2005 national marine bankers association conference ...€¦ · aug’05 105.6 vs. 98.7, dec’04...

1

2005 National Marine Bankers Association Conference

Nashville, TNSeptember 13, 2005

Leisure: An Industry PerspectiveTim Conder, Leisure Analyst

2Disclosure Information: Please refer to slides 56-57 of this presentation for important disclosure information.*All ratings, estimates, and and pricing are as of September 9th, 2005, unless otherwise indicated.

A.G. Edwards Leisure Coverage

3

A.G. Edwards Leisure Coverage-Ratings

Carnival Corp (CCL-49.70) Buy/Aggressive $65Royal Caribbean (RCL-41.88) Buy/Aggressive $60

Brunswick Corp (BC-44.45) Buy/Aggressive $55Harley-Davidson (HDI-49.92) Buy/Aggressive $55Polaris Industries (PII-53.60) Buy/Aggressive $62

Hasbro (HAS-21.45) Hold/Aggressive N/AMattel (MAT-18.66) Buy/Aggressive $23RC2 Corp (RCRC-38.99) Buy/Aggressive $45

International Speedway (ISCA-53.85) Hold/Aggressive N/ASpeedway Motorsports (TRK-36.99) Hold/Speculative N/A

Callaway Golf (ELY-14.84) Hold/Aggressive N/ACedar Fair LP (FUN-31.21) Hold/Aggressive N/A

Name (Symbol) Rating/Suitability PO

Priced as of September 9, 2005

Please refer to pages 51-54 of this report for important valuation and risk discussions.

4

Macro Economic Overview-Consumer Confidence

Consumer confidence remains strong. Aug’05 105.6 vs. 98.7, Dec’04 102.7

1) Consumer confidence among those earning $35,000+ has generally been the

strongest vs. those earning less than $35,000 since the Iraq War. 2) Consumer confidence is only 20% correlated to plans to take a vacation over

the next 6 months.

Consumer Confidence(1980 - Present)

507090

110130150

Jan

-80

Jan

-81

Jan

-82

Jan

-83

Jan

-84

Jan

-85

Jan

-86

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

-50%-35%-20%-5%10%25%40%55%70%

Consumer Confidence Index YoY % Change

Source: Economy.com and Consumer Confidence Board

5

Macro Economic Overview-Consumer Confidence (cont.)Consumer Confidence- Income Breakdown

YoY % Chg - Since Jan'03

-60%-50%-40%-30%-20%-10%

0%10%20%30%40%50%60%70%

Jan-

03

Feb-

03

Mar

-03

Apr-

03

May

-03

Jun-

03

Jul-0

3

Aug-

03

Sep-

03

Oct

-03

Nov

-03

Dec

-03

Jan-

04

Feb-

04

Mar

-04

Apr-

04

May

-04

Jun-

04

Jul-0

4

Aug-

04

Sep-

04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb-

05

Mar

-05

Apr-

05

May

-05

Jun-

05

Jul-0

5

Aug-

05

Under $15K $15K - $25K $25K-$35K $35K-$50K $50K Plus

Consumer Confidence- Age Breakdown YoY % Chg - Since Jan'03

-60%-50%-40%-30%-20%-10%

0%10%20%30%40%50%60%

Jan-

03

Feb-

03

Mar

-03

Apr-

03

May

-03

Jun-

03

Jul-0

3

Aug-

03

Sep-

03

Oct-0

3

Nov-

03

Dec-

03

Jan-

04

Feb-

04

Mar

-04

Apr-

04

May

-04

Jun-

04

Jul-0

4

Aug-

04

Sep-

04

Oct-0

4

Nov-

04

Dec-

04

Jan-

05

Feb-

05

Mar

-05

Apr-

05

May

-05

Jun-

05

Jul-0

5

Aug-

05

Under 35 35-44 55+

Source: Economy.com and Consumer Confidence Board

6

Macro Economic Overview-Consumer Confidence (cont.)

Consumer confidence strength supported by:

1) Continued growth in real disposable income. 2) An improving employment outlook.

Real Disposable Personal Income Growth

(1980 - Present)

$0$2,000$4,000$6,000$8,000

$10,000

1/1/

80

1/1/

82

1/1/

84

1/1/

86

1/1/

88

1/1/

90

1/1/

92

1/1/

94

1/1/

96

1/1/

98

1/1/

00

1/1/

02

1/1/

04

0%2%

4%6%

8%

12 Mo. Mov. Avg YoY % Change

U.S. Unemployment Rate (%)

0

2

4

6

8

10

12

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Source: Economy.com; U.S. Department of Labor Bureau of Labor Statistics

7

Macro Economic Overview-Consumer Confidence (cont.)

Boats, RVs, and ATVs most sensitive to changes in consumer confidence.

• Highest correlations between consumer confidence and unit sales among Leisure sub-industry sectors are for:1) Boats (RVs very similar) at 65%-70%, and2) ATVs at 50%-55%

• The Present Situations component of the consumer confidence tends to be more dominant than the Expectations component for Boats and ATVs.

