Malibu Earnings: Firm Continues to Invest in Growth Initiatives to Buoy Profits; Shares Attractive

We don’t plan to alter our $96 fair value estimate for narrow-moat Malibu Boats MBUU after digesting better-than-expected third-quarter results and view shares as attractive. Sales of $375 million handily surpassed our $344 million estimate, as shipments of Cobalt and saltwater units grew 5% and 30%, respectively. Total unit selling prices rose 6%, ahead of our 1% projection, although this was partially due to mix, with saltwater comprising 27% of units in the period, up from 22% last year. An enterprise level adjusted EBITDA margin of 21.1%, down 210 basis points, was hurt by inflation and mix. We model mix to continue to pressure EBITDA margin, due to saltwater’s lower profitability than other segments. Over time, as efficiencies surface for the saltwater brands (from manufacturing and vertical integration investment), segment profitability should trend toward enterprise level. However, future acquisitions that initially are margin dilutive are included in our projections, which will bound material profit upside. As such our long-term adjusted EBITDA outlook stands at a high-teens rate.

With the firm nudging its fiscal 2023 sales outlook up to around 10%, we still expect sales to decline around 10% in the fourth quarter, lapping 28% growth and facing nearly restored dealer inventory levels (except for saltwater units). But longer term, we think the prognosis for growth is stellar. To start, the firm opened its Tooling Design center, a facility that accelerates Malibu’s journey to build most of its tooling across brands. This helps in both quality control and the avoidance of supply chain issues, allowing for faster turns at retail and wholesale that better matches retail. Also, it acquired a property in Tennessee to facilitate further unit growth, signaling a potential launch into pontoons or another adjacent category soon. These factors, along with Malibu’s appetite for acquisitions, give us confidence in our 8% average annual sales growth estimate through 2027.