Marine Products Corp

NYSE:MPX

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and thank you for joining us for Marine Products Corporation's Third Quarter 2023 Financial Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services.

[Operator Instructions] I would like to advise everyone that this conference call is being recorded.

Mike will get us started by reading the forward-looking disclaimer. Please go ahead.

[Michael Schmit, executive]

Thank you, and good morning. Before we get started today, I'd like to remind everyone that some of the statements that we will make on this call may be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, our 2022 Form 10-K and other SEC filings that outline those risks, all of which are available on our website, at marineproductscorp.com. If you have not received our press release, please visit our website.

In today's earnings release and conference call, we refer to EBITDA, which is a non-GAAP measure of operating performance. We use this non-GAAP measure because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with our financial covenants under our revolving credit facility. Our press release issued this morning and our website contain a reconciliation of this non-GAAP financial measure to net income, which is the nearest GAAP financial measure. Please review this disclosure if you're interested in seeing how it's calculated. We'll make a few comments about this quarter and then be available for your questions.

I'll now turn the call over to our President and CEO, Ben Palmer.

[Ben Palmer, executive]

Thank you, Mike, and thank you all for joining our call this morning. I'll begin with a few highlights regarding our third quarter 2023 earnings press release that was issued this morning.

Marine Products Corporation's third quarter results reflect a reduction in boat deliveries to dealers compared to the prior year that approximate our new production rates. The decreased production corresponds to the normalization of retail boat demand that has occurred during 2023 following the significant post-COVID demand. Our dealers expressed continued optimism at our recent annual dealer conference, bolstered by the launch of our new 2024 models. They did, however, note some concerns about potential economic slowdown and the impact of higher interest rates.

On a positive note, supply chains continued to improve from earlier this year, but certain components remain challenging. During the quarter, our dealers continued to rebuild their inventories, trending to more normalized levels, and we have asked them to return to a more typical ordering process to assist us in scheduling our production. Dealer inventory of Chaparral and Robalo models remains healthy and below pre-pandemic levels. We expect to manage our production to approximate retail demand over the coming quarters, so dealers are able to service demand out of planned inventory.

We also announced this morning that our Board of Directors declared a regular quarterly cash dividend of $0.14 per share.

And with that overview, I'll now turn it back over to Mike Schmit, our CFO.

[Michael Schmit, executive]

Thanks, Ben. I'll begin with an overview of the company's third quarter 2023 financial results. Net sales for the third quarter were $77.8 million, a 22% decrease compared to the third quarter of last year. Unit sales decreased by about 24%. Average selling price per boat increased by approximately 5% versus the prior year, primarily due to favorable model mix and to a lesser extent, price increases to cover higher costs of materials and components.

Production and sales were negatively impacted by about 3 days during the third quarter due to Hurricane Idalia. Gross profit in the third quarter was $19.2 million, a 23% decrease compared to the third quarter of 2022. The gross margin for the third quarter was 24.7%, a slight decrease over the 25% for the third quarter of last year.

Selling, general and administrative expenses were $8.8 million in the third quarter of 2023 compared to $10.3 million in the third quarter of last year. These expenses decreased due to costs that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense.

We also recorded a net gain on disposition of assets of $2 million during the quarter, which included $1.8 million related to a real estate transaction.

EBITDA in the third quarter was $13 million, a 14% decrease compared to $15.2 million in the third quarter of 2022. EBITDA, as a percentage of net sales was 16.7% in the third quarter of 2023 compared to 15.1% in the prior year.

We generated net income of $10.4 million in the third quarter, a 9% decrease compared to $11.5 million in the third quarter of 2022. Diluted earnings per share were $0.30 in the third quarter compared to $0.34 in the third quarter of last year. Our international sales, which accounted for approximately 6% of our total sales during the third quarter decreased by 12% compared to the third quarter of last year.

As Ben mentioned, our dealer inventories are increasing toward more normalized levels and continue to be lower than pre-pandemic levels. These moderately higher inventories have allowed our dealers to meet current demand as well as purchase our 2024 models.