• Correlations highest without any lag effect.• Boats/RVs moderately correlated to disposable income, ATVs are not.

8

Concerns Facing the U.S. Consumer

1) Variable rate mortgage and non-mortgage components of consumer debt.

2) Energy prices.

Mortgage and Non-Mortgage Consumer Debt(1980 - Present)

$0$10,000$20,000

$30,000$40,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Mortgage Debt Consumer Non-Mortgage Debt

Mortgage Debt CAGRs:1980-1986: 9.7%1987-1992: 9.5%1993-1998: 6.1%1999-2004: 10.8%

Non-Mortgage Consumer Debt CAGRs:1980-1986: 10.5%1987-1992: 3.8%1993-1998: 10.4%1999-2004: 6.8%

Source: Fannie Mae; fhfb.gov

9

Concerns Facing the U.S. Consumer (cont.)

Total Debt Payment as a Percentage of Disposable Income*(1980 - 2004)

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

1980

Q1

1981

Q1

1982

Q1

1983

Q1

1984

Q1

1985

Q1

1986

Q1

1987

Q1

1988

Q1

1989

Q1

1990

Q1

1991

Q1

1992

Q1

1993

Q1

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

*Represents total consumer and mortgage payments

Source: Fannie Mae; fhfb.gov

10

Concerns Facing the U.S. Consumer (cont.)L o w ra te s h a v e a llo w ed co n su m ers to lo ck in lo w in terest m o rtg a g es (J u l’0 0 -J u l’0 3 ) o n n ew p u rch a ses a n d re fin a n c in g s so m ew h a t p ro tec tin g p u rch a sin g p o w er a g a in st h ig h er in terest ra te s .

Source: Mortgage Bankers Association; Federal Reserve Board

11

Concerns Facing the U.S. Consumer (cont.)L o w ra te s h a v e a llo w ed co n su m ers to lo ck in lo w in terest m o rtg a g es (J u l’0 0 -J u l’0 3 ) o n n ew p u rch a ses a n d re fin a n c in g s so m ew h a t p ro tec tin g p u rch a sin g p o w er a g a in st h ig h er in terest ra te s .

U.S. Unemployment Rate (%)

0

2

4

6

8

10

12

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Source: Mortgage Bankers Association; Federal Reserve Board

12


Supporting YoY declines in delinquency rates and a healthy consumer spending environment. Reasonable non-mortgage consumer debt levels along w/ the absence of a sharp spike in interest

rates. NOTE: Average Fed Funds increase from trough to peak in each cycle since 1983 has been 275 bp (implying a peak of 3.75%).

Residential Real Estate Loans Delinquency Rates (%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1991

Q1

1992

Q1

1993

Q1

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

Consumer LoansDelinquency Rates (%)

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

1987

Q1

1988

Q2

1989

Q3

1990

Q4

1992

Q1

1993

Q2

1994

Q3

1995

Q4

1997

Q1

1998

Q2

1999

Q3

2000

Q4

2002

Q1

2003

Q2

2004

Q3

Source: Federal Reserve Board

13


Unleaded Gas

050

100150200250300350

May

-95

Sep-

95

Jan-

96

May

-96

Sep-

96

Jan-

97

May

-97

Sep-

97

Jan-

98

May

-98

Sep-

98

Jan-

99

May

-99

Sep-

99

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

W hile energy prices are up year-over-year and have spiked lately, history shows there is virtually no

correlation between “normalized” movements in energy prices and consumer confidence. W hy… ..? Energy prices are a sm all percentage of personal disposable income.

Natural Gas

0200400600800

100012001400

May

-95

Sep-

95

Jan-

96

May

-96

Sep-

96

Jan-

97

May

-97

Sep-

97

Jan-

98

May

-98

Sep-

98

Jan-

99

May

-99

Sep-

99

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Source: Baseline

14


While energy prices are up year-over-year and have spiked lately, history shows there is virtually no

correlation between “normalized” movements in energy prices and consumer confidence. Why…..? Energy prices are a small percentage of personal disposable income.

Jul-04 Jul-05 YTD 2004 Figure YoY July

% Change YTD % Change CPI Energy Index 156.3 178.5 153.7 14.2% 16.1% Disposable Personal Income (bil. chain $) 7972 8172 8079 2.5% 1.2% Energy % of Disposable Income 2.0% 2.2% 1.9% Source: US Department of Commerce Bureau of Labor Statistics (a) CPI Index figures are unadjusted for seasonality issues

15

Leisure Secular ThesisPositive Demographics

• Life Cycle of Spending—an individual’s spending typically peaks between 46-47 w/ spending on leisure peaking near age 52 (highest level of discretionary spending and time dedicated to leisure).

• Baby Boomer Demographics—the peak (absolute births and immigration) of the baby boomer generation will not reach 46-47 years of age until 2007-2008.

• Baby Boomer Leisure Spending could stretch past 52 years old-given 1) longer life expectancies, 2) desire to live healthier/more active lifestyles, and 3) likelihood of solid income (part-time work non-boredom/necessity).

