Brunswick adjusts to uneven industry recovery

Posted on Written by Michael LaBella

Brunswick Corp. experienced increasing losses in the fourth quarter of 2012, compared with 2011, as it tried to sell Hatteras and Cabo, two of its high-end brands, the company said Thursday.

“As we’re looking around the organization … the marine market is clearly in recovery, but it’s in recovery in a way none of us had anticipated,” Brunswick CEO Dustan McCoy told investors Thursday. “We thought as we saw it grow, we thought it would grow proportionally across all segments. What’s happening now is unprecedented, and we’re making the adjustments to that.”

The increase in operating losses resulted from higher restructuring and impairment charges, McCoy said. The operating improvement, excluding restructuring and impairment charges, reflects higher sales, net of greater investments for long-term growth and an unfavorable change in product mix.

In the fourth quarter, net loss from “discontinued operations,” net of tax, was $59.2 million, and the total net loss was $75.3 million, compared with $29.6 million in 2011.

Despite the restructuring losses, sales grew 9 percent in all segments, McCoy told investors.

“Let me start with restructuring, exit and impairment charges from continuing operations, which were $10.5 million [GAAP] in the quarter,” chief financial officer Peter Hamilton, who is retiring next month, told investors Thursday. “These charges mainly reflect consolidation actions taken during the quarter in the boat segment, and to a lesser extent previously announced actions in our marine engine segment. Looking forward, we currently estimate charges pertaining to actions taken in 2012 to be in the $5 million to $6 million range in 2013.”

Operating earnings, excluding restructuring, exit and impairment charges, were $290 million for the year, an increase of 23 percent from 2011, the company announced.

“The numerous product launches in the upcoming marine season will further enhance growth,” McCoy told investors.

The company is debuting the Boston Whaler 270 Dauntless at the Progressive Insurance Miami International Boat Show after four model releases for the brand last year, McCoy said.

“Our plan assumes that the larger-boat market continues to experience weakness, which will be offset by new and exciting products,” including the Bayliner Element and jetboat offerings from Bayliner and Sea Ray, McCoy said.

The boat segment’s fourth-quarter adjusted operating loss improved by $3.7 million, compared with the prior year, McCoy said.

“A major factor driving the improvement was the increase in sales, which was partially offset by investments made in our growth initiatives and the unfavorable change in product mix,” McCoy said.

Growing the sterndrive category in 2013

In the global marine sector, Brunswick expects to benefit from the “continuing, albeit very uneven” recovery in the overall U.S. powerboat market, McCoy said.

“Our 2013 plan reflects solid growth in the outboard categories, following the double-digit growth rates experienced in 2012 and growth in 2011,” McCoy said.

Although weak market conditions may continue to challenge the sterndrive category, Brunswick plans to grow it in 2013, in part because Mercury has “the broadest offering in gasoline sterndrive engines,” McCoy said.

“The reason we’re doing that is we are feeling the green shoots,” McCoy said. “We’re not seeing them yet, but just like in the spring, when you’re walking around and feel the sun, even though you don’t see the shoots yet, you know they’re coming.”

“We want to make sure we’re positioning product well when the recovery comes,” McCoy said. “We want to be able to get all the product into the field as we’re ready.”

Excluding Europe, global sales increased by 38 percent, which includes growth driven by Brunswick’s Brazil initiative.

“Although in the early stages, the Brazil initiative is making good progress in its first full season,” McCoy said.

In the United States, which represents about two-thirds of the segment, strong wholesale shipments resulted in a 13 percent sales increase. This increase primarily related to aluminum boat dealers increasing their pipeline levels in response to strong retail demand trends, McCoy said.

In 2012, global retail unit sales of Brunswick boats grew by about 7 percent and global wholesale shipments increased by 3 percent.

Aluminum product pipelines are up from last year because of increasing demand, a trend Brunswick expects will continue. However, the pipelines for fiberglass sterndrive inboard boats 24 feet and above are at record lows because of weak demand.

“During the first half of 2013 our plan reflects the continuation of declines in large-boat pipeline inventories as we and our dealers continue to respond to weak market conditions in this segment,” McCoy said. “As a result, our boat group is likely to experience modest revenue declines in the first quarter.”

— Reagan Haynes


5 comments on “Brunswick adjusts to uneven industry recovery

  1. billmudgett

    Is your strategy to continue to “buy” market share at the expense of profits and the fiscal health of your customers?
    The non- Brunswick brands that sell your sterndrives and outboards.

  2. BayBoater

    Dustin sounds like he has been taking lessons from politicians on how to do the “White House Two-Step”. His quoted numbers are all over the place. I guess Brunswick hopes to dazzle the investors with their brilliance, but in reality, their baffling them with their B-S… Brunswick has the ability to make the numbers look however they want, when the reality is that they are sucking wind. Brunswick destroyed the Hatterass name by trying to turn a well respected long-time boat company into just another cookie-cutter foo-foo boat line and then hoped that they will come. Well, they didn’t, so now they are getting rid of the line. Sadly, the damage has already been done. Everyone that has been in the marine industry for over 20 years knew that aluminum boats and pontoons with fuel saving engines were going to continue to be sold and that sterndrive boats over 24 feet that hovered around the $80,000 to $100,000 price level were just not going to be purchased by the mainstream boater. It’s not rocket science… I guess Brunswick counts on the premise that perception might just become reality…

  3. Earl Alfaro

    I agree with ‘Bayboater’ in that Brunswick ownership made an error by targeting a different market with a brand known for its classic, handsome lines that made sense. The late Jack Hargrave was a master in conservative boats, and a personal inspiration to a young aspiring yacht designer, that both looked handsome and functioned well. To whoever decides to step in and purchase the company they would be well served by revisiting what made Hatteras a classic in the hearts of discerning owners.

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