Brunswick CEO admits ‘tough times’ after 3Q earnings

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

“These are tough times,” chairman and CEO Dustan McCoy said this morning in a conference call. “The marine market in the United States is becoming increasingly challenging due to difficult economic conditions, financial market upheaval, and tightening credit availability — on top of the continuing weak housing market.”

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.

Analysts participating in the conference call focused on several areas of concern, including Brunswick’s debt covenants, international sales, and the ability of consumers to get financing for a boat purchase.

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. Chief financial officer Peter Hamilton said the downgrade by Moody’s results in a higher interest rate for Brunswick, but it has no affect on the company’s ability to meet its financial covenants.

However, he acknowledged, “Our financial covenants are tied to our end balance, which is under stress because of the restructuring. We may need to move to a secured [credit] facility.”

The company expects to arrange for a new revolving credit facility before the end of the fourth quarter.

One analyst asked if Brunswick may consider selling its bowling or fitness divisions to raise more cash if needed. McCoy said the company is not looking for any buyers at this time, but he said he wouldn’t rule it out, either.

“We’re going to do what we have to to get through this,” he said.

On the issue of financing for consumers, McCoy said there is still financing available in the market. “But you’ve got to have a damn good credit score and put a lot more down,” he said.

McCoy said retail demand for fiberglass boats dropped nearly 40 percent across the industry and that slowdown is starting to spread to regions outside the United States.

“In the boat business, every international region was down,” McCoy told analysts. “In the engine business most were down, and the rest were flat.

“I believe the same ailments in the United States are going to evident themselves abroad,” he added. “We should expect some decline in ’09 [in international markets].”

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 for the recent quarter, compared to a loss of $90.3 million last year. McCoy said the company continued to decrease production during the third quarter to reduce dealer inventory.

“While this was the right thing to do, it resulted in sales for our major fiberglass brands being down 50 percent in the quarter,” said McCoy. “Reduced fixed-cost absorption on lower sales adversely affected operating earnings.”

Sales for the marine engine segment fell 21 percent to $448.9 million in the recent quarter, compared to $566.7 million last year. The segment had an operating loss of $8.6 million, compared with operating earnings of $47.5 million in the 2007 quarter.

“Sales were down in all business units in the marine engine segment in the quarter, most notably sales of sterndrive and outboard engines in the United States, which were down 39 percent,” McCoy said.

He said Mercury also cut production rates and instituted plant furloughs. Reduced fixed-cost absorption on lower sales had an adverse effect on operating earnings, he noted.

For the nine months ending Sept. 27, net sales fell 9 percent to $3.9 billion, from $4.2 billion for the first nine months of 2007. Brunswick reported a net loss from continuing operations of $584.1 million, or $6.62 per share, compared to net earnings of $104.8 million, or $1.16 per share, in the 2007 period.

Click here for the complete release from Brunswick.

— Melanie Winters
m.winters@tradeonlytoday.com

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