Boating Industry Intelligence You Can Profit From
CHICAGO; LAKE FOREST, Ill. - Brunswick Corp., the world's largest maker of recreational boats, said in a conference call with analysts this morning that the drop in U.S. demand it was seeing for some boats was "unprecedented," Reuters reported in a story today.
In a conference call with analysts to discuss Brunswick's third-quarter loss, Chief Finance Officer Peter Leemputte said the results "reflected the deep decline in markets for outboard powered boats as well as some share loss."
He said unit retail demand in 2007 for aluminum boats over 16 feet in length was down 20 percent compared with 2004, and that demand in the Upper Midwest was down 43 percent "meaning half this market has disappeared."
Brunswick saw a net loss from continuing operations for the third quarter of 2007 of $23.7 million, compared with net earnings of $50.4 million for the third quarter of 2006, the company reported in a statement it released this morning.
“Operating results for the quarter were in line with our expectations,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “We continue to report strong sales from our non-U.S. marine operations, marine parts and accessories and fitness equipment business unit, which have helped to offset the steady decline in the marine markets in the United States. Our challenge under these circumstances is to manage pipeline inventories to maintain the health of our business and that of our dealers, and we are pleased with our efforts. The activities we have undertaken to manage the pipeline in this environment have adversely affected our performance. Nevertheless, we continue to expect our earnings for 2007 to fall within the range of $1.20 to $1.30 per diluted share.”
“Further, we head into the final quarter of the year in a strong financial position,” McCoy said. “Debt-to-total capital was 27.6 percent at quarter end, and our cash balance totaled $327.8 million. Maintaining significant liquidity remains a high priority during this marine downturn.”
For the quarter ended Sept. 29, net sales from continuing operations decreased 1 percent to $1,326.2 million, down from $1,337.8 million a year earlier. The company had an operating loss of $46.3 million from continuing operations in the third quarter of 2007, compared with operating earnings of $74.3 million in the year-ago third quarter. The operating loss was the result of a $66.4 million pre-tax impairment charge to write down the trade names of certain outboard boat brands, according to the company.
Commenting on the charge, McCoy said, “This accounting requirement was precipitated largely by the significant decline in retail demand for outboard boats. Our actions should not be viewed as a commentary on the intrinsic value of the products, or on our strong commitment to this market segment, and our dealers and customers throughout the country.”
The company reported net earnings from discontinued operations of $25.6 million, compared with a net loss of $13.9 million for the third quarter of 2006. During the quarter, the company sold its fleet management business, which completed the divestiture of its Brunswick New Technologies business unit. The improved performance for the third quarter of 2007 was attributable to a gain on the sale of the business and tax-related benefits.
BBG sales down 10 percent
Third quarter net sales for the Brunswick Boat Group, which produces fiberglass and aluminum boats, marine parts and accessories, and dealer management systems, were $613.9 million, down 10 percent compared with $679.2 million in the third quarter of 2006. The group had an operating loss of $23.9 million for the third quarter of 2007, excluding the charge discussed above. This compares with operating earnings of $24.8 million reported in the third quarter of 2006.
“Sales for our boat brands were down versus the year-ago quarter, reflecting lower shipments in our efforts to reduce pipeline inventories in light of the weak marine retail environment in the United States,” McCoy said. “Our boat parts and accessories business unit, however, posted double-digit sales gains in the quarter. Along with the impairment charge, the operating loss for the quarter is due to the combined effects of reduced sales, lower fixed-cost absorption on reduced production levels, a significant increase in promotional spending in conjunction with our dealers to drive retail sales, and costs associated with plant closures and the startup of a newly acquired manufacturing facility.”
Marine engine sales up
The Marine Engine segment, consisting of the Mercury Marine Group, reported net sales of $566.7 million in the third quarter of 2007, up 6 percent from $536.5 million in the year-ago quarter, according to the company. Operating earnings in the third quarter decreased to $47.5 million versus $50.4 million, while operating margins declined to 8.4 percent from 9.4 percent for the same quarter in 2006.
“Sales growth in the quarter was driven by Mercury’s international operations, which were up double digits, along with solid contributions from parts and accessories,” McCoy said. “Sales were down single digits for the quarter in our sterndrive engine business, reflecting retail softness in the fiberglass sterndrive category in the United States. Meanwhile, we did see sales growth in outboard engines, where significant progress has already been made to correct the pipeline. Operating earnings were adversely affected by a mix shift to lower-margin outboard engines and higher variable compensation costs, which were partially offset by cost savings from restructuring efforts.”
McCoy said Brunswick will continue to adjust production rates in both boats and engines as needed to effectively manage pipeline inventories through the 2008 model year, which ends June 30, 2008.
Nine-month net sales down slightly
For the nine months ended Sept. 29, the company had net sales from continuing operations of $4,235.2 million, down from $4,294.2 million for the first three quarters of 2006. Operating earnings totaled $93.0 million for the first nine months of 2007, including the $66.4 million charge, down from $310.7 million for the corresponding period in 2006, and operating margins were 2.2 percent versus 7.2 percent a year ago.
Net earnings from continuing operations for the first nine months of 2007 totaled $67.5 million, compared with $219.0 million for the same period in 2006. For the first nine months of 2007, the company reported net earnings from discontinued operations of $37.3 million, as compared with a net loss of $31.9 million for the comparable period a year ago.
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