Marine Products Q2 2024 Earnings Report

Marine Products EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.14
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.42

Marine Products Revenue Results

• Actual Revenue: $69.55 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Marine Products Announcement Details

• Quarter: Q2 2024
• Date: 7/25/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, July 25, 2024
• Conference Call Time: 8:00AM ET

Marine Products (NYSE:MPX), headquartered in Sparta, Michigan, designs and manufactures inflatable and rigid-hulled inflatable boats (RIBs) for recreational, commercial and governmental customers. Established in 1954, the company leverages decades of engineering expertise to deliver vessels for applications such as law enforcement, search and rescue, military operations, offshore support and luxury yacht tenders.

The firm’s product lineup includes a variety of RIBs and inflatables constructed from advanced composite hulls and high-performance fabrics. Offerings range from compact sport boats and yacht tenders to heavy-duty workcraft, patrol vessels and rescue boats. Marine Products also supplies marine safety equipment, including life rafts and related flotation systems, marketed under multiple brand names through an international dealer network.

Serving customers across North America, Europe, Asia-Pacific and Latin America, Marine Products combines in-house production with strategic partnerships at facilities in key regions. Its aftermarket services encompass parts supply, maintenance programs and customization to meet mission-specific requirements. Throughout its history, the company has focused on innovation in hull design, materials technology and compliance with global marine safety standards to support a diverse range of marine operations worldwide.

Marine Products Q2 2024 Earnings Call Transcript

Key Takeaways

• Q2 sales were down 40% year-over-year to $69.5 million on a 41% drop in boats sold, and gross profit fell 54% with margins down 580 bps.
• Management reduced production schedules and implemented cost reduction initiatives to align with lower demand and improve plant efficiency during this soft period.
• Field inventory at dealers declined over 15% in Q2, supported by extended promotions, and potential interest rate relief could boost customer financing sentiment.
• The company remains debt-free with over $55 million in cash, generated $20 million in operating cash flow year-to-date, and has returned substantial capital through dividends, positioning it for strategic opportunities.
• Marine Products is launching its 2025 model year with a host of incremental improvements at the upcoming dealer conference celebrating Chaparral’s 60th anniversary, underpinned by ongoing R&D.

Presentation

[Operator]

Good morning, and thank you for joining us for Marine Products Corporation's second quarter 2024 financial earnings conference call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmit, Chief Financial Officer. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at the time for you to queue up for your questions. I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmit.

[Mike Schmit, CFO at Marine Products Corporation]

Thank you, and good morning. Before we begin, I want to remind you that some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. Please refer to our press release issued today, along with our 2023 10-K and other public filings that outline those risks, all of which can be found at marineproductscorp.com. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release issued today and our website contain reconciliations to these non-GAAP measures to the most directly comparable GAAP measures. I will now turn the call over to our President and CEO, Ben Palmer.

[Ben Palmer, President and CEO at Marine Products Corporation]

Okay, thank you, Mike. Thank you all for joining our call. Second quarter results were again stable from a sequential standpoint compared to first quarter. However, they remained negative compared to prior year, as we had anticipated. The key themes and headwinds for the boat manufacturing industry remain the same, and Marine Products is no exception. We and our competitors are still grappling with dealer hesitation to aggressively order boats as they attempt to clear inventory from their showroom floors. Compounding the excess inventory issue are interest rates that remain relatively high, keeping up with pressure on dealer carrying costs. We are being proactive in managing costs and production schedules during this soft period, but simply put, we believe these challenges will continue to hamper our financial results in the near term. As we said last quarter, we've reduced our production schedules to align with lower demand.

[Ben Palmer, President and CEO at Marine Products Corporation]

We continue to use this time to undertake projects to improve plant operations so that we will operate even more efficiently once normalized demand returns. With regard to dealer inventory, I'll echo my comments from last quarter, that we remain comfortable with the level of our products in the field, but we continue to hear that high inventories are still an issue for many dealers, often in categories where we do not compete. After several quarters of increasing field inventories, we were pleased our field inventory declined over 15% in the second quarter. We continue to support our dealers with promotions to help them stimulate demand, and we've extended our programs, as we believe maintaining these incentives is crucial to motivate consumers in light of elevated financing costs.

