Boat prices may be escalating too fast

MIAMI – Analysts’ marine industry outlooks don’t seem much brighter after their visit to the Miami International Boat Show over the weekend.

If anything, the show seemed to confirm their concerns over the short-term results the industry will be able to generate.

“We see no compelling evidence to suggest a pickup at this point and believe a combination of challenging industry conditions, unsustainable boat price inflation and structural changes being made by Brunswick could begin to force an industry shakeout,” commented Ed Aaron of RBC Capital Markets in a report released today. “Over the long term (i.e., 3-5 years), this shakeout may help ‘grow the tide’ and catalyze both Brunswick and MarineMax to higher levels of sales and profitability. With earnings at depressed levels, we view both BC and HZO as attractive stocks for patient, long-term investors with a minimum 2-3 year investment horizon. However, our conviction level for a 6-12 month investment horizon is lower, given a lack of evidence to support a recovery scenario.”

Aaron delved deeper into his concern over the pace at which boat prices have been increasing, stating, “We believe boat price inflation is meaningfully outpacing economic inflation due to richer content and rising input costs resulting from emissions changes and commodity inflation. Secular and cyclical demand trends are simply not strong enough to support this rate of inflation. The need to align pricing with demand could result in margin pressure.”

Tim Condor of A.G. Edwards & Sons reported that manufacturers, dealers and lenders at the show seemed to believe the U.S. marine cycle will bottom over the next 2 to 4 quarters, but the shape of that recovery is uncertain.

Good news for Brunswick?

The news coming out of Miami seemed to put Brunswick in a good light as opposed to its competitors.

Aaron noted, for example, that he saw evidence of strong Sea Ray sales, but it seemed to be the exception to the boat sales rule.

He also commented that while Brunswick Dealer Advantage – a new program unveiled at the show – could take a few years to show significant results, it “should ultimately enable the company to rationalize and upgrade its dealer network.”

“Additional new engine technology introduced at the show should bring a meaningful payoff down the road, and new boat models should help sustain momentum in higher-end segments,” Aaron concluded.

Likewise, Condor said, “Dealer Advantage should further materially strengthen BC’s dealer network over the next 3 to 5 years while new products should enhance its share, mix and margins over the next cycle.”

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