, every time they, you know, every time they sell a lot of used units, they're always, you know, refurbishing and creating more value in those used RVs by, you know, you know, whether it's repairing and fixing things or just upgrading some things. So there is a little bit of that. It's just hard to quantify because it's just. Just really hard to track. But you know, used units, new units going up, it's good for, it's good for our aftermarket business and we'll continue to see, you know, benefit from that as this goes along. But I think the big piece as we keep talking about is, you know, these Covid units that are going to continue to, to need repair and replacement over the next several years. I mean, there is a slug of those obviously to the tune of 1.5 million units. And as those start coming in for repair and replacement parts, you know, a lot of that, A lot of that business is going to come our way.
Scott Stember (Equity Analyst at Roth Capital)
And on the auto side of the aftermarket, what is driving that demand? And do you think that's sustainable for the balance of the year?
Jason Lippert (President and Chief Executive Officer)
Yeah, yeah, for sure. I mean, the big piece as we keep mentioning is the First Brands. Kind of that whole bankruptcy that's creating issues. I mean, they have not solved the problem. They've not moved many if any of those businesses to other businesses that have bought those. So, you know, the people that were buying First Brands, Hitches and Towing products basically had to go find new suppliers over the last few months that this is kind of broke loose and, you know, is the second, you know, is really the largest player in that, that space. We, we're the beneficiary of a lot of that new business. So we're trying to, you know, take on as much as we can, you know, given our, given what capacity we have. And we expect that to continue, you know, through the long term because there's. It doesn't appear that there's anything going to happen with, with First Brands.
OPERATOR
Gotcha. That's all I have. Thanks for taking my questions. Thanks, guy.
Tristan Thomas (Equity Analyst at BMO Capital)
Our next question comes from Tristan Thomas from BMO Capital. Your line is open. Tristan, please go ahead. Hey, good morning. Good morning. Jason, could you update your retail assumption for the year?
Jason Lippert (President and Chief Executive Officer)
Yeah, I'd say we're kind of, yeah, down mid single digits probably is probably where we're at somewhere in there. It's hard. It's Hard to say. I think we'll have a really good feel in a few months after we get through the summer selling season here, obviously, but that's our best guess right now.
Tristan Thomas (Equity Analyst at BMO Capital)
Okay, and then just looking at slide 21, your mix of single axle versus multi axle, fifth wheel flat year over year in the quarter, is that surprising? I'm curious if you expected that to maybe be a little bit richer.
Jason Lippert (President and Chief Executive Officer)
Yeah, yeah, it is a little surprising. I mean, I mean, we obviously talk to a lot of dealers, we talk to a lot of the OEMs. You know, their commentary to us on these single axle units is they fully expect that to start trending downward at some point in the near future. They said that there's just too much inventory out there. The good news is it slowed down. I mean, for the last several years it's been going up. So, you know, we've seen it flatten out and peak at this point in time, and we expect it to go down. On the flip side, you know, we've seen fifth wheels, you know, as, you know, we build a lot of chassis and we get to see a lot of these ratios, you know, you know, one for one and fifth wheels are up a little bit right now, which is a good sign. We obviously put a lot more content into fifth wheel units than we do, you know, tandem or single axle travel trailers. So that's kind of what we're seeing right now.
Tristan Thomas (Equity Analyst at BMO Capital)
Okay. And I'm just gonna sneak in one more. Just how do we. From kind of modeling standpoint, I think you called out 140 million from new model year 27 kind of share gains. Does that include the 100 million opportunity from the travel trailer leveling stabilization system? The one you called out for Brinkley and then lost kind of 140 million? How much of that falls in calendar 26 versus calendar year 27?
Jason Lippert (President and Chief Executive Officer)
Yeah, it's not a big piece of that, Tristan. The $100 million is a TAM as a total addressable market for leveling systems of that type. So we're just launching that, and we expect that once Brinkley gets it out there and people start seeing it, that they'll want to get a piece of that at least. You know, we're trying to find leveling systems that fit into, you know, the lower price point trailer, some of the lower price point trailers. We've already got leveling systems for trailers, for travel trailers that are a little bit more expensive. So, you know, our plan is over. Like any product launch of innovation, we, you know, three to five years, we want to penetrate at least 50% of the market. That's kind of our gold standard for product launches. So, you know, we've got it. We're off to the. Off to the races with a really good customer and brand, and we'll get some good visibility and then we'll see what happens as it makes its way into the market. But a lot of that, A lot of that 140 million is all sorts of products. You know, obviously, we've been talking a lot about our chill cube and our AC movement. I mean, you know, three years ago, we were 15% of the AC market. Today we're close to 60. You know, we're making a lot of headway with appliances and our TCs, our touring coil suspensions, and our ABS suspension products. So, you know, suspension appliances, air conditioners are getting a big piece of that 140. But we're also making progress with windows and furniture and chassis and some of our other core products.
