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Boat sales continue gains in February

Posted on March 20th, 2017 Written by Jack Atzinger

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Led by a 12 percent increase in sales of outboard-powered fiberglass boats, the recreational boat industry followed a strong January with moderate February growth that put sales for the year about 1 percent ahead of 2016.

Statistical Surveys said today that sales in the main powerboat segments rose 3.7 percent to 5,119 and climbed 4.4 percent industrywide to 7,202 from February 2016 in 26 states that represent about 59 percent of the U.S. boat market.

“It was a good month. Florida was up, Texas was up, North Carolina was up,” Statistical Surveys sales director Ryan Kloppe said. “All signs point to moderate growth.”

Sales rose 8 percent in the main segments and 9.5 percent industrywide in January. Through February, sales are up 6 percent in the main segments at 9,923 and 6.6 percent industrywide at 13,900.

Industry sales across all 50 states rose 5.7 percent in the main segments and 5.4 percent industrywide last year as the industry sold 258,879 boats, the most since 2008.

Florida was the top state for sales in February with 1,943 (up from 1,763 last February) and Texas was second at 1,405 (up from 1,377). Those were the only two states where more than 1,000 boats were sold during the month.

The No. 3 state was North Carolina at 608 (up from 439), followed by Alabama at 501 (up from 480); and Ohio at 307 (up from 276).

Rounding out the top 10 were Michigan at 303 (up from 223); Arkansas at 290 (down from 305); California at 239 (down from 345); Washington at 220 (down from 250); and Kentucky at 200 (up from 196).

Kloppe said the weather needs to get warmer before sales start to climb significantly in cold-weather states such as Massachusetts and Connecticut.

“Snowstorms delay boat sales,” he said.

Kloppe said a 6 percent increase in sales appears to be “the target for growth” in the industry this year.

“I think there’s no reason we can’t continue on that path,” he said.

As they did in January, fiberglass outboards outsold all other industry categories in February. Sales totaled 2,314, up 244, or 11.8 percent, from last February. Aluminum pontoon and fishing boats, two segments that also have produced strong results in recent years, did not fare as well.

Pontoon sales rose 3.2 percent to 871 boats and fishing-boat sales slipped 1.7 percent to 1,404. Sales of ski and wake boats, which have been a rising category, fell 12.7 percent to 185.

Sales of inboard and sterndrive boats continued to struggle, falling 12.2 percent to 245.

Sales of personal watercraft rose 7.1 percent to 1,045 and jetboat sales were up 6.3 percent at 134.

The Coast Guard was up to date in its reports on documented vessels, providing complete figures for the month in the bigger-boat categories. Sales of 31- to 40-foot cruisers fell by two to 49. Sales of 41- to 65-foot yachts fell by four to 38; and sales of 66-foot and larger semicustom and custom yachts rose by five to 13.

Sailboat sales fell by 20 to 68 but are up 1.1 percent through February.


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Brunswick Corporation manufactures a diverse range of recreational products, from boats to fitness equipment.

Investment Thesis

Despite its recent surge in stock price, Brunswick Corporation (NYSE: BC) continues to be a safe investment candidate due to its stable growth and diversified operations.

Overview

Brunswick Corporation, founded in 1907, is a leading global designer, manufacturer, and marketer of a range of recreational products that includes marine engines, boats, fitness equipment, and active recreation products.

The company’s product offering is extremely diverse. It produces many types of engines and many different boats, ranging from pontoons to yachts. And their fitness line includes products for cardiovascular and strength training.

The company sells its products in the United States, Europe, Canada, the Asia-Pacific, Latin America, Africa, and the Middle East. The business operates out of a number of owned and leased properties, but most of their properties are owned.

Marine Engine Segment

The Marine Engine segment, which produced net sales of $2.44 billion in 2016, is made of the Mercury Marine Group. Mercury Marine sells various kinds of engines under various brand names for both recreational and commercial use. It sells to independent boat builders and various governments. The sales are made through a global network of more than 6,000 dealers. Mercury Marine also supplies engines to Brunswick Boats, the boat-producing segment of Brunswick.

Mercury Marine’s new VesselView software allows customers to monitor the health of their engines and has won innovation awards for boat technology. The company also acquired Payne’s Marine Group, which sells marine equipment in Canada. Brunswick hopes the acquisition will increase Mercury Marine’s geographical reach and add to sales.

Boat Segment

This segment consists of Brunswick Boat Group, which produces and sells a wide variety of boats, including fiberglass pleasure boats, yachts and sport yachts, sport boats, offshore fishing boats, pontoon boats, deck boats, and inflatable boats, among others. The Group had net sales of $1.37 billion in 2017 and the company believes it is a global leader in pleasure motorboats.

