After buoyant sales last quarter, Marine Products Corporation (MPX 2.22%) is seeking to ride current momentum for the rest of the year. Long term, this designer, manufacturer, and distributor of premium-branded pleasure and sport fishing boats aims to diversify its offerings and strengthen its dealer network.
Let's examine Marine Products' performance last quarter and determine whether this consumer discretionary stock is a buy-and-hold investment.
Profits surge 44%
The Atlanta-based company drove $116.2 million in sales for the second quarter, marking a 21% rise over the same period last year. According to CEO Ben Palmer, Marine Products' ability to deliver more completed boats to its 206 domestic and 92 international independent authorized dealers helped "satisfy our dealers' inventory needs during the retail selling season."
Improvements in Marine Products' supply chain boosted the company's ability to finish and ship "a favorable mix of boats to satisfy dealer demand," according to CFO Michael Schmit. During the company's Q2 earnings call late last month, he explained how unit sales gained 11% on 10% higher selling prices, and gross profit surged 25% beyond last year's Q2 result to hit $28.7 million. Net income came in at a most impressive $14.3 million, marking a 44% year-over-year increase.
International sales, which account for roughly 7% of Marine Products' total sales, grew by 4% versus Q2 of last year. Marine Products builds its boats under the brands Chaparral and Robalo, comprising a line of luxury leisure and sport fishing boats sold across the world. Considering that its 92 non-U.S. dealers make up more than 30% of its total dealer count, the company's international market share has plenty of room to grow.
Supply chain issues persist
While operating efficiencies and a more favorable model mix helped bolster sales last quarter, profitability remained relatively stagnant. Q2 gross margin ended at 24.7%, a slight improvement over last year's 24% during the same period.
Higher selling, general, and administrative expenses were partly to blame, up 23% versus last year to reach $12.2 million. That's a modestly higher percentage of net sales than in Q2 of 2022. Schmit explained that this increase was expected due to better sales and their associated commissions, incentives, and warranty costs. In addition to dealers having a better mix of boats to sell, MPC's price increases were raised due to higher material and component costs last quarter.
Supply chain and logistical issues also challenged Marine Products last quarter, as certain "critical components" remain difficult to procure on time, according to Palmer. He did, however, note improvements in the company's supply line versus prior quarters, and how the company was able to ship more units than it produced. As a result, Palmer boasted a lower inventory balance and a "strong cash balance" moving into the third quarter.
Looking ahead
With their inventories now at the lower end of the historical range, dealers can both meet current demand and place orders for 2024 models. In the company's Q2 earnings release, Palmer stated: "Indicators of dealer demand continue to be positive regarding the upcoming model year," while also hinting of consumer concerns about heightened interest rates and "the possibility of an economic slowdown."
During the earnings call, Palmer affirmed that "our market share remains strong," highlighting how Chaparral's sterndrive market share had reached the top spot in its category. Marine Products' recently launched 2024 line has been well received by dealers so far. It's designed for both customer appeal and manufacturing efficiency.
With "some of the healthiest dealer inventories and backlogs in our industry," Palmer and team are "prepared for whatever market conditions unfold in the next few months."
Is Marine Products stock a buy?
Schmit explained how a $66.2 million cash balance to finish Q2 -- $3.6 million higher than in the first quarter of this year -- was the outcome of "profitable operating results and reduced working capital requirements, partially offset by recent capital expenditures." If the company can maintain course, I anticipate seeing better revenues along with better margins.
Marine Products also announced a regular quarterly cash dividend of $0.14 per share, payable on Sept. 11. After reaching a relative high of $17.73 last month, the stock has since dropped roughly 10% to its current price. Based on recent company achievements and sentiment, I say buy the dip on Marine Products stock for a long-term hold.
