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Brunswick Corp. earnings have been hit hard by the recession, but have shown positive results in the past three quarters.


The future of Brunswick Corp. is uncertain despite a positive finish to 2011

by John Solymossy
Nov 30, 2011


Brunswick share price

John Solymossy/MEDILL

Brunswick Corp. share price has fluctuated from close to $50 in 2005 to less than $2.20 in 2008.

Brunswick Corp. has ridden the ups and downs of the economy over the last three years – and let’s face it, it’s been mostly downs -- but three straight quarters of profitability have raised hopes that the nation’s leading maker of recreational boats is positioned for more positive growth in 2012.
The Lake Forest-based maker of motors, boats, fitness and recreation products depends heavily on consumer confidence. Its flagship marine-product segment, which makes big-ticket items consumers can easily forego, generates healthy returns when the economy is strong, but tanks when the economic cycle turns down and consumers have less discretionary income. 
The result: Although Brunswick has slashed costs and significantly reduced boat production during the protracted down market, its earnings, and share price, will remain under pressure until recession-wary consumers start to gain confidence about the economy. 
Founded in the mid-1800s, Brunswick Corp. was for much its history best known for producing billiard tables and bowling equipment.
Then in 1986, Brunswick acquired two boat manufacturers, Bayliner Marine Corporation and Ray Industries (maker of Sea Ray boats) for $773 million. Those purchases made Brunswick the world's largest manufacturer of pleasure boats and marine engines, but also made the company much more vulnerable to economic volatility.
Business slumped in the early 1990’s due to an economic downturn in the U.S., which significantly hurt the company’s marine sales. At the time, Brunswick had net losses in 1991 and 1992 and decided to concentrate mainly on developing its marine and recreation segments. The company, which moved its headquarters in 1993 from Skokie to Lake Forest, eventually rode a rebounding economy to stronger profits. 
It also broadened its offerings. In 1997 Brunswick acquired Life Fitness for $310 million in an effort to expand the company’s line of products beyond billiards, bowling and boats. The Life Fitness and Hammer Strength brands, which produce over 400 different commercial and home fitness products, have provided a stable source of revenue for Brunswick, helping offset some of the boating group’s profit volatility.
Brunswick’s fortunes strengthened in the early 2000s, and the company’s ambitious expansion continued with the 2004 purchase of the Crestliner, Lowe, and Lund boat brands, which produce more-affordable, aluminum boats. 
Sales soared during the period, and Brunswick’s shares briefly peaked above $49 at year-end 2004. But sales later began to ease, and economic fallout from the recession in 2008 turned what had been a decline into an all-out rout.
At the depth of the recession in 2009, Brunswick shares plummeted to $2.18. Asset writedowns and big restructuring charges linked to the campaign to cut costs took a heavy toll: in 2008, the company reported a punishing net loss of $788.1 million, or $8.93 a share; in 2009, it lost $586.2 million, or $6.63 a share.
Since 2009, Brunswick shares have gradually recovered, and the company has managed to expand and grow despite the continued weak economy and low consumer confidence. In response to the plunging new-boat sales, Brunswick took several steps to ride out the turbulence:  it reduced its  North American manufacturing locations from 28 to 11, cut the number of  boat brands it offers from 24 to 15, and chopped its U.S. workforce by  46 percent. 
Recently, there have been signs that the tide may be turning.
“During the downturn, Brunswick took various actions (plant closures, workforce reduction, sale of various boating brands) to reduce its footprint and align its fixed costs with the depressed sales,” ” Jeremey Cohen, an analyst for Morningstar Inc., said in a note. “These actions, coupled with some top-line growth going forward from the boating and marine industries, should aid the growth of Brunswick’s earnings potential in 2012.”
Still, with Europe’s sovereign-debt crisis causing market jitters and economic uncertainty, the question now is which way consumers confidence in the U.S. is heading.
“Our crystal ball is not very clear right now for next year,” said Dan Kubera, Brunswick director of media relations.
Despite lingering uncertainty about the upcoming year, Wall Street is expecting  the company to have smoother sailing. While per-share earnings for the year ending next month are expected to be 72 cents, analysts are looking for a near-doubling in profits, to $1.36 a share, in 2012.  
“Brunswick controls several best in class assets that should allow it to grow faster than its end markets while driving exceptional returns,” said Jimmy Baker, an investment bank analyst for B-Riley & Co.
Baker recommends Brunswick as a “buy” and is predicting its stock will rise to $41 per share, which would be more than twice its Wednesday close of  of $18.14. 
Through the first nine months of 2011, Brunswick earned $101.5 million, or $1.46 a share, up solidly from a net loss of $6.5 million, or 7 cents a share, in the first nine months of 2010. 

 “We believe the seasoned management team has positioned Brunswick to disproportionately benefit from recovering end markets while stripping out enough costs and adding enough durable revenue to sufficiently buoy the company during future cyclical troughs.”
Brunswick CEO Dustan McCoy  said recently that  the outlook for the marine market in 2012 will continue to be “challenging”, but he expects “ favorable cost position” and continued revenue and earnings from Brunswick’s organic growth initiatives via the Life Fitness and Hammer Strength brands.

“Particularly through these organic growth initiatives, we further believe that are 2012 lend ?? income will benefit from previously announced from marine cost reduction activities, lower restructuring cost and reduction in interest expense,” said McCoy.
Even though Brunswick’s latest quarterly results exceeded the expectations of Morningstar’s Cohen, the analyst remains noncommital about Brunswick’s ability to show continued growth, because of its dependence on sales from its marine department.
“Ultimately, we still expect a slow rebound in sales from the marine and boating industries as one may expect given the high-ticket nature of these discretionary items,” he said.
“However, the firm strategically positioned itself and its cost structure so that it could still grow its bottom-line even with slow growth from these industries, which, again, is what we expect will be the case in 2012.”