OPERATOR
Great. Thank you. Yep.
Brandon Rowley (Equity Analyst at Loop Capital)
Our next question comes from Brandon Rowley from Loop Capital. Your line is open, Brandon. Please go ahead. Good morning. Thank you for taking my questions. Just first, just digging in on the second quarter. Are you expecting operating margin, sequential operating margin expansion versus that 8.7% you had in the first quarter?
Lillian Etzcorn (Chief Financial Officer)
Yeah. Again, the way I'd probably think of that is think of the year over year improvements. You know, second quarter again, tends to be a pretty strong quarter for us, just given the seasonality. So typically you would expect to see that sequential improvement and that year over year improvement continuing as well.
Brandon Rowley (Equity Analyst at Loop Capital)
Okay, great. And then just on the overall industry recovery for the RVs, clearly retail is underwhelmed year to date. Is there a scenario where, you know, you potentially have to start absorbing some of the raw material price increases because, you know, the prices are, you know, too much to the end consumer or OEMs just begin to push back a little bit there or, you know, do you feel comfortable you'll be able to push through price regardless of industry fundamentals?
Jason Lippert (President and Chief Executive Officer)
Yeah, absolutely. I mean, there's a couple strategies. One is, you know, obviously, good, better, best. We're working with our customers all the time on, you know, good, better, best products. So, you know, trying to find the most affordable options for people to still offer the consumers, you know, the best possible RV they can offer them, even if they've got to, you know, go from a good product or a better product to a good product or from a best product to a better product. So that's obviously part of the strategy, and we're always having those Conversations and making, you know, running changes with our customers on those types of things. And then the second thing is we're, you know, we are working with our customers right now on special floor plans and doing some special deals so that we can get some more affordable product into the marketplace on really popular floor plans. So, you know, there's not a single large OEM that we're not having those conversations with right now. And we'll continue to work with them as we get through this retail season and see how things are going. But, you know, we got some, you know, as, you know, we've got a little bit of tariff refunds hopefully coming. We don't have visibility on that yet. But if that does flow through and the refunds come through, as the government has promised, then we'll be giving, you know, we'll be giving back to the large OEMs what they, what we had to increase them back, you know, when those things first came out. So that will give some additional relief, hopefully. But affordability is the key issue right now and we need to do everything we can as a, you know, supplier in the Weenham community to give the dealers products that are priced right for the consumers.
OPERATOR
Okay, great. Thank you for that color. Sure.
Alice Wick (Equity Analyst at Baird)
Our next question comes from Alice Wick, Lent from Baird. Your line is open, Alice, please go ahead.
Lillian Etzcorn (Chief Financial Officer)
Good morning. Thanks for taking my questions. Just want to circle back on the content per unit. Obviously really strong organic growth is at up 3%, but the other bucket is a big contributor. I think the bulk of that is the index price adjustments maybe provide a little bit more detail there. And I'm curious on, you know, what was the timing of some of those increases and the expected duration of that tailwind for content per unit. Hi. Good morning, Alice. So, yeah, so again, just in terms of the breakout for the content improvement, 3% was organic growth really driven by the innovative products continuing to get traction in the marketplace. And then as we look at, let look at that other. It's a combination of the. So as we had greater fifth wheel units coming into play, that's benefited us. And then probably proportionately as well are those sales price increases to cover the material costs. And really those started coming into play, I'd say last year, call it into Q2, Q3ish, you know, really around the summertime is when we started to see that. So, you know, those impacts will continue to benefit on that content unit as, as we're moving forward. But the unit mix was also an important part of that increase as well. Just because we have more content on those larger, better equipped units. Thanks. Willing. And then just maybe want to take a step back. It sounds like integration of Friedman and Transair is going well, but what does the M and A pipeline look like today? And maybe what are you on. Focusing. Focused on?
Alice Wick (Equity Analyst at Baird)
Yeah. Yep. As always. We've got a lot of names in the list, Alice. And you know, we're at any given point in time we're talking to four or five different, different tuck in opportunities. And you know those, those range anywhere from early discussions to, you know, Lois and we're, you know, we'll just keep you posted as we get, get close to getting these done. But the pipeline and multiples really haven't changed much in the last, in the last couple years since we started looking at M and A again.
Lillian Etzcorn (Chief Financial Officer)
Great, thanks. That's it for me.
OPERATOR
Great, thanks. Thank you.
Jason Lippert (President and Chief Executive Officer)
We currently have no further questions so I'd like to hand back to Jason for some closing remarks.
OPERATOR
Yeah, well, I think the headlines are, you know, a lot of the self help that we've been doing is starting to start to come into play and have great impact on the results. And after 10 years of really focusing on diversifying the business in all these different areas, all the acquisitions and organic growth we've done there is really starting to play into our results as well. And we're excited to update you on our Q2 results in a few months. Thanks everybody for tuning in.
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