MIAMI, Fla. — In response to Brunswick Corp.’s investor meeting at the Miami International Boat Show on Feb. 17, RBC Capital Markets analyst Edward Aaron and associate Asher Cronk put together a research report. The report included these comments on Brunswick’s status and business outlook:
• Business objectives have clearly shifted from defense to offense. Objectives include outperforming the market, generating operating leverage (30 percent incremental margins in steady state, higher near-term given restructuring savings), and positive free cash flow generation.
• During the investor presentation, management reiterated its view that 2010 will mark the bottom in the cycle. Evidence of improving conditions include: better showroom traffic, increased customer/dealer phone call activity, a more engaged consumer base and improved year-over-year boat show activity. In relative terms, management seems more optimistic about the small boat segment of the market.
• Consistent with [RBC Capital Markers] research, management sees growth resulting from mix reversion back toward new versus used. Absorption of used inventory has narrowed price gaps between new and used boats, and this seems likely to continue given lower new boat sales in recent years. Notably, a large dealer that presented at the meeting mentioned that they are planning for used boat sales to decline by half in 2011.
• Engineering product cost out is a priority. In response to a more value-conscious consumer, Brunswick's new product hurdles generally require lower manufacturing costs versus predecessor models.
• The meeting also provided a deeper look into engines, P&A and international. Interestingly, Mercury gained share in 2010 despite share declines in Brunswick's boat business, suggesting strong demand from other OEMs. Discussions on P&A and international businesses, which performed well through the downturn, emphasized Brunswick's unique capabilities.
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