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Colder weather colors analyst’s latest report

B. Riley’s analysis of the marine industry produced a largely positive outlook for all four companies it covers — Brunswick Corp., MarineMax, Marine Products Corp. and West Marine — despite the fact that early spring sales have lagged somewhat because of cold weather in much of the United States.

Weather prompted the firm to revise its guidance downward for MarineMax and West Marine, although analyst Jimmy Baker said MarineMax is well-positioned to outpace an overall marine recovery.

“A few things about MarineMax are impressive,” Baker told Trade Only Today. “We see them as really well-positioned to benefit from this overall recovery in the 40-foot-and-above market. They have exclusive distribution to the best-selling brand in Europe, Azimut, in the category. They have been dominant in Brunswick distribution. They’re being armed with some compelling Brunswick product in that category that should hit in 2014 and 2015.”

Customers also seem more willing to do business with larger and stronger players, Baker said. “Whether that’s because the end customer is not willing to do business with a smaller dealer or smaller builders are struggling to get floorplan financing and products, so they are gravitating to stronger players, I don’t know. But I think that flight to quality plays into MarineMax’s hands.”

The company’s sales in warmer geographic areas, such as Florida, which accounts for about half of its sales, have outpaced the overall market.

“By segment, we expect outsized unit growth from jetboats, high ASP inboard cruisers, tournament towboats and certain outboard applications,” the report said. “Given these mix factors and continued improvement in Florida, we continue to recommend MarineMax as our top covered pick in the space, though we are tempering near-term expectations slightly due to challenging early season weather.”

The earnings-per-share guidance for the year has dropped to 56 cents from 72 cents, but the estimates for fiscal years 2015 and 2016 remain unchanged.

“MarineMax remains our top covered idea in the space, though some near-term caution may be warranted — and a superior buying opportunity may be presented — as investors digest the weather impact on early season profits,” the report stated. The firm maintained the company’s buy rating.

Brunswick received more favorable feedback as well, with Baker saying dealer response to product unveilings had been favorable.

“One of the most positive takeaways I had was talking to some of these same dealers that had been very critical of lack of innovation and gaps in Sea Ray’s portfolio,” Baker told Trade Only Today. “Those are the same dealers who are very upbeat about reception to these new products. I think there’s pent-up demand for this brand.”

Sea Ray is addressing some significant trends in boating, Baker said, with the 350 SLX acting as the company’s “home run.”

“There is pent-up demand for that boat lasting deep into the summer, maybe even fall,” Baker said, citing conversations with many Brunswick dealers. “Over the last couple of years, we’ve had some mixed reads on Brunswick boat products, where the outboard products seemed a lot stronger than sterndrive. But it seems like there are opportunities for improvements in Sea Ray and Bayliner brands, and particularly with Sea Ray now that the new product cycle has really kicked into high gear.”

“We continue to warm up to Brunswick Corp. and will search for opportunities to become more constructive,” the report said. “We see no need for estimate revisions at this time (recall management previously telegraphed a slower start to Q1 due to weather when it introduced 2014 guidance).”

B. Riley maintained the company’s neutral rating with guidance unchanged with a target of $47.50.

B. Riley expects sales for Marine Products, the maker of Chaparral and Robalo boats, to flatten at about 14 percent in 2014, maintaining its neutral rating at a $9 target.

“Opportunities for significant sterndrive share gains from current levels could prove challenging, in our view, given incremental/improved competition. We expect the company’s growth in 2014 and 2015 to be driven more by a modest market recovery and the launch of its Vortex jetboat line,” the report said.

Although the firm has not rated Malibu Boats, early checks indicate that tournament towboats continue to benefit from strong demand and innovation, according to the report.

West Marine’s guidance was also revised down a penny for the year. Because the company offered 2014 guidance later in the first quarter than other recreational marine companies the firm covers, B. Riley analysts think the early season weather impact was reflected in the company’s initial expectations.

“While we expect [West Marine] to continue to benefit from its primary growth initiatives … we must still acknowledge that the overwhelming majority of its sales are currently derived from core usage-related product sales that can be significantly influenced by weather,” the report said.



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