ATLANTA – Boat builder Marine Products Corp.’s (NYSE: MPX) second quarter results don’t come as a big surprise, given the state of the industry.
"The second quarter of 2006 continued the trend of lower retail demand that we first experienced late in the third quarter of 2005,” said Richard A. Hubbell, Marine Products' CEO, in a statement yesterday. “Higher interest rates and fuel prices have increased the cost of owning a boat, and consumers impacted by higher costs of ownership have reacted by delaying their purchases, especially in the market segment that purchases smaller boats.”
Hubbell said the company is pleased with its increase in average selling prices, which he attributes to a strategy of designing and selling larger boats. He also said that dealer inventories and order backlog are “in reasonable shape given the current sales environment.”
As of the end of the second quarter, field inventories were 22 percent lower than the prior year, and order backlog in weeks of scheduled production is 35 percent higher, due to actions taken last year when the company realized demand was weakening, he explained.
“Our experience has taught us to react very quickly to potential downturns in demand, and we have done so very effectively over the past nine months,” he concluded.
Sales and profits dip
Marine Products, which manufactures sterndrive and inboard boats under the Chaparral brand and outboard sport fishing boats under the Robalo brand, generated net sales of $71,739,000 during the quarter ended June 30, a 7.5-percent decrease compared to $77,566,000 last year.
The decrease in net sales was due to a 22.2 percent decrease in the number of boats sold, partially offset by a 17.2 percent increase in the average gross selling price per boat, according to the company.
Most product lines experienced higher average selling prices, due to increased focus on selling larger boats and price increases instituted during the 2006 model year, it explained.
Gross profit for the quarter was $16,136,000, or 22.5 percent of net sales, compared to $19,875,000, or 25.6 percent of net sales, in the prior year. The reduction in gross profit as a percentage of net sales was due to increased raw materials and component costs and production inefficiencies due to lower unit production volumes, according to MPX.
Operating income for the quarter was $7,699,000, a 29.3 percent decrease compared to the second quarter last year due to lower gross profit, partially offset by lower selling, general and administrative expenses. Operating income was 10.7 percent of net sales for the quarter compared to 14.0 percent of net sales in the prior year. Selling, general and administrative expenses decreased primarily due to a decrease in incentive compensation expense, which varies with sales and profitability, the company explained.
Net income for the quarter was $6,289,000, a 21.0-percent decrease compared to $7,956,000 in the prior year. Net income decreased due to lower operating income, partially offset by higher interest income, and a lower income tax provision, the company reported.
Net sales for the six months ended June 30 were $141,696,000, a 5.6-percent decrease from the first six months of 2005. Net income for the six-month period decreased 18.3 percent to $12,065,000 or $0.31 diluted earnings per share compared to $14,773,000 or $0.36 diluted earnings per share in the prior year.
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