Analyst remains encouraged by Brunswick results

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B. Riley & Co. said Friday that it believes Brunswick Corp. is positioning itself to rapidly increase profits, primarily because of an improving capital structure and the release of pent-up marine market demand.

In a research note that followed Brunswick’s release Thursday of its third-quarter earnings report, B. Riley analyst Jimmy Baker said the worldwide maker of recreational products that includes boats and marine engines has revolutionized much of its core marine businesses in the last several years and emerged from what he called the “marine industry depression” with a leaner and more agile business model.

B. Riley reiterated its “buy” rating on Brunswick stock.

Brunswick reported $884.8 million in sales and $2 million in profits for the quarter that ended Sept. 29. Sales in the company’s marine engine segment, which consists of the Mercury Marine Group, were up 11 percent, to $503.5 million.

“Mercury delivered another quarter of outstanding margins, this time coupled with [double-digit percentage] top-line growth,” Baker said.

He noted that the segment has a robust backlog that company management said during a conference call Thursday will probably take until the first quarter of next year to fill.

“Moreover, it appears its high-margin [parts and accessories] business is on track for a record year, which is a testament to the stability of Mercury as an asset, given the overall state of the global marine market,” Baker said.

Sales in Brunswick’s boat segment fell 7 percent in the third quarter to $205.8 million, but Baker noted that new-boat sales rose 5 percent in the quarter from the same period a year earlier despite global headwinds in that business.

“We are very encouraged by [Brunswick’s third-quarter] results, as execution and profitability was nothing short of outstanding,” Baker said. “As we move into [the fourth quarter], revenue growth should continue to accelerate into 2013, when the company will benefit from a lower marine cost structure.”

The B. Riley analyst was referring to the $10 million to $12 million a year that Brunswick has said it will save after it takes steps that include the closing of the Knoxville, Tenn., plant where Bayliner and Sea Ray cruisers have been built. Brunswick said earlier this month that it will stop building and selling Bayliner cruisers in the United States so the brand can focus on its core bowrider and deckboat models and new categories, such as the jetboat segment.

Brunswick plans to make its Brazil operations the center of its Bayliner cruiser business and will suspend the brand’s cruiser sales and production outside South America. The company plans to consolidate its U.S. cruiser production for Sea Ray into its Palm Coast, Fla., and Vonore, Tenn., facilities.

Click here for the full analyst report.

— Jack Atzinger

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