Positive Attitudes Toward Leisure/Vacation• Positive attitudinal shift toward leisure/vacation as a higher quality of

life priority over the last 5 years. Individuals view leisure/vacation time as a necessity to “clear the head”, “recharge the batteries” and spend time w/ family (reinforced by September 11, 2001).

16

U.S. Demographic Spending WaveSpending Wave (46-55)

0

10000000

20000000

30000000

40000000

50000000

6000000019

88

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

U.S. Age 46-55 Immigrants Age 46-55

Spending Wave (Age 52)

0

1000000

2000000

3000000

4000000

5000000

6000000

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

U.S. Age 52 Immigrants Age 52

Note: All figures are estimates; data does not take into account future immigrants entering the United States.

Source: US Census Bureau, AG Edwards estimates

17

Life Expectancy Lengthening

Life Expectancy (1900-1999)

0

10

20

30

40

50

60

70

80

90

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

Year

s

Source: Bureau of labor statistics

18

U.S. Demographic Matrix

Nat'l Avg(1) ATV (2) Boat (3) Motorcycle (2) PWC (2) Snowmobiles (2) RV (4) Cruise (5) Golf (6) Nascar (7)Median/Mean Age 36 yrs 39 yrs 48 yrs 41 41yrs 41yrs 49 yrs 50 yrs 43 34 yrsMean/Median Income $44,389 $65,000 $71,000 $55,850 $95,000 $70,000 $56,000 $99,000 $68,209 $43,280Gender Male 49% 91% N/A 92% 85% 80% N/A 50% 75% 60% Female 51% 9% N/A 8% 15% 20% N/A 50% 25% 40%College/Some College 45% 44% N/A 26% 66% N/A N/A 66% 78% 38%Participation 297 mil 1 mil 69 mil 6.6 mil 20 mil 2.6 mil 7 mil 9.1 mil 27.2 mil 7.7 mil

Sources: (1) Census.gov

(2) Motorcycle Industry Council (3) NMMA (4) RVIA (5) CLIA (6) NGF.org

(7) Joyce Julius & Associates

Demographic Matrix

PowerSports

19

Leisure Participation History - Boats & Golf

Boating participation defined as anyone over the age of seven who has gone boating at least once in the past twelve months.

Golf participation defined as anyone age 18 and above, having played at least one round on a regulation-length golf course in the past twelve months.

Sources: NSGA/NMMA, NGF

Golf Participation (mils)

0

5

10

15

20

25

30

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-15%

-10%

-5%

0%

5%

10%

15%

Participants YoY % Change

Boating Participation (mils)

60

65

70

75

80

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

*

-6%

-4%

-2%

0%

2%

4%

6%

Participants YoY % Change*NMMA estimates

20

Leisure Participation History – Cruise & NASCAR

Cruise Participation (mils)

0

2

4

6

8

10

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-20%

-10%

0%

10%

20%


Cruising participation defined as anyone who has been a passenger on a cruise of at least 2 days.

NASCAR participation defined as attendance at race events for both the Nextel Cup and Busch Series.

Sources: CLIA, Joyce Julius & Associates

NASCAR Participation (mils)

0

2

4

6

8

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-30%

-20%

-10%

0%

10%

20%

30%


21

Leisure Registration History - RVs

Wholesale RV Shipments (000s)

0

100

200

300

400

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-30%-20%-10%0%10%20%30%

Units YoY % Change

Source: Recreation Vehicle Industry Association

22

Leisure Registration History – Motorcycles & ATVs

U.S. Motorcycle Registrations (000s)

0

200

400

600

800

1,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-30%

-20%

-10%

0%

10%

20%

30%

Units YoY % Change

Source: Motorcycle Industry Council

U.S. ATV Registrations (000s)

0

200

400

600

800

1,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-30%

-20%

-10%

0%

10%

20%

30%

Units YoY % Change

23

Leisure Participation Trends Summary

Winners•• CruiseCruise – 8% CAGR

since 1980• ATVs• Motorcycles• NASCAR

Losers•• BoatingBoating• Golf

24

Company Specific Performance MetricsRevenue Growth

1998 1999 2000 2001 2002 2003 2004Brunswick (BC) 8% -10% 8% -12% 10% 11% 27%Polaris (PII) 12% 13% 5% 7% 2% 2% 14%Harley-Davidson (HDI) 17% 19% 18% 17% 20% 13% 8%MarineMax (HZO) - 55% 22% -9% 7% 12% 25%Marine Products (MPX) - - - -9% 21% 19% 30%Carnival Corp (CCL) 23% 16% 8% 20% -3% 53% 45%Royal Caribbean (RCL) 36% -3% 13% 10% 9% 10% 20%Callaway Golf (ELY) -17% 3% 16% -3% -3% 3% 15%Winnebago (WGO) 20% 27% 11% -8% 22% 2% 32%Monaco Coach (MNC) 35% 31% 16% 4% 31% -4% 20%International Speedway (ISCA) 34% 59% 47% 20% 4% 2% 15%Speedway Motorsports (TRK) 20% 38% 12% 6% 0% 7% 10%

Revenue % Change

Source: Company financials, Baseline, and AG Edwards estimates

25

Company Specific Performance MetricsOperating Margin1998 1999 2000 2001 2002 2003 2004

