DENVER – At the end of last year, Brunswick Corp. predicted that industry-wide sales would be flat or slightly down in 2006. Analysts are now starting to believe that was too optimistic.
RBC Capital Markets believes that the industry is down in the mid-single digits, at best, today, and has therefore downgraded Brunswick’s stock from outperform to sector perform.
“Our concerns with the stock are entirely related to the boating cycle,” stated the company’s analysts in a recent report. “We believe Brunswick’s ambitious, industry transforming growth strategy is very much intact.”
The analysts expect that Brunswick may make production cuts and revise its guidance downward in the second half of the year.
It also expects most dealers’ MY 07 orders to be conservative, with the exception of MarineMax, which is “bucking the broader industry trend” due in part to its focus on the high-end customer.
“Categorically, trends seem weakest in the middle priced segments of the market (e.g. $50,000-$150,000). The high end continues to hold up well, as that customer is less affected by rising interest rates and gas prices,” said the analysts. “We also see relative stability in the entry-level category due to an increasingly value conscious consumer. For that same reason, we believe used and brokerage sales are strong.”
RBC added that its estimates that Brunswick’s BNT unit would sell for about $500 million “were likely too aggressive.” The company explained that it now expects a “meaningfully lower price” that will “ultimately be net dilutive.”
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