Analyst calls Brunswick cuts logical

LAKE FOREST, Ill. – Following Brunswick Corp.’s (NYSE: BC) announcement yesterday that it would layoff 645 workers and close down several plants as part of a broad cost cutting exercise, bank of America Securities analyst Michael Savner has raised the company stock’s price target.

“We think the move is logical and underscores the difficult marine environment, he commented in a statement yesterday.

While Bank of America has adjusted its 4Q06 and 2007 estimates, forecasting a 4Q06 EPS of $0.22 and 2007 EPS of $2.54, compared to previous estimates of $0.35 and $2.39, it is maintaining its Neutral rating and has raised the price target slightly to $33 from $32.

Planning for a flat to declining 2007

Brunswick reported yesterday that it was planning for expectations of flat to declining production volumes in 2007 by embarking on a series of actions to cut costs, better utilize overall capacity and improve general operating efficiencies.

“This will create headroom in our cost structure so that we can continue to invest in strategic initiatives critical to achieving our long-term objectives and to help mitigate the effect of inflation on our costs,” explained Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “We are taking advantage of the more productive work processes we have introduced and employed in the past few years, along with ongoing integration efforts, to improve operations across the entire organization.”

McCoy added that the company’s cost-reduction efforts include “consolidating certain boat manufacturing facilities, sales offices and distribution warehouses, and making reductions in our global work force.”

“Now with the domestic acquisition phase largely complete and our integration efforts well under way, we are increasingly turning our attention toward how to best manage and employ the assets we have assembled to provide high-quality, innovative products at competitive prices,” he explained.

The consolidation of boat production will affect Lund-Canada in Steinbach, Manitoba, and US Marine in Cumberland, Md. Lund boat manufacturing will be transferred to its plant in New York Mills, Minn., with Lund-Canada’s sales, marketing and customer service functions remaining in Steinbach, according to the company. US Marine will transfer production of certain Bayliner runabouts from one of its two Cumberland, Md., plants to its operations in Pipestone, Minn. Cumberland’s remaining plant will continue to produce Trophy boats. A phased shutdown of the Steinbach and Cumberland facilities will commence in the current quarter and be completed in 2007, the company stated.

“In addition to the boat plant closures, we will be realigning distribution for our bowling products business, streamlining some sales operations and eliminating select positions throughout our company; cutting across all functions and all levels,” said McCoy. “All of these actions combined will result in a reduction of 430 hourly and salaried production employees and 215 salaried positions in various corporate and division staff functions out of the company’s worldwide work force of 28,500. The work force reductions will take place between now and the middle of next year.”

The company said that severance, asset write-downs and other costs associated with the plant closures and distribution realignment will reduce operating earnings by approximately $25 million to $28 million. Approximately 80 percent of these costs will affect the fourth quarter of 2006, with the balance being recognized in 2007.

Brunswick added that anticipated savings of approximately $26 million in 2007 due to these actions will support continued investments in strategic initiatives as well as to help offset the effect of inflation on wages, benefits, insurance and health care costs, and higher material, energy and other operating expenses expected next year.

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