Brunswick (BC) 10% 11% 12% 6% 5% 6% 8%Polaris (PII) 9% 9% 10% 10% 10% 12% 12%Harley-Davidson (HDI) 16% 17% 18% 19% 22% 25% 27%MarineMax (HZO) 6% 7% 7% 5% 5% 6% 6%Marine Products (MPX) - - 11% 10% 12% 14% 14%Carnival Corp (CCL) 27% 27% 25% 21% 24% 21% 22%Royal Caribbean (RCL) 19% 20% 20% 14% 16% 14% 17%Callaway Golf (ELY) 6% 11% 15% 14% 14% 11% 0%Winnebago (WGO) 6% 10% 10% 8% 10% 9% 10%Monaco Coach (MNC) 67% 9% 8% 5% 6% 3% 4%International Speedway (ISCA) 32% 33% 28% 32% 35% 34% 35%Speedway Motorsports (TRK) 35% 31% 30% 31% 33% 33% 33%

Operating Margin


26

Company Specific Performance MetricsEBITDA Margin

1998 1999 2000 2001 2002 2003 2004Brunswick (BC) 14% 15% 16% 10% 9% 10% 11%Polaris (PII) 12% 12% 13% 13% 14% 15% 15%Harley-Davidson (HDI) 20% 22% 22% 24% 26% 29% 31%MarineMax (HZO) 2% 8% 8% 6% 6% 6% 7%Marine Products (MPX) - - 17% 12% 14% 16% 15%Carnival Corp (CCL) 34% 34% 33% 29% 32% 29% 31%Royal Caribbean (RCL) 26% 27% 28% 24% 26% 23% 25%Callaway Golf (ELY) 11% 17% 19% 18% 19% 17% 6%Winnebago (WGO) 8% 11% 11% 10% 11% 10% 11%Monaco Coach (MNC) 8% 10% 9% 5% 7% 4% 5%International Speedway (ISCA) 39% 41% 39% 42% 43% 42% 42%Speedway Motorsports (TRK) 44% 40% 39% 40% 42% 41% 41%

EBITDA Margin


27

Company Specific Performance MetricsEPS Growth

1998 1999 2000 2001 2002 2003 2004Brunswick (BC) 0% 9% 18% -65% 19% 44% 62%Polaris (PII) 11% 13% 14% 11% 13% 21% 14%Harley-Davidson (HDI) 22% 25% 28% 29% 33% 31% 20%MarineMax (HZO) - 15% 17% -28% 9% 15% 25%Marine Products (MPX) - - - -39% 41% 45% 29%Carnival Corp (CCL) 25% 19% -4% -2% 9% -6% 37%Royal Caribbean (RCL) 60% 15% 7% -43% 24% -13% 59%Callaway Golf (ELY) -80% 96% 48% -12% 2% -10% -88%Winnebago (WGO) 148% 92% 12% -16% 39% 0% 66%Monaco Coach (MNC) 69% 93% -2% -42% 78% -50% 64%International Speedway (ISCA) 30% 27% -17% 86% 18% 1% 26%Speedway Motorsports (TRK) 12% -1% 14% 19% 8% 12% 17%

EPS % Change


28

Company Specific Performance MetricsTotal Debt/Total Capitalization

1998 1999 2000 2001 2002 2003 2004Brunswick (BC) 38% 36% 42% 37% 36% 31% 30%Polaris (PII) 12% 19% 19% 7% 6% 5% 5%Harley-Davidson (HDI) 0% 0% 0% 0% 0% 0% 0%MarineMax (HZO) 5% 7% 5% 5% 12% 11% 11%Marine Products (MPX) - - 0% 0% 0% 0% 0%Carnival Corp (CCL) 34% 23% 35% 35% 35% 39% 38%Royal Caribbean (RCL) 50% 42% 49% 60% 57% 58% 54%Callaway Golf (ELY) 3% 0% 0% 0% 1% 0% 2%Winnebago (WGO) 0% 0% 0% 0% 0% 0% 0%Monaco Coach (MNC) 5% 0% 0% 12% 10% 5% 0%International Speedway (ISCA) 1% 36% 33% 28% 34% 30% 30%Speedway Motorsports (TRK) 41% 58% 52% 48% 41% 38% 40%

Total Debt/Capital


29

Company Specific Performance MetricsReturn on Equity

1998 1999 2000 2001 2002 2003 2004Brunswick (BC) 16% 16% 20% 8% 9% 12% 17%Polaris (PII) 44% 47% 44% 41% 40% 40% 40%Harley-Davidson (HDI) 23% 24% 27% 28% 29% 29% 29%MarineMax (HZO) - 23% 21% 13% 13% 13% 15%Marine Products (MPX) - - 15% 12% 24% 29% 30%Carnival Corp (CCL) 21% 20% 16% 15% 15% 11% 13%Royal Caribbean (RCL) 16% 15% 13% 7% 8% 7% 10%Callaway Golf (ELY) 6% 12% 16% 14% 13% 11% 1%Winnebago (WGO) 20% 33% 30% 23% 28% 25% 34%Monaco Coach (MNC) 26% 36% 26% 13% 19% 8% 12%International Speedway (ISCA) 14% 9% 6% 9% 13% 16% 16%Speedway Motorsports (TRK) 17% 15% 14% 14% 13% 13% 14%

