Dear Stockholders:
During 2023, we saw positive operating momentum in the first half of the year, followed by a softening of strong post-COVID industry demand dynamics in the second half. Overall, we delivered solid financial performance, increasing our net sales, EPS and operating cash flow. We also continued to pay an attractive dividend and maintained a highly liquid and debt-free balance sheet. Economic uncertainty, higher interest rates, and building inventories in our dealers’ showrooms have clearly slowed the recent momentum boat manufacturers have enjoyed during the past few years. However, our relentless focus on product improvement and innovation, manufacturing efficiencies, investments in our dealer network, and conservative financial stewardship remain unchanged. We have taken the appropriate actions to manage our cost structure due to lower production levels, while still making investments that are key to driving long-term profitable growth. In fact, our discipline and focus on cash flow has resulted in a cash accumulation of more than $70 million on the balance sheet. This provides ample liquidity to make internal investments as well as explore more significant strategic actions to increase our scale and enhance our growth outlook.
For the full year 2023, net sales increased 1% to $383.7 million. Unit sales decreased 4%, with strong order flow in the first half of the year transitioning to softer order patterns in the second half. Our price increases to cover higher costs and shift to larger, higher-priced boats more than offset incentive program activity to drive an overall net pricing and mix benefit. We implemented retail incentive programs in the third quarter to encourage sales at the retail level. Our best-selling models in 2023 continued to be two of our 21- and 23-foot Chaparral sterndrive sport boats, together representing about 20% of our total units sold.
Gross profit in 2023 was $90.4 million, down from $93.7 million last year, largely due to increased promotional activities, and contracting production volume and associated manufacturing inefficiencies. Gross margin was 23.6% of net sales in 2023, compared with 24.6% in 2022. In response to easing demand, we adjusted our variable labor costs and production schedules to reflect current order patterns and customer indications. Selling, general and administrative expenses increased slightly to $43.2 million, up from $41.9 million last year. In addition to general inflationary factors, we invested aggressively in dealer sales and technical training, demonstrating our commitment to these critical relationships. Operating income in 2023 was $49.2 million or 12.8% of net sales, compared with $51.8 million or 13.6% of net sales, in 2022.
Interest income was $2.9 million, up significantly from $0.3 million last year due to larger cash balances and higher earned investment yields. Earnings before interest, taxes, depreciation and amortization(1) (EBITDA) was $51.6 million in 2023, compared with $53.7 million in 2022.
We generated net income of $41.7 million or $1.21 of diluted earnings per share (EPS) in 2023, up from $40.3 million or $1.18 of diluted EPS last year. Our effective tax rate was 19.9% in 2023, slightly lower than the 22.6% from last year.
We are pleased to deliver another year of strong cash flow. The company generated $56.8 million in net cash provided by operating activities during 2023, up from $49.3 million in 2022. A significant contributor to cash flow growth was working capital changes as easing supply chain constraints allowed us to complete and ship units to reduce our inventories.
2023 capital expenditures of $10.2 million were higher than capital expenditures of $2.5 million last year. We invested in our fleet of trailers and our warehouses, driving the majority of the increase. We are also making investments in our facility in 2024 with the planned installation of a rooftop solar energy system at our manufacturing site in Nashville, Georgia. Beyond the environmental benefits of alternative energy sources, we expect to derive cost savings from this investment. We plan to continue increasing our selective use of robotics to ensure consistency in our production processes and enhance the safe working conditions for our employees.
During 2023 our Board of Directors continued the Company’s regular quarterly cash dividends for the twelfth consecutive year. We paid $19.3 million in dividends ($0.56 per share), an increase of $2.2 million compared with $17.1 million in 2022. As a result of our strong cash flows, we finished 2023 with $72.0 million in cash, up from $43.2 million at the end of last year. We view our dividend policy as a vital component of longterm shareholder value creation and will continue to assess our regular dividend as well as other means of distributing excess capital to our shareholders.
During 2023, within its category and size range, Chaparral’s retail market share ranked number one. During this same time, Robalo held the third highest retail market share in its size range. When combining the retail market share of Chaparral and Robalo outboards, in the fiberglass boat category and size range, Marine Products Corporation ranked number one compared with all independent boat builders. We are proud of these accomplishments and the consistency of the strong market share results within our product lines in recent years. Another consistent accomplishment relates to the recent announcement that both Chaparral and Robalo won the CSI Award for customer satisfaction for the 17th consecutive year.
As mentioned above, we are emerging from several years of high demand in the recreational boating industry characterized by a strong consumer appetite for outdoor activities post-COVID and previously low interest rates. As the industry returns to normalized conditions, dealers are facing less consumer urgency for purchases, higher interest rates that increase costs to consumers who finance purchases and generally high inventory levels across the channel. All told, we have adjusted our manufacturing operations costs and implemented promotional incentives to stimulate demand and de-stock the channel.
During this time, however, we will press forward on initiatives to improve both near-term and long-term financial results and position ourselves for success regardless of external factors. These projects include efforts to improve our efficiency in our manufacturing facilities, continued innovation and industry-leading product designs and features, and ongoing partnerships with our dealers to maximize our share of the market.
Furthermore, we have ample capital to invest in more significant opportunities should they arise, particularly potential acquisitions. We have remained disciplined over the years and accumulated a substantial cash position. We believe acquisitions could offer unique value creation opportunities and a pathway to accelerated growth and increased scale.
Lastly, I want to thank all our stockholders, employees and dealers for your continued support and commitment. We believe we have some of the best boat makers in the industry and that their commitment to their craft underpins the outstanding reputation Chaparral and Robalo enjoy in the marketplace. To our dealers, many of whom have been with us for several decades, you represent our company to the consumer, ultimately serving as our brand ambassadors. We appreciate your support and partnership and look forward to continued, shared success.
Sincerely,
Ben M. Palmer
President and Chief Executive Officer |