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Quarterly earnings and estimates show seasonality of the industry. Adjusted earnings exclude restructuring, exit and impairment charges, debt extinguishment losses and special tax items..


Brunswick Corp. analyst opinions as volatile as the boating industry itself

by Mandy Niad
Jun 12, 2013


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Mandy Niad/MEDILL

Brunswick experienced net losses before 2009, yet the company continued to report gross profits, which exclude general, selling and adminisstrative expenses, interest, taxes and extraordinary items.

 

Analysts have been split all year on their predictions for Brunswick Corp., a Lake Forest-based manufacturer of products in the marine, fitness, bowling and billiards industries. Yet the experts see smooth sailing in Brunswick’s future.

 

Of the 10 analysts surveyed by Bloomberg, six rate the stock a buy, three say hold, and only one analyst says sell. The stock currently trades around $32.

 

In April, just before Brunswick released first-quarter earnings, Longbow Research downgraded the stock to neutral, but now Longbow has upgraded the stock back to a buy and set a price target of $40. In recent months other firms have announced conflicting changes. 

 

The highest price target of $44 and an outperform rating comes from Rommel Dionisio of Wedbush Securities Inc.

 

As of June 11, the estimated 52-week target price is $41.33, according to Bloomberg.

 

The stock is vulnerable to effects from weather and the economy, as discretionary spending on boats is not as heavy during tough times. Boats as a discretionary purchase combined with consumer “wealth-rebuilding” contributes to a slow, elongated recovery for the domestic marine industry, said Tim Conder of Wells Fargo in a report.

 

Brunswick reported its first-quarter earnings on April 25 which beat Wall Street expectations with a modest improvement in gross level margins. The company reported net earnings of $49.8 million, or 53 cents per diluted share, compared with the year-ago profit of $39.7 million, or 43 cents per diluted share. First-quarter sales rose 3.7 percent to $995.3 million from $959.6 million in the year-ago quarter.

 

Revenues for the full year 2012 were $3.7 billion, up 1.3 percent from $3.7 billion in 2011. Revenues are estimated to increase to $3.9 billion for 2013, and rise even further to $4.1 billion for 2014.

 

Revenues have been on the rise for Brunswick ever since 2009 when they plummeted to $2.7 billion, down more than 41 percent from the 2008 revenues of $4.7 billion.

 

Revenues, according to Yahoo Finance, for 2013 are estimated to be $3.89 billion, up 4.7 percent from the year-ago sales of $3.72 billion. The average sales estimate for 2014 is $4.14 billion, a 6.2 percent increase from this year’s estimate of $3.89 billion

 

Earnings follow a similar trend, as the company earned $944 million 2012, up 7.6 percent from $877.4 million in 2011. Profits are estimated to increase to just over $1 billion for 2013, and rise around 8 percent for 2014.

 

Brunswick struggled throughout the recession, posting net losses in 2008, 2009 and 2010, with 2010 being the largest at a $38.35 per share.  In 2011, earnings per share were 98 cents and in 2012, $2.09.

Things are looking up. According to Yahoo Finance, average earnings estimates for the current year are $2.53, while the projection for 2014 is $2.60.

 

James Hardiman, senior equity analyst at Longbow Research, inquired during the first-quarter earnings call, “we see a pretty big first quarter beat and yet, excluding taxes, the guidance is largely unchanged.”

 

CEO Dustin McCoy said the company's caution stemmed from uncertainty about the marine business retail season, which was delayed by colder-than-usual conditions in the first quarter. The company now has “room to take a turn here through the second quarter and begin to get a good view about what’s going to go on at retail," said McCoy.

 

Brunswick has developed new products and seen positive results from introduction of Sea Ray’s 510 Sundancer and the Bayliner Element. The newest models being well received “gives us confidence” in future products, Jimmy Baker of B. Riley & Co. wrote in a report.

 

“Brunswick Corp. is well-positioned to profitably gain share in a slow-growth environment” for three reasons, according to Tim Conder of Wells Fargo. Those three reasons: low marine inventories which should generate revenue growth, a new operating cost structure, and Brunswick's having the “strongest industry dealer network,” Conder wrote in a report.

 

Brunswick did not see consistent earnings throughout all its businesses in the first quarter. McCoy stated in the earnings call, “Solid topline improvement was experienced in our Marine Engine and Fitness segments. This growth was partially offset by declines in our Boat and Bowling segments. From a geographic perspective, consolidated U.S. sales increased by 7 percent.”

 

Brunswick’s stock price was $31.90 Tuesday, compared with the 52-week-low of $19.35 and year-high of $37.37. According to Yahoo Finance, the company has a market cap of $2.89 billion and price-to earnings ratio of 49.66, substantially above the Standard and Poor’s 500 Stocks P/E of 18.38.