The Group procures most of its engines from Mercury Marine and sells its boats to international commercial and government institutions. It sells its boats through a network of roughly 3000 dealers and distribution centers.

In July of 2016, the company acquired Thunder Jet Boats, which produces heavy-gauge aluminum boats. They believe that Thunder Jet will add to their product line.

Fitness Segment

The company’s fitness segment produces cardiovascular and strength training products. Their cardiovascular products include things like treadmills, stair masters, and exercise bikes and their strength products include Life Fitness and Hammer Strength. This segment also includes recreational products like billiards tables and other game room furniture.

This segment had net sales of $980.4 million in 2016 and the company believes it is the world’s largest manufacturer of commercial fitness equipment and a leading manufacturer of consumer equipment. The company makes its sales through a direct sales team and dealers around the world.

In 2016, the company acquired two companies to add to this segment: Cybex and Indoor Cycling Group. Cybex is a leading manufacturer of commercial fitness equipment that the company hopes will increase its domain in the fitness segment. With the Indoor Cycling Group acquisition, the company hopes to strengthen its cycling equipment products.

Financial Services Segment

The company has a joint venture, in which it has a 49% stake, with Wells Fargo. The joint venture provides wholesale inventory floorplan financing to its boat and engine dealers.

Earnings

Net sales have increased consistently over the past few years, rising from $3.8 billion in 2014 to $4.1 billion the next year and then to $4.5 billion in 2016. Net earnings decreased very slightly from 2014 to 2015, going from $245.7 million to $241.4 million. The decrease was due to an atypically high amount of net earnings from discontinued operations in 2014. Net earnings in 2016, however, increased to $276 million.

BC Net Income (Annual) data by YCharts

The company’s rising sales and earnings are fueled by a number of factors. As it explains in Item 7 of its most recent annual filing, the company’s growth has come organically, through strategic acquisitions (which were discussed earlier), and through product innovation. Acquisitions are a cornerstone of the company’s growth model and have done well to increase its performance over the past few years.

Cash Flow

The company’s cash from operations have also been increasing steadily, as the graph below shows. Cash from continuing operations increased from $247 million in 2014 to $338 million the next year to $426 million in 2016.

BC Cash from Operations (Annual) data by YCharts

Again, the company’s cash flows increased so impressively due to organic growth, acquisitions, and innovations through technology like the VesselView and new products.

Book Value

Unsurprisingly, the company’s book value has also increased over the past few years, as the graph below suggests.

BC Book Value (Annual) data by YCharts

The company’s total assets did decrease from 2015 to 2016, primarily as a result of less cash on hand, but a decrease in total liabilities worked against this decrease, and shareholder’s equity increased from $1.28 billion to $1.44 billion.

The company’s debt decreased from $442 million to $436 million from 2015 to 2016, which is a positive for shareholders. The company’s debt to equity ratio is a low 0.31.

Price

BC data by YCharts

Unfortunately for investors thinking of buying into Brunswick, the company’s stock price has increased dramatically since November, surging roughly 42%. This dramatically decreases the margin of safety investors could hope for when buying into the stock. Although the analysis thus far goes completely in the company’s favor as a company, the price is certainly not as friendly as it was three months ago.

Currently, the company’s P/E ratio is 20.48 and its P/B ratio is 3.82. Both of these figures are not bad for the company’s sector, but it is still unfortunate that the surge in the company’s price occurred.

Conclusion

Brunswick is a fantastic company. It is growing consistently in multiple ways: by acquiring other companies, innovating and improving its line of products, and by organically increasing sales. The company’s diversification also helps its case. As it notes in its latest annual filing, although it has competitors in each of its segments, it is a global leader in all of them and no other individual company competes with Brunswick in all of its markets.

All this is great news for any potential investor. The company’s only blemish – which comes through no fault of its own – is its price, which has surged more than 40% since November. This dramatically decreases an investor’s margin of safety and should be noted as a negative. No matter how great a stock is, its value as a potential investment goes down as its price goes up.

Despite the increase in price, however, Brunswick’s quality as an investment still means it is a good investment candidate. Investors obviously cannot expect returns as high at current prices as they would have before, but the company continues to grow in a stable way and is composed in a way that limits is downside in the future.


