2007 called awful year for boat market

MAPLE GROVE, Minn. – MarineMax’s announcement earlier this week that it is cutting its earnings outlook for the rest of the year (see report under News Headlines) has set off a new wave of concern amongst analysts about market conditions and caused industry stock prices to fall significantly – especially that of MarineMax supplier Brunswick Corp.

To blame is the housing market, most analysts seem to agree. Here are their comments:

J.P. Morgan analyst Steven Rees said: “While there are many factors at play, we believe softness in the housing market, especially the Florida market, is the largest factor influencing consumer purchase behavior.”

BB&T Capital Markets analyst Laura A. Richardson, who suggested MarineMax’s results indicate boat builder and suppliers are experiencing an “awful” year, said: “While a modest decline in boat sales were expected this year, the company believes industry sales are down close to 20 percent in the March quarter, with all segments being affected expect the very highest end. In addition, the company saw trends weaken as the quarter progressed, with unseasonably cold weather in the Northeast compounding the issue but broader consumer uncertainty in important markets such as Florida also hurting.”

Raymond James analyst Joseph Hovorka warned that boat sales may continue to fall, commenting: “The March quarter will be the third-consecutive double-digit decline for industry sales. By comparison, the 2001 downturn only had two quarters of double-digit decline.”

Bloomsberg columnist David Wilson observed that boat maker Brunswick Corp.’s stock took a hit after the MarineMax announcement, noting: “Brunswick Corp. can’t shake its association with MarineMax Inc. … even though more than two years have passed since its sale of a 12 percent stake in the company. The Clearwater, Florida-based company accounted by 26 percent of [Brunswick] boat sales last year, according to Brunswick’s annual report.”

Tim Condor, analyst for A.G. Edwards & Sons, said: “As we have previously mentioned, boat units sales are 80 percent correlated to Existing Home Sales and 78 percent correlated to Housing Starts (seasonally adjusted), with boat sales lagging these housing metrics by one year.”

He added, “We expect Brunswick to lower its $1.65-$2.00 EPS guidance for ’07 before/on its April 26th first quarter release. Given MarineMax is widely viewed as ‘best of breed’ among dealers and that MarineMax is modestly reducing its boat orders for the balance of ’07, we believe the rest of the industry will reduce orders more on a year-over-year basis. This will likely result in Brunswick’s second quarter wholesale shipments being down instead of flattish. The degree of down will be determined by retail boat sales during the all important April-June period. We would not be surprised if Brunswick revises guidance to the lower half of its existing range or modestly lower.”

Bank of America analyst Michael Savner said: “The prolonged marine slump is showing no signs of turning and therefore there is a risk the investor hopes that 2007 is the trough year in the marine business could be missed.”

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