New-boat sales trends have improved in the last four to five weeks, but weather will dictate whether that trend continues or pent-up demand will be deferred to 2014.
That’s according to Timothy Conder, a senior analyst with Wells Fargo who evaluates the value of Brunswick Corp. stock.
“Based on our conversations with marine industry lenders, we believe May U.S. retail sales were up marginally year over year and early June sales are also up year over year,” Conder wrote in a report issued this morning.
Cool weather patterns in the South and Southwest, as well as wet weather in the northern and central United States, contributed to lagging year-over-year sales in May, Conder says.
“Clearly the Q1 2013 and YTD U.S. boating (and powersports) industry retail sales have been negatively impacted by cooler and wetter-than-normal weather in the eastern two-thirds of the nation through May, versus abnormally warm and dry conditions in the year-ago period,” Conder says.
That has created “significant pent-up demand,” particularly in Northern states, where consumer confidence has remained steady, credit and housing have continued to improve, new- and used-boat inventory are near record lows and dealers remain optimistic.
“Admittedly, it appears that a portion of the 2013 season in the U.S. will be deferred to 2014, absent an unusually strong late June/July finish to the key retail sales period,” the report said.
Year-to-date early June unit sales continue to lag on a year-over-year basis, given the comparisons with last year’s numbers, and challenging April and sporadic May weather. From a wholesale perspective, 75 percent of second-quarter industry shipments are for pre-sold products that must be delivered by July 4, given generally non-refundable customer deposits.
“Therefore, we believe the swing factor in Q2 and Q3 U.S. retail sales will be ‘walk-up’ sales of primarily smaller aluminum boats and engines,” the report said. “We believe weather through early July will be the near-term determinant of the degree that pent-up year-to-date retail demand is realized or deferred for 2014.
Brunswick is well-positioned to gain share in a slow-growth environment since its new cost structure is providing improved profitability at materially lower production levels, the report said. Wells Fargo maintained the company’s “outperform” rating and estimated its valuation range as being between $39 and $41, with earnings per share of $2.70 to $3.20.
— Reagan Haynes