Return on Equity


30

Leisure Stock PerformanceYTD 1-Year 3-Year 5-Year

Brunswick (BC) -10% 9% 84% 151%Harley-Davidson (HDI) -18% -19% 2% 2%Polaris (PII) -21% 4% 44% 236%MarineMax (HZO) -4% 43% 185% 261%Marine Products (MPX) -35% -4% 153% N/A

Carnival Corp (CCL) -14% 7% 104% 162%Royal Caribbean (RCL) -23% 0% 159% 104%

Callaway Golf (ELY) 10% 21% 0% 5%

Winnebago (WGO) -21% -9% 47% 393%Monaco Coach (MNC) -26% -32% -16% 47%

International Speedway (ISCA) 2% 3% 35% 44%Speedway Motorsports (TRK) -6% 7% 52% 49%

S&P 500 2% 11% 37% -17%

Source: Baseline

31

Leisure Consumer Profile/Demographics-Boats Entry

Avid Sportsman

Boat RunaboutRetail Price $10,000 - $25,000

Boater:Age (60%) 25-44Education (50%) College DegreeIncome (75%) $70,000 +

Usage "Boat as a Tool"* Fishing* Water Skiing* Water Sports

Purchase Factors * Product Price* Employment Participation* Interest Rates

Sources: J.D. Power; NMMA

32

Leisure Consumer Profile/Demographics-Boats MidSize

Family Day Tripper

Boat Express CruiserRetail Price $35,000 - $150,000


Usage "Experience Boating"* Family Fun* Day Outings* Swimming

Purchase Factors * Consumer Confidence* Interest Rates


33

Leisure Consumer Profile/Demographics-Boats High End

Luxury Yachtsman

Boat MotoryachtRetail Price $750,000 - $10,000,000


Usage "Lifestyle Boating"* Friends & Family* Entertaining* Destimation Cruising

Purchase Factors * Consumer Confidence* Confidence In Economy* Stock Market


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Leisure Consumer Profile/Demographics-RVs

Average Age 49

Average Income $56,000

Average Miles Traveled / Year 4,500

Average Days Traveling / Year 28 - 35 days

Source: Recreation Vehicle Industry Association

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Leisure Consumer Profile/Demographics-ATVs

Median/Mean Age 39 yrsMean/Median Income $65,000Gender Male 91% Female 9%College/Some College 44%Uses:Recreational Riders 60%Hunting and Fishing 25%Utility Work (includes 20% farming/ranching) 60%

Sources: Motorcycle Industry Council; Polaris Industries

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Leisure Consumer Profile/Demographics-Motorcycles

Median/Mean Age 41 yearsMean/Median Income $55,850Gender Male 92% Female 8%College/Some College 26%

Source: Mototcycle Industry Council

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Leisure Consumer Profile/Demographics-Cruises

Median/Mean Age 50 yearsMean/Median Income $99,000Gender: Male 50% Female 50%College Degree 66%Employment Status: Full-time 63% Retired 13%

Source: Cruise Line International Association

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Leisure Consumer Profile/Demographics-Golf

Median/Mean Age 43 yearsMean/Median Income $68,209Gender: Male 74.6% Female 25.4%College/Some College 78%Frequency of Play: Core (eight or more rounds annually) 46.7% Occasional (seven or fewer rounds annually) 53.3%

Source: National Golf Federation

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Leisure Consumer Profile/Demographics-NASCAR

Median/Mean Age 34 yearsMean/Median Income $43,280Gender: Male 60% Female 40%College/Some College 38%Regional Distribution: Northeast 20% Midwest 24% South 38% West 19%

Source: Joyce Julius & Associates

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The Competitive Landscape for the Consumer• ATV – 1) purchase justified via work/recreational use, 2) increased

functionality/comfort features, 3) low time commitment to use.• Cruise – increase in U.S./European homeports lowering barriers to trial

to young families (shorter travel to close homeports/shorter duration cruises).

• Golf – 1) increased TV exposure, 2) demographics turn more positive in 5-7 yrs (when core customer turns 50), 3) rounds played down 0%-3% every year since ’99.

• Motorcycling – 1) increased TV exposure (e.g. American Chopper), 2) favorable demographic trends, 3) low time commitment to use.

• NASCAR – 1) increased TV exposure, 2) number of facilities/events mature (NY & N West remain).

• RV – 1) GO RVing very successful, 2) slightly older vs. boating demographic.

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Role Models/Sponsors Involved in Reaching the Consumer?

NoNoRVs

Consumer Pdt ManufacturersYesNASCAR

ManufacturersNoMotorcycles

ManufacturersYesGolf

Manufacturers (boat/engine/pdts)YesFishing

NoNoCruise

NoNoBoating

ManufacturersNoATVs

Sponsors?Sponsors?Role Models?Role Models?Leisure Product/ServiceLeisure Product/Service

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Consumer Demographics Drive Industries & Economies

Harry Dent Jr. – The Great Boom Ahead (‘93), The Roaring 2000’s (‘98), and The Roaring 2000’s Investor (’99).

