Brunswick expecting flat year ahead for industry

LAKE FOREST, Ill. – Marine industry giant Brunswick Corp. (NYSE: BC) recently reported a record year of sales and earnings, but overshadowing that news is the company’s expectation that the industry will be flat in 2006.

“Marine retail was down significantly in the fourth quarter of 2005 versus the prior year, and, although it is too early in the boat show season to draw meaningful conclusions about retail demand for all of 2006, we see nothing which indicates retail demand across the marine industry will be anything but flat with 2005,” said McCoy in a company statement. “In fact, there could be downward pressures on marine retail demand driven by economic weakness in certain markets such as the Midwest.”

McCoy added during an earnings conference call yesterday that he would rather be wrong.

“I hope everybody will be laughing at me six months from now [for my conservative estimates],” he said. “But hope is not a strategy.”

Despite its conservative expectations, McCoy reassured conference call listeners that Brunswick is still expecting to report record results for the year.

“As we look ahead, we are expecting 2006 to be another record year for Brunswick with diluted earnings per share in the range of $3.25 to $3.45,” McCoy said. “We expect to post low- to mid-single digit sales growth in our marine businesses coming from a combination of pricing, new products, incremental sales from 2005 acquisitions, share gains and growth in international markets. For our non-marine businesses, we expect to grow the top line in the high-single digits for fitness and in the mid-single digits for our bowling and billiards businesses. Brunswick New Technologies is expected to continue its fast-paced growth rate, which, combined with our other businesses, should bring the company’s total sales increase to 6 to 8 percent in 2006.”

McCoy added that if he’s wrong and the market grows in 2006, “we’ll be ready to step up and take advantage of the opportunity.”

Brunswick does anticipate a rough first quarter, as the switch to low emission engines (from carbureted outboards) cuts into margins and while the company waits for cost saving measures, such as the opening of its Asian outboard plants, to have a positive impact later in the year. Comparison to 2005 will be especially challenging because the first quarter was so strong in 2005.

Like other powersports companies, such as Polaris and Harley Davidson, Brunswick’s guidance is back-weighted, pointed out Bank of America Securities analyst Gary Cooper.

“We believe purchases of consumer discretionary items are slowing and estimates for all recreational manufacturers are at risk in 2H06 (or sooner),” he write in a statement yesterday.

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