I'll now turn it back over to Ben for a few closing remarks. Thanks.

[Ben Palmer, executive]

Our market share remains strong. I'm very pleased to report that the most recently reported data indicates that Chaparral sterndrive market share was #2 in its size category. In addition, the combination of Chaparral and Robalo outboards hold the third highest market share in their size category.

We received very positive feedback on our new 2024 models from our dealers. They are designed to appeal to the retail customer while allowing us to efficiently produce high-quality boats. Our new Chaparral 267 SSX will be featured on the upcoming cover of [ Boating ] Magazine. We, like our dealers, see additional uncertainty in the market over the coming quarters, but our field inventory remains healthy and backlog support our current production schedule into 2024.

I'd like to thank you for joining us this morning. We'll be happy to take any questions you have.

[Operator]

[Operator Instructions] Your first question comes from the line of Brandon Rolle with D.A. Davidson.

[Brandon Rollé, analyst]

I guess to start, from a retail perspective, what have you seen over the last 30 days as we head into the winter months and I guess, how are you thinking about retail in 2024 at this point?

[Jim Landers, executive]

Brandon, this is Jim. Maybe I can kick off with an answer there. The past 30 days have not been very different from the past few months probably. People are a little bit concerned about interest rates. The economic slowdown issue is always a discussion, but it's just a seasonally slow time of the year. Our dealers, as everybody has mentioned, have been cautious. They haven't canceled any orders, but they're asking us to slow down a little bit.

Part of that is interest rates on their part. They're carrying costs for inventory are higher than they were. So that is a -- that order and delivery period has just extended a little bit. I don't know anyone else has anything to add.

[Ben Palmer, executive]

No, I think that's right, Brandon. This time of year, obviously, the third quarter is a normal seasonally slow period. So it's a little bit difficult to gauge the future just based on the last 30 days.

As it relates to 2024, we feel like we're being prudent about where we're setting our production rates. We feel really good about the level of field inventory of our models, of course. Many of our dealers carry inventory of other models as well. So there's only a certain amount of capacity the dealer have to take additional models. But again, our inventory is very healthy in terms of numbers and certainly the -- almost virtually in the entire field inventory is very fresh model. So there's no concern about trying to move older models.

So what we're looking forward the next point for us to really get a good idea about assessing demand is going to come with the winter boat shows that will start later this calendar year and into early next year. So at that point in time, we'll all reassess demand, reassess -- look at where dealer inventories stand and then we'll reassess what appropriate production rates are, but we feel okay about it. We feel like we are as well positioned as possible at this point in time.

[Brandon Rollé, analyst]

Okay. Great. And just back on the inventories. Would you be able to quantify maybe the average weeks on hand for your dealers right now? And I know you had said current inventory levels are below 2019 levels. But from a dollar perspective and taking into account, obviously, higher carrying costs for these dealers, do you feel like from a dollar perspective, dealers are carrying more inventory than they did pandemic?

[Ben Palmer, executive]

We don't have complete visibility into our dealers' total inventory, right? They don't readily share that with us. And certainly, the floor plan providers don't either. I would say that the average cost of boats is certainly up from pre-pandemic. For us, that's a combination of we're building and dealers are taking and ordering larger boats. So that tends to increase, obviously, the average selling price. And also just do with the cost of components and so forth that's increased in the last 2 or 3 years.

So I would -- it's up to the floor plan providers to determine the level of financing they're going to provide the dealers. So I don't really -- I'm not aware of exactly what their dollar inventory levels are, but that certainly at some level, maybe produces a little bit of headwind from the financing companies perspective. They want to -- they're thinking more about dollars, of course, than they are numbers of units to your point.

[Michael Schmit, executive]

And from a unit perspective, just directionally, Brandon, we are still below where we were pre-pandemic. During kind of the last few years, dealers were probably a little less than 1/3 of what they were pre-pandemic kind of total units. Now we're probably a little bit about 2/3 plus of pre-pandemic levels. So we probably double where we were this time last year, but we're not sure that dealers are going to get back to pre-pandemic levels because their carrying costs has been mentioned are so much higher because of higher interest rates.