The progression of each generation can be characterized by four waves during its life cycle 1) Birth, 2) Innovation, 3) Spending, and 4)

Organization.

• Birth (0-20) – the period when a majority of a generation are born.• Innovation (20-35) – the period when new technologies/social values

are created.• Spending (35-57) – the period when peak spending occurs. NOTE:

Consumers are 2/3 of the U.S. economy.• Organization (58+) – the period when investment/corporate/political

power are used to change organizational institutions.

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The Target Consumer Now – Baby Boomers

• 78 million born between 1946-1964 --- 41-59 years old.• Rebelled against parents/challenged authority.• Individualistic.• Tolerant of racial diversity.• Now want to balance work/career with family/personal time.• Buy cars/SUVs by the pound (biggest, most horsepower).• See cell phones/computers as tools.• Watch TV ads for information.• Surf the Web for information.• Tend to be more brand loyal.• Embracing mass customization.

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The Target Consumer to Embrace Now – Echo Boomers (Gen Y)

• 72 million born between 1977-1994 --- 11-28 years old.• Want to connect w/ parents/admire parents.• Independent (job skills) resourceful conformists (less rebellious).• Live racial diversity. View themselves as “urban” vs. ethnic.• Balance work/career with family/social/personal time. • Buy cars for versatility/functionality.• See cell phones/computers integral to the “always connected” life.• Watch TV ads for entertainment. Ignore traditional media/advertising

channels.• Web used for interaction, information, and entertainment.• Less brand loyal/more accepting of generics. More

impulsive/discriminating/demanding buyers.• Increasingly want customized products.

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Trends in Boat SalesRetail Boat Market

0

2,000

4,000

6,000

8,000

10,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

0

100

200

300

400

500

Dollar Sales (mils) Unit Sales (000s)

Note: Includes Outboard boats, Sterndrive boats, Ski/Wakeboards, Cruiser Inbpoards, and Jet Boats

Source: NMMA

46

How Can Boating/Leisure Industry Reach Its Consumer?

Clearly communicate that the Product/Service is a means to the Experience.

• Convey the specific value-added attributes/benefits that the product/service brings to the experience.

• Convey how the product/service can be customized to the consumer.• Convey the ease-of-use (current/on-going) of the product/service.• Convey how the experience is enriching to ones lifestyle.

• NOTE: Consumers will pay a modest premium for product/services that can deliver these points.

47

Boating Industry Outlook for ‘06

• U.S. boat retail dollar sales up 0%-3%.• International retail dollar sales up faster

than U.S.

48

Boating Industry Longer Term Outlook

• Positive U.S. baby boom spending demographics drive the industry through 2012-2013 supplemented by international growth.

• Used boat market (70% industry units) largest domestic opportunity for: Manufacturers/dealers via certification programs and lenders.

• Continuing industry consolidation (already seen in the cruise, golf, and PWC industries). Could be accelerated by global opportunities/competitive forces.

• Those well positioned: Brunswick Corp., Marine Products, and Marine Max.

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Consolidation Continues2003 Units Sales

Yamaha3%

Tracker9%

ABA9%

Other24%

Genmar17%

Brunswick11%

UMMA16%

IBBI11%

2004 Units Sales

UMMA17%

Tracker10%

Yamaha4%

Other23%

ABA9% IBBI

11%

Brunswick17%

Genmar8%

Source: Info-Link Technologies, Inc.

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Closing Thoughts

• “Cost is the ultimate competitive weapon.”• “You cannot save yourself into prosperity.”

-- George Buckley, Chairman/CEO Brunswick Corp.

Those manufacturers/dealers/lenders who:• Continually & relentlessly focus on costs• Redeploy those savings into 1) better processes, 2) market research,

3) products/services, and 4) customer service

will be the winners in what will be a further consolidating marine and overall business environment.

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Valuation Methodology/Risks• In valuing Leisure Industry equities, we look at several valuation

methodologies to assess the relative attractiveness (i.e. P/E, EV/EBITDA, Free Cash Flow Yield). We look at balance sheet, income statement , and cash flow metrics relative to historical norms. We assess the point we are in the business cycle and look at therelative maturity of the respective sub-industries life-cycles and make allowances where we feel appropriate. Often, the multiples are attractive or not attractive on a relative basis when compared to other Leisure and Consumer Cyclical investments even if they may be high or low on a historical basis. Changes in prices for leisure products and the outlook for consumer purchases of leisure products tend to lead change in stock prices. Valuations may change on sentiment as much as fundamentals.

• Risk factors that could result in our estimates and valuations being unattainable are: 1) a sharp prolonged economic downturn from current levels, 2) the addition of significant new industry capacity, 3) irrational pricing/production actions by competitors, and 4) sharp upward spike in fuel costs.