[Ben Palmer, President and CEO at Marine Products Corporation]

As many of you are closely watching the interest rate outlook, we are encouraged that recent economic commentary suggests we are nearing some interest rate relief. While we don't believe a single Fed move to cut rates will have a dramatic impact on demand, it would be a first step towards potential additional future cuts and improved sentiment that financing costs could trend lower. As we are launching our 2025 model year, we're excited to host our dealers at our annual conference in Key Largo in August. This year, we have particular cause for celebration, as we will mark the Chaparral brand's 60th anniversary. Chaparral has been a leading pleasure boat brand for decades, and we believe its reputation for innovation, design, customer satisfaction, and value are second to none.

[Ben Palmer, President and CEO at Marine Products Corporation]

We can't wait to celebrate with our dealers, connect with them to see how we can support their businesses in the year ahead, and introduce some exciting changes for the new model year. Without stealing the thunder from our conference, we can surely say we're bringing forth a host of incremental improvements and options and new models for both Chaparral and Robalo boats as a result of our consistent R&D and innovation programs. We take great pride in our efforts to listen to consumer and dealer feedback when designing our boats. We approach each model year as a new opportunity to refine our offerings and give customers features, colors, options, materials, and designs that maintain the high standards they are accustomed to from our brands. Again, to our dealers out there listening to the call, we look forward to seeing you in August and continuing our collaborative partnerships.

[Ben Palmer, President and CEO at Marine Products Corporation]

Now, Mike will provide an overview of the financial results.

[Mike Schmit, CFO at Marine Products Corporation]

Thanks, Ben. For the second quarter of 2024, compared to the second quarter of 2023, sales were down 40% to $69.5 million, driven by a 41% decrease in boats sold, price and mix netted to a positive 1%. Of note, last year's second quarter sales of $116 million were the second highest in the company's history. While we typically focus on year-over-year comparisons, I'd also like to note that sales were sequentially stable with the first quarter of 2024. Gross profit decreased 54% to $13.2 million, with a gross profit margin of 18.9%, down 580 basis points versus last year's very strong results. Despite significant cost reduction efforts and paring back production schedules to minimize variable costs, we are being impacted by underabsorption of certain fixed costs. SG&A expenses were $7.4 million in the quarter, down 39% or $4.7 million compared to last year's second quarter.

[Mike Schmit, CFO at Marine Products Corporation]

These expenses decreased due to costs that vary with sales and profitability, such as incentive compensation, sales commissions, and warranty expenses. Diluted EPS was $0.14 in the second quarter, down from $0.42 last year. The reported EPS of $0.14 is $0.02 lower for the second quarter than if you simply divided net income by the average shares outstanding. This difference is a result of our calculating EPS under the two-class method, which is required by GAAP and was primarily triggered by our second quarter special dividend. This is footnoted in our earnings release table. EBITDA was $6.5 million, down from $17.1 million, with EBITDA margin decreasing 540 basis points to 9.3%. While this margin was down versus prior year, it did increase sequentially from 8.5% in the first quarter of 2024.

[Mike Schmit, CFO at Marine Products Corporation]

Year to date, we have generated operating cash flow of $20 million and free cash flow of $18 million. CapEx was $1.7 million and is expected to pick up in the second half of the year with our planned solar panel installation at our manufacturing facility in South Georgia. We expect CapEx to be approximately $5 million for the full year. I'll now turn it back over to Ben for a few closing remarks.

