Market spotlight: No smooth sailing for boating companies

It hasn't been smooth sailing for boating companies lately. They have seen their stocks founder as weaker discretionary spending continues to hurt profits and cloud near-term prospects.

Earlier this month, recreational boat retailer MarineMax Inc. swung to a second-quarter loss, blaming the economic slowdown. Its shares have plunged 31 percent since the start of the year and have declined 47 percent in the past 52 weeks.

Boating gear retailer West Marine Inc.'s first-quarter loss widened as margins weakened, and boat maker Brunswick Corp. saw its first-quarter profit tumble 71 percent. West Marine shares are down 46 percent since the start of the year and have dropped 65 percent over the past 52 weeks. Brunswick shares have declined 12 percent in the year-to-date period and have fallen 56 percent over the past year.

Looking ahead, Jeffrey Blaeser of Morgan Joseph expects lower sales at West Marine to continue pressuring margins this year amid "extremely challenging" industry conditions. He has a "Hold" rating on the stock.

Timothy Conder of Wachovia Capital Markets LLC said dealer inventories remain high according to industry lending sources. He slashed his earnings estimates for Brunswick citing restructuring costs and lower assumed boat production. He rates Brunswick "Market Perform."

The seas have been less choppy for Marine Products Corp. The fiberglass boat maker's first-quarter profit climbed 5 percent as a result of a lower tax rate but the company said it had to slash an unspecified number of jobs due to the economic climate. Chief Executive Richard A. Hubbell cautioned that escalating fuel costs, the housing slowdown and other factors will pressure the sector. The company's stock has gained 13 percent since the start of the year, and is down just 4 percent over the past 52 weeks.

Kurt Frederick of Wedbush Morgan Securities says he is concerned about rising gas prices and the housing downturn in California and Florida, which are key boating regions. He has a "Hold" rating on Marine Products.

Wachovia's Conder also notes dealer inventories remain high. Promotional efforts, along with production cuts, are being ramped up to avoid further inventory buildup before June, the end of the 2008 model year.