52

Company Specific Valuations/Risks• Carnival Corp - Our 12-18 month $65 price objective is based on the lower 48% and 25%,

respectively of values derived from the 1998 forward P/E (28.8X-13.0X) and EV/EBITDA (26.0X-12.7X) ranges using our ’06 estimates (the expected second year of positive yields) of $3.16 and $4.72 for these respective metrics. Our belief is that booking and pricing trends will gradually improve as we progress through ’05 and ‘06, precipitating gradual upward revisions in our estimates. Risk factors that could result in our earnings estimates and price objective being unattainable are: 1) heightened risk of war/terrorist actions, 2) the addition of significant new industry capacity, 3) a sharp prolonged economic downturn, 4) sharp upward spikes in fuel costs, and 5) an unexpected decline in European economies given CCL is more highly exposed to Europe versus the industry.

• Royal Caribbean - Our 12-18 month $60 price objective is based on the lower 92% and lower 84%, respectively of values derived from the 1998 forward P/E (20.3X-8.4X) and EV/EBITDA (15.3X-8.6X) ranges using our '06 estimates of $3.10 and $5.85 for these respective metrics. Our belief is that booking and pricing trends will gradually improve as we progress through '05 and '06, precipitating gradual upward revisions in our estimates. Additionally, we believe investors will also afford RCL a higher valuation as the balance sheet becomes less leveraged. Risk factors that could result in our earnings estimates and price objective being unattainable are: 1) heightened risk of war/terrorist actions, 2) the addition of significant new industry capacity, 3) a sharp prolonged economic downturn, 4) sharp upward spikes in fuel costs, and 5) a sharp unexpected rise in interest rates, negatively impacting RCL's variable rate debt.

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Company Specific Valuations/Risks• Brunwick Corp - Our 12-18 month $55 price objective implies a 12.8X forward P/E multiple (near lower end of

historical average forward range of 18.1X-11.2X) and a 6.4X forward EV/EBITDA multiple (within the historical average forward range of 6.9X-4.6X) to our ’06 estimates of $4.31 and $8.06, respectively. We believe these multiples are conservative given multiples seen at this point of past cyclical upswings, relative to other cyclical peers, and relative to a likely 12X-13X P/E multiple that will be applicable to peak cyclical earnings. Risk factors that could make our estimates and price objective unattainable are: 1) a sharp prolonged economic downturn from current levels, 2) irrational actions by competitors, 3) significant problems with the new Verado engine line.

• Harley-Davidson - Our 12-18 month $55 price objective represents: 1) $45 or just under 14X our $3.30 '06 estimate for the core motor company business (a premium to the company's likely 10% core operating earnings growth rate over the next few years), 2) $5.50 or 12X (the higher end of a 8X-12X range typically applied to financial institutions given the quality of HDFS's loan portfolio) to $0.46/share of earnings from HDFS, and 3) approximately $4.50/share in estimated cash at the end of '06. Risk factors that could result in our estimates and price objective being unattainable are: 1) a sharp prolonged economic downturn from current levels negatively impacting purchases of discretionary products, or 2) potential problems maintaining a moderate supply/demand gap or, 3) over the longer term, potential significant new competition.

• Mattel - Our Buy rating and 12-18 month price objective of $23 implies a 16.9X P/E (modestly above the 16.7X midpoint of the 19.9X-13.6X forward range) and an 9.2X EV/EBITDA multiple (lower end of the 11.8X-8.1X forward range) to our '06 estimates of $1.36 and $2.35, respectively, for these metrics. We continue to believe our price objective should approximate the mid-point of the historical ranges. However, our current implied multiple based on '06 is slightly above this mid-point due to our recent inclusion of stock option expensing for '06. These ranges are derived from corresponding averages for Mattel since 1990, excluding the aberrational years of 1997-1999. Risk factors that could result in our estimates and price objective being unattainable: 1) irrational actions by competitor toy companies, 2) loss of multiple key license relationships, 3) loss of a major customer (Wal-Mart, Toys R Us, and Target represented 46% of '04 sales), 4) production issues with significant Asian manufacturing partners (approximately 80% of product sourced from Asia), 5) significant increase in the Chinese yuan/renminbi or Hong Kong dollar relative to the US dollar, 6) significant decline in Barbie (estimated at 20%-30% of sales).

54

Company Specific Valuations/Risks• Polaris Industries - Our $62 price objective estimate is based on 1) $53 from just over 16X our

$3.28 '06 earnings estimate for PII's core product and accessory business as we feel the quality ofPII's earnings, visibility, strong cash flow, and management depth deserve a multiple slightly above the upper end of the estimated 10%-15% earnings growth rate over the next few years for the core business, 2) $6.30 or approximately 11X (the higher half of a 8X-12X range typically applied to consumer related financial institutions given the consistent strong credit metrics of the Polaris Acceptance joint venture and limited exposure risk to PII) to our '06 estimated $0.57 earnings contribution from financial services, and 3) $2.60/share in year end '06 cash. Our price objective represents a forward 16.1X P/E and 8.5X EV/EBITDA multiple to our '06 estimates of $3.85 and $7.27, respectively (14.1X-8.7X and 7.4X-4.7X are the respective ranges for these metrics since PII converted from a limited partnership to a corporation in '95). We believe these forward implied multiples are reasonable given: 1) PII's consistency of growth, 2) 35% + ROE/ROIC, 3) a very modestly levered balance sheet, and 4) after factoring in dilution, it is accretive for PII to repurchase shares to near $100/share. Risk factors that could result in our estimates and price objective being unattainable are: 1) a sharp prolonged economic downturn from current levels, 2) a further sustained deceleration in the growth rate of the ATV market (65% of PII's total sales), 3) irrational pricing/production actions by competitors, and 4) failure to complete the 24% equity investment in Austrian motorcycle manufacturer KTM.