[Ben Palmer, President and CEO at Marine Products Corporation]

Thanks, Mike. I want to acknowledge that Marine Products and the rest of the marine industry are going through a challenging period following recent years' unparalleled industry demand. We know these declines have presented significant hurdles for our employees, dealers, and of course, shareholders. We want to assure all our stakeholders we are taking actions to preserve the health of our business, managing conservatively and with discipline, and making sure Marine Products is positioned for success when market demand improves. As we navigate this environment, we have remained debt-free and accumulated significant cash. As a result, we have returned a substantial amount of cash to our investors year to date through both our regular $0.14 per share dividends and the $0.70 special dividend we paid out in the second quarter.

[Ben Palmer, President and CEO at Marine Products Corporation]

Even following these distributions, we ended the second quarter with over $55 million in cash on the balance sheet. This ensures ample liquidity to weather the current difficult patch in this cycle, make organic investments in the business, and maintain the flexibility to pursue strategic acquisitions. However, as we noted last quarter, over time, we do not execute on transactions. If we do not execute on transactions, we will look at further actions to return capital to our investors. So before we turn the call over for questions, I'd like to thank our employees for their contributions every day and our dealers who continue to partner with us for mutual success. We're excited about model year 2025 and looking forward to our upcoming dealer conference in August. With that, Operator , please open the line for questions.

[Operator]

So much, Mr. Palmer. We are now opening the floor for a question-and-answer session. If you'd like to ask a question, please press star one. Again, that's star one. We will pause for a brief moment to wait for the questions to come in. We have our first question from Griffin Bryan from D.A. Davidson. Your line is now open.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Yeah, good morning, guys. So can you kind of talk about the cadence of retail throughout the quarter and why maybe we saw such a big drop in June? And then maybe speak to if those trends we saw in June are carrying over into July?

[Ben Palmer, President and CEO at Marine Products Corporation]

Griffin, this is Ben. As we indicated, our field inventory dropped during the second quarter. Um, there are reporting delays between actual sales and when those get reported with registration information and things like that. But it was um, we didn't necessarily see from our perspective, of course, we were one removed from the actual retail sale. Uh, but we saw that you know, it did have strength relative to the first quarter, which is quite typical. And we did see that. We did, as I indicated again, repeating myself, we did see our field inventory decline. Obviously, there was a difference between the amount of boats that were going out at retail versus the number of boats that we were uh shipping to our dealers. So we were pleased with that. And uh, you know and the normal pattern is that sales begin to moderate after the spring and early summer selling season.

[Ben Palmer, President and CEO at Marine Products Corporation]

So we would expect that to be a normal pattern. But we haven't seen any for our results. We haven't seen a significant uh unusual uh change in the sales cadence.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Got it. And then what are you guys hearing from dealers regarding their appetite to take on some of the new model year 2025 units? You know obviously, there's still quite a bit of destocking that needs to happen within the industry. So I'm just kind of curious what the strategy is there for both you guys and the dealers.

[Ben Palmer, President and CEO at Marine Products Corporation]

Well, we are following our consistent policy of you know working with our dealers to we have various order points during the year that help us and the dealers communicate and collaborate to collect orders uh for the coming uh few weeks, several weeks, and few months so that we can plan our production. So we continue to follow that process. We are, we are building only two firm orders from dealers. Uh, so that's going well from that perspective, but we're not you know we're not building boats on spec or anything like that. So our cadence of production is tied to the number of orders we have in hand. Our dealers are you know with I think they would love to order uh more of the 2025 model excuse me, the 2025 model year boats. We understand they're mindful of their inventory that they already have in place.

[Ben Palmer, President and CEO at Marine Products Corporation]

So we're all trying to work to balance that out appropriately between now and next spring selling season. So uh, we understand that, uh but we're working closely with the dealers. And they've been, as always, great to work with. And they understand our model and approach. So far, so good, but we'll just have to be patient and let demand pick up, take care of the overall inventory that they have in the field. And hopefully, in the coming months, we'll be able to return to a little bit more of a normal order pattern and therefore more of a normal production levels.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Got it. And then in terms of promotions, is there a possibility that these could get even more aggressive, or is it more just kind of extending the timeline of these offerings?