So also, there's been better developments on our website and other boat manufacturers' websites. So they may not carry multiple colors of the same model because they can kind of pull it up on screen and show them different features and things like that. So we think some things may have fundamentally changed. We're not sure, but we think that we're hearing that they're pretty comfortable where they're at now. But like I said, it's probably just a little over 2/3 where we were pre-pandemic, if that helps.

[Brandon Rollé, analyst]

No, it does. And I know you said for this quarter, results kind of reflected the reduction in production and delivery rates. Looking ahead to the fourth quarter, are you expecting a further reduction in production given where inventories are at right now exiting the third quarter? Or I guess, how should we think about production over the fourth quarter?

[Jim Landers, executive]

No, we are not. We've got it scheduled out based on dealer demand -- the seasonality in holidays, but we don't look to reduce production during the next -- now and 2.5 months.

[Brandon Rollé, analyst]

Okay. Great. And then just finally, on the annual dealer conference. Can you talk about where you were seeing the strongest orders for which products and maybe the mix of products that dealers -- where you were seeing the strongest orders?

[Ben Palmer, executive]

We didn't really see, again, what they do at the dealer meeting is check out some of our existing models, but many of the newer models. Obviously, there's usually -- and again, this year, a lot of buzz around some of our new models like the 267 SSX. We haven't seen a shift in the size of the boats at this point in time. So I think that's a positive. We still have a good momentum and trend on dealers, looking at and expecting to sell strongly with the larger boats. So we're pleased about that. No real major shifts at this point, sterndrive versus outboard or Robalo versus Chaparral, I think it's sort of -- it's continuing on. And so no particular dramatic shift.

[Brandon Rollé, analyst]

Okay. And just lastly, if I can squeeze one last one in. Just on the promotional support that you're providing to dealers at this point. Can you talk about how that trended throughout the third quarter? And any maybe step up in the fourth quarter, incremental promotional support, do you think is needed to the customer or to the dealer?

[Ben Palmer, executive]

From the dealer's perspective, a little more support with respect to the building inventory, but not real significant from a retail perspective. We did have some small programs that we offered during the third quarter, but not really significant. We'll look at that issue and that question. It's a good question, but it's one we'll look at, again, as we're moving into the winter boat shows, right? We'll assess inventories. We'll assess our competition, we'll assess demand and make a decision about what level and type of support and we'll design an appropriate incentive program that we think will help our dealers and incur some retail sales.

So we don't have that determined yet. Certainly, again, that's another example of we and the industry returning -- we expect returning to normal. There's not -- we have not needed to provide a lot of retail incentive support in the last couple of years, but we do expect they'll -- that [ we'll ] have some type of program in the winter.

[Brandon Rollé, analyst]

Okay. Great. And just on the boat shows, outside of the Fort Lauderdale show, what other winter boat shows are you looking towards as kind of indicators of demand and allowing you to better understand what demand may look like in the upcoming year?

[Ben Palmer, executive]

Well, I would say really all of them, we attend our -- we have our salesmen are in all of the boat shows and certainly all the major boat shows and our management team attends many of the major boat shows. So -- and we regularly review how those sales are going and retail attitudes. So it will be each and every one. We'll -- that's very key to us and the industry to have a good pulse on what's happening and where we feel demand is. And certainly, that influences how we design our incentive programs and how we set our production rates. So it's a great question and we're interested in all of them.

[Operator]

[Operator Instructions] It appears there are no further questions. I will turn the call back over to Mike Schmit for closing remarks.

[Michael Schmit, executive]

All right. Well, I just want to thank everyone for joining our call today, and we'll now end the call. Thank you very much.

[Operator]

This conference call will be replayed on marineproductscorp.com within 2 hours following the completion of the call. We thank you for joining. You may now disconnect your lines.