• RC2 Corp - Our 12-18 month price objective of $45 is based on 15.3X P/E and an 8.1X EV/EBITDA multiples to our 2006 estimates of $2.93 and $5.52, respectively. This approximates 60% and 75% of an average forward 18.7X-9.8X P/E range and average forward 9.0X-5.1X EV/EBITDA range, respectively for RCRC and peer toy companies Jakks Pacific (JAKK), Hasbro (HAS), and Mattel (MAT) since 1990 or subsequent initial public offering. Risks that could result in our estimates and price objective being unattainable: 1) irrational actions by competitors, 2) loss of multiple key licenses, 3) loss of a major customer, 4) production issues w/ significant S. China manufacturing partners, 5) significant increase in Chinese currency or HK$ relative to US$.

55

Analyst CertificationThe views expressed in this research report accurately reflect my personal views about the subject company/companies and its/theirsecurities. I receive no compensation that is directly or indirectly related to the specific recommendations or views contained within this report.

56

Disclosures

Past 12 months

Rating Master List Companies

Current Rating Distribution

Investment Banking Clients

% of Investment Banking Clients *

Buy 249 36% 40 16% Hold/Neutral 430 62% 40 9% Sell 17 2% 2 12% * Percentage of Investment Banking Clients on Master List by rating.

OUR 3-TIER RATING SYSTEM (12-18 month time horizon)

Buy: A total return is anticipated in excess of the market’s long-term historic rate (approximately 10%). Total return expectations should be higher for stocks which possess greater risk.

Hold: Hold the shares, with neither a materially positive total return nor a materially negative total return is anticipated.

Sell: Stock should be sold, as a materially negative total return is anticipated.

RISK SUITABILITY (Relates to fundamental risk, including earnings predictability, balance sheet strength and price volatility)

Conservative: Fundamental risk approximates or is less than the market.

Aggressive: Fundamental risk is higher than the market.

Speculative: Fundamental risk is significantly higher than the market.

The suitability ratings assigned by A.G. Edwards industry analysts to individual securities should be reviewed by investors and their financial consultants to determine whether a particular security is suitable for their portfolio, with full consideration given to existing portfolio holdings.

DISCLOSURE INFORMATION. For important disclosure information, please contact: A.G. Edwards & Sons, Inc. Attn: Securities Research (Disclosure Information) One North Jefferson St. Louis, MO 63103 Or call by phone: (888)-410-9203 Or refer to: www.agedwards.com/research/ratingdisclosures Please remember to specify the issuer(s) with respect to which you would like to receive disclosure information.

57

DisclosuresAGE's research analysts receive no compensation in connection with the firm's investment banking business. The analyst certifies that he/she receives no compensation that is directly or indirectly related to the specific recommendations or views contained within this report. Analysts may be eligible for annual bonus compensation based on the overall profitability of the firm, which takes into account revenues derived from all of the firm's business activities, including its investment banking business. Price objectives and recommendations contained in this report are based on a time horizon of 12-18 months, but there is no guarantee the objective will be achieved within the specified time horizon. Price objectives are determined by a subjective review of fundamental and/or quantitative characteristics of the issuer and the security that is the subject of this report. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, peer group comparisons, sum of the parts and enterprise values. All securities are subject to market, interest rate and general economic risks. Specific information is provided in the text of our most recent research report.

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Additional information available upon request. With the exception of information about A.G. Edwards & Sons, Inc., the material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. This material is not to be construed as providing investment services in any jurisdiction where such offers or solicitation would be illegal. Opinions and estimates are as of a certain date and subject to change without notice. You should be aware that investments can fluctuate in price, value and/or income, and you may get back less than you invested. Past performance is not necessarily a guide to future performance. Investments or investment services mentioned may not be suitable for you and if you have any doubts you should seek advice from your financial consultant. Where the purchase or sale of an investment requires a change from one currency to another, fluctuations in the exchange rate may have an adverse effect on the value, price or income of the investment. Certain investments may be mentioned that are not readily realizable. This means that it may be difficult to sell or realize the investment or obtain reliable information regarding its value. The levels and basis of taxation can change.

This document has been approved by A.G. Edwards & Sons (U.K.) Limited, authorized and regulated by the Financial Services Authority. © 2005 A.G. Edwards & Sons, Inc. • Member SIPC.

2005 national marine bankers association conference ...€¦ · aug’05 105.6 vs. 98.7, dec’04...

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