According to boating tome David Pascoe, the future of powerboating is grim. Hope he's wrong. Read & decide for yourself.
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DAVID’S BOATING TREND ANALYSIS
Finance, Fuel Prices, Economics, Boats, MarketsHome About MarineMax – First to Go?
By David Pascoe
Monday, November 19, 2007
Readers of Yachtsurvey.com are well familiar with my disdain for the Big Three boating cartel of Brunswick, Genmar and MarineMax. It is positively stupid to conglomerate an industry as marginal and financially unstable as this one. This is always the first of the discretionary spending industries to take the hit when the economy suffers a downturn.
But one must remember that old Patty Page song about fools rushing in where wise men fear to tread.
Alas, the world has no shortage of fools.
Frankly, I did not expect these companies to survive the 2001 dot.com crash which sucked $5 trillion of easy money out of the economy, but I underestimated Allan Greenspin’s penchant for generating money floods. This time will be different; the massive Ponzi scheme of the Wall Street-Washington financial axis has taken on all the characteristics of a gunman in an elementary school. Lockdown. Or perhaps more correctly, lock up.
An economy which functions on credit as easy as greased lightning just as quickly falters and begins to shutdown once the grease is removed. The lightning then becomes one helluva shocker. Credit is drying up. “We have not seen a nationwide decline in housing like this since the Great Depression.” Incredibly, those words came out of the mouth of Wells Fargo CEO John Stumph. Similar utterances came from Jan Hatzius, chief economist at Goldman Sachs, “The slump in credit markets . . . will [result] in lending reductions of $2 trillion.”
The first principle of survival in the marine business is diversification. MarineMax has done just the opposite.
MarineMax runs marinas and stores and is a boat retailer that is highly concentrated (46%) in Florida with 46% of revenue derived from high end yacht sales. While we hear about housing prices falling by 4-8% nationally, in Florida, like California, that number is probably closer to 40% (I estimate my own Florida home value down by that much.) But it doesn’t matter how much anyone estimates price declines when nothing is selling to back up those estimates. And if people aren’t buying houses or autos, they certainly won’t be buying boats. They won’t buy because they can’t get credit, even if they want to buy, which people don’t.
While I have no access to new boat sales Q-2 or Q-3, but I can confirm that used boat sales are at a complete standstill. I can only estimate that sales are off by more than 90%. Yet here’s the rub: used boat sales are normally 5-7 times the volume of new boat sales, so if used boats aren’t selling, it’s a certainty that new ones aren’t either.
A recent analyst’s report states that the MarineMax balance sheet has “some potentially debilitating weakness.” That analyst is being modest. “it’s only real strength . . . is that it has about $130 million borrowing capacity . . . “ The company has $103 million in cash and receivables and $434 million in current liabilities. Total assets are $600 million but nearly $500 million of that is in inventory, boats that it will be unable to sell, but must sell to meet its obligations. The proverbial rock and the hard place.
Says the analyst, “a swing into negative cash flow over the next two quarters would truly put the company on shaky financial footing, with potential for default not out of the question if the company fails to unload its inventory. If weakness in sales were to last beyond two quarters . . . MarineMax could be pushed to the brink of insolvency.” [1]
Keep in mind that we’ve not had a serious recession in more than 25 years because the Fed has doused the fires with floods of money. Previously, downturns began in the middle of the economy. Remember downsizing in the late 1990’s when it was the middle ranks of employment that suffered the brunt? Midsize boat sales took a hit, but small and large yachts did not. This time is different. With a financial meltdown in progress, the big hit starts at the top as the massive credit derivative wealth evaporates and hedge funds implode, padlocking the door of big easy money, a fact that clearly shows up in the huge ballooning of larger yacht listings in recent months. Mr. Fat Cat is on a force diet. This, of course, is rapidly filtering down to all income levels.
Add to this volatile mix sustained fuel prices above $3.00 gallon and there is not a lot of cause for optimism. Seen any trailer boats on the road lately?
MarineMax is poised to be the first of the marine dominoes to fall, but others will fall in rapid succession. This recession will be no one-quarter miracle as in 2001. The locked up credit markets due to abuses will take at least several years to unwind, far too long for any of these conglomerates to survive.
Special Note: This scenario, of which I am certain, leads to the obvious question of what will the future of the boating industry look like. We can confidently conclude that the shoreline will appear radically different five years from now, bearing in mind that the age of cheap oil is clearly at an end. Red Sails in the Sunset, perhaps. I will be exploring these possibilities in the coming weeks, so stay tuned.
[1] Source: MarineMax on Shaky Ground
at Seeking Alpha (Mon, Oct 1) via Yahoo Finance
The figures do not reflect the 4th Quarter and fiscal year 2007 ended 9-30-07.
November 19, 2007 - Posted by David Pascoe | Marine Industry | boating industry, HZO, Marine Industry, MarineMax | No Comments