[Ben Palmer, President and CEO at Marine Products Corporation]

Uh we, from time to time, will tweak the programs, but we think the program is appropriate and attractive. That's a balancing act. We don't, at this point, aren't panicking and feel that we need to do anything extraordinary, right? We just think it will take some time for it to work through. Uh and we think we're at a reasonable steady state right now. And we are continuing the program. We will continue to offer those programs to support sales, obviously focused at the older model year boats. But we're comfortable with where they are right now.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Great. And then what data points would give you guys confidence to bring back production to a more normalized level? And is that something that's even possible this year?

[Mike Schmit, CFO at Marine Products Corporation]

Yeah, I think we don't do spec boats. So for us, the data point would be getting the orders in from our dealers. So I think when we meet with our dealers next month at our dealer conference, we'll get a lot of great data points from them on how things are going and what they're seeing. And we typically get a lot of orders for the new models at that conference. And we're expecting it to be a really large, successful conference as we celebrate the 60th anniversary of the Chaparral brand this year. So we're expecting there to be a lot of enthusiasm around some of the models. And we're expecting to get more orders then as well. So it's really just the orders we get directly from the dealers rather than anything else.

[Ben Palmer, President and CEO at Marine Products Corporation]

Yeah. Obviously, the third and fourth calendar quarters are seasonally slower periods. I'm not expecting at this point that retail demand is going to pick up during that period. It's going to be dealers projecting forward, right? Looking at their exit there, the status of their current inventory, and projecting forward to next spring. We all work collaboratively to try to smooth out our production somewhat over a particular model year. So they realize, we realize, and they realize that all the boats that are needed for next spring and summer can't be delivered in the first quarter or very early in the second quarter. So it has to be smoothed out. They understand that. We have long relationships with the dealers. So they will have to do their projections on what they see for the selling season in the future.

[Ben Palmer, President and CEO at Marine Products Corporation]

We'll work together with them, accumulate up the orders we have in hand, and set our production levels accordingly. So we'll just have to. It's a reasonable question, but we'll just have to wait and see. Difficult to see that everybody's going to have a clear view of what next spring is going to look like in the near term, right? With interest rate cuts, hopefully, there'll be some enthusiasm. But I expect that people will remain somewhat conservative for the time being.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Makes sense. And just last one for me. In terms of capital allocation, what are you guys seeing in the M&A environment? And is that something you guys would still be interested in participating in at this point in the cycle?

[Mike Schmit, CFO at Marine Products Corporation]

Yeah, we're definitely interested. There just hasn't been a lot of good companies out there that are looking to sell. I mean, I think everyone saw the valuations of a couple of years ago when sales were great and wanted to get a high valuation. And now the projections of the overall industry are much lower. And so it's going to take some time to kind of settle in on what the new reality is and what the new kind of steady state is going forward. So we're definitely looking. That's why we've still maintained a strong cash balance. We would love to do some M&A, but we're not going to do it for the sake of doing it. We want to make sure it's the right brand and right category for us. So we're definitely looking. There just hasn't been a lot of movement in M&A in the space.

[Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson]

Great. Thanks, guys. Best of luck in the quarter.

[Mike Schmit, CFO at Marine Products Corporation]

Thank you.

[Ben Palmer, President and CEO at Marine Products Corporation]

Thank you.

[Operator]

If you'd like to ask a question, please press star one. Again, that's star one. Thank you. As of right now, we don't have any questions. I'd now like to hand back over to Mr. Ben Palmer for final remarks.

[Ben Palmer, President and CEO at Marine Products Corporation]

All right. Well, thank you, everybody, for calling in and listening in and for your questions there, Griffin. Everybody, hope you have a good day, and we'll hopefully connect soon. Take care.

[Operator]

Thank you. This concludes today's call. The conference call will be replayed on marineproductscorp.com within 2 hours following the completion of the call. You may now disconnect. Have a wonderful.

Participants

Executives

• Ben Palmer, President and CEO
• Mike Schmit, CFO

Analysts

• Griffin Bryan, Associate VP and Research Analyst at D.A. Davidson