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Brenda Lucas: Community news column for Monday, March 20

FIRST: Elijah Litteral, son of Sammy and Kara Litteral, of Ona, placed first in the 110-pound weight class at the Cabell County Middle School Wrestling Championship in early February. The Milton Middle School student has been the county champion in his weight class for the second year. He is also grandson of Sam and Charlene Litteral of Barboursville.

BIBLE: Huntington Unit of Church Women United offers Lenten Bible Studies Friday, March 24, March 31 and April 7 at Johnson Memorial United Methodist Church with the Rev. Terry Deane leading the study, “Feasting and Fasting: Life in the Spirit.” Fellowship begins at 10:30 a.m., followed by Bible study at 11 a.m.

RECOGNIZED: For the fifth year in a row, The Great Outdoors Marine in Lavalette has received national recognition as one of the boating industry’s “Top 100 Boat Dealers” from more than 5,000 dealers in North America. The award was presented at Marine Dealer Conference and Expo in Orlando in December. The dealership specializing in pontoon and fishing boat sales and service on boats and motors is the only West Virginia boat dealer to receive this award. It is also the only West Virginia boat dealer to have earned Marine 5-Star Certification. Owned and operated by Phil and Diane Daniel, the dealership has increased to 21 employees since its inception in 1991.

FIDDLER: Mark and Maggie O’Connor will “fiddle around” during their performance Thursday, March 23, at Shawnee State University, Vern Riffe Center for Fine Arts, Portsmouth, Ohio. The youngest person ever to win the Grand Master Fiddler Championships 40 years ago, Mark joins his wife in the performance as part of the Southern Ohio Performing Arts Association and Shawnee State University’s 21st year of entertainment. Tickets are $25; $24 seniors; $17 SSU students; $15 ages 12 and younger. Contact 740-351-3600.

HONORED: Three awards recently honored Tri-State women for service to the community at the 16th annual Women’s Philanthropy Society awards dinner at Guyan Golf and Country Club. The Focus Award was received by Jan Rader, interim chief of Huntington Fire Department. Elaine Harvey, vice president of Autism Services Center Board of Directors, was recipient of the Kitty Hage Lifetime Achievement Award. Abigail McNeely, 13, was presented the new Youth Service Award. Congratulations to Jan, Elaine and Abigail for these achievements.

NEWBORN: I remember when Kathy Rowley and Mark Chappell were married. Not only are they parents now, but grandparents. Their daughter and son-in-law, Rebecca and Cody Wallace, made them grandparents (not the first time) Feb. 21 with Kaitlyn Marie Wallace arriving in the world. Judy Rowley, special longtime retired Herald-Dispatch friend, is grandmother. Congratulations to this family on another of God’s many blessings.

LATE BIRTHDAYS: Eddie Mott, Jim Aldridge, March 3; Ron Wilson, March 5; the Rev. Jacque Parlato, pastor at Huntington’s Central Christian Church, March 7; Rob Stepp, March 14.

TODAY’S BIRTHDAYS: Teresa Foster, Brenda Jameson, Dallas Nibert, Carol Sumpter, Sally Lester, Joy Brown, Katie Fulks, Warren Faulknier, Brad Patterson, Jewell Stewart, Shirley Rolfe, Mic Boshell, Bill Jarrell, Kristi Dunlap, Allen Tufts, Dianna Racer.

TODAY’S ANNIVERSARIES: Travis and Kara Smith, Jim and Mary Lou Sullivan (1996), Mike and Jean Anne McClung, Bill and Pam Cooper celebrate 25 years.

CHUCKLE: After 60 years of marriage, a man and woman talked about everything, keeping no secrets from each other except the old woman had a shoe box in the top of her closet that she cautioned her husband never to open or ask about it. All these years he had never thought about the box, but one day the woman got very sick and the doctor said she would never recover. In trying to sort out their affairs, the old man took down the shoe box and took it to his wife’s bedside. She agreed it was time that he should know what was in the box. When he opened it he found two beautifully crocheted doilies and a stack of money totaling over $25,000. He asked her about the unusual contents. “When we were married,” she said, “my grandmother told me the secret of a happy marriage was to never argue. She told me that if I ever got angry with you, I should just keep quiet and crochet a doily.” The man was so moved, he had to fight back tears. Only two precious doilies were in the box. She had only been angry with him two times in the years of living and loving. He almost burst with joy and happiness. “Sweetheart,” he said, “that explains the doilies, but what about all this money? Where did it all come from?” “Oh,” she said, “that’s the money I made from selling the doilies.”

Send items to Brenda Lucas, P.O. Box 596, Ona, WV 25545; fax to 304-526-2857; or email to bklucas53@aol.com.

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