Profits Down at Marine Products

July 2006 News

Higher interest rates, rising gasoline prices, weak boat sales and the fear of another bad hurricane season are taking their toll on Marine Products Corp., the Atlanta-based manufacturer of Chaparral pleasure boats and Robalo fishing boats.


Sales fell 7.5 percent to $71.7 million for the second quarter ended June 30, compared to $77.6 million last year. This was blamed on a 22.2-percent drop in the number of boats sold, partially offset by a 17.2-percent increase in the average selling price per boat. The higher prices were affiliated with sales of larger boats and recent price increases.


Profits dropped 21 percent to $6.3 million, compared to $7.9 million in the prior year. This was attributed to lower operating income, partially offset by higher interest income, and a lower income tax provision. Earnings per share declined 20 percent to 16 cents a share, compared to 20 cents in the year-ago period.


Sales for the six months ended June 30 decreased 5.6 percent to $141.7 million. Profits for the six-month period fell 18.3 percent to $12.1 million or 31 cents a share, compared to $14.8 million or 36 cents a share in the prior year.


"The second quarter of 2006 continued the trend of lower retail demand that we first experienced late in the third quarter of 2005," CEO Richard A. Hubbell said lastweek in a conference call with analysts. "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."


Last year's hurricanes and trepidation over the coming season are also affecting consumer purchases. Many of those who suffered from last year's storms are still rebuilding their homes, so they're holding off on replacing their boats.


"The repurchase of boats seems to be coming slower than in the past," said Hubbell. However, "If we don't have a bad hurricane season [this year] people who got their insurance checks from last year will buy boats."


Despite the drop in unit sales, company executives said they were pleased with the increase in average selling prices, as well as efforts to control inventory.


"Our dealer inventories and order backlog are in reasonable shape given the current sales environment," Hubbell said. "At 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. This is the result of actions we took last year when we realized that demand was weakening. 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."


The company is waiting until it concludes it dealer meetings at the end of August to measure future demand and see if production needs to be adjusted accordingly.


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