Analyst lowers Brunswick, credits West Marine

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Another analyst has joined the ranks of those lowering their earnings estimates for Brunswick following last week’s release of weaker-than-expected results for the third quarter.

Laura Richardson, of BB&T Capital Markets, said in a report that her group was lowering its fiscal 2008 estimate to a loss of $1.27 and its fiscal 2009 estimate to a loss of $1.18.

“We think the risks in Brunswick’s business are balanced by its stock price, which is at record lows on any metric we follow,” Richardson wrote in her report, noting “liquidity improving measures” the company is expected to take, such as the sale/leaseback of several owned consumer bowling centers and a suspension of its annual dividend.

“If it were necessary for debt service, the company doesn’t appear to be ruling out the possible sale of its fitness business,” Richardson added.

Brunswick’s stock opened this morning at $3.24 a share, and was trading at $3.43 by mid-morning.

Brunswick last week reported a 22 percent drop in net sales, driven by a 28 percent decline in marine sales.

Net sales for the third quarter ending Sept. 27 totaled $1.04 billion, compared to $1.33 billion in the year-ago quarter. Net loss totaled $591.4 million, or $6.70 per share, compared to net earnings of $1.9 million, or 2 cents per share, in the 2007 third quarter.

The Brunswick Boat Group reported a 36 percent drop in net sales to $392.5 million, from $613.9 million in the year-ago quarter. The segment had an operating loss of $537.4 million for the recent quarter, compared to a loss of $90.3 million last year.

Despite the recent downgrade of Brunswick’s debt ratings by Moody’s Investment Services, executives said the company’s liquidity is still in good shape. The company expects to arrange for a new revolving credit facility before the end of the fourth quarter.

Other analysts also lowered estimates following Brunswick’s earning report.
Wachovia revised its 2008 and 2009 earnings estimates to a loss of $1.40 per share and a loss of 30 cents per share, respectively. Previous estimates for 2008 and 2009 were a loss of $1.42 a share and a gain of 22 cents a share, respectively.

RBC also lowered its estimates to a loss of $1.53 per share in 2008 and a loss of $1.09 per share in 2009. This compares to previous estimates of a $1.37 per share loss in 2008 and a 26 cents per share loss in 2009.

West Marine ‘managing well’

BB&T’s estimates for West Marine are a loss of 65 cents per share in fiscal 2008, and a gain of 4 cents per share in 2009.

“We think West Marine is managing well in this economy, with a focus on expense and inventory control,” Richardson wrote. “Its stock is one of the few in our universe that has risen from annual lows since July.”

She attributed the rise in stock price to a $30 million restructuring and the recognition that founder and chairman Randy Repass has been increasing his shares. His stake in the company has risen, in recent months, from 28 percent to 33 percent.

West Marine last week reported a moderate decrease in sales and profits for the third quarter ending Sept. 27.

Sales for the quarter were $180.2 million, compared to $188.4 million in the same period 2007, or a drop of 4.3 percent. Comparable store sales were down 4.7 percent.

Adjusted net income was $4.8 million and 23 cents per share versus $6.2 million and 28 cents per share last year. Gross profit for the third quarter was $49.7 million, a decrease of $8.2 million compared to 2007.

West Marine’s stock opened this morning at $4.90 a share and was trading at $5 by mid-morning.

—  Beth Rosenberg
b.rosenberg@tradeonlytoday.com

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