Brunswick CEO charts the company’s future coursePosted on Written by Reagan Haynes
Despite being off on estimates that Brunswick’s boat business would begin earning money in 2013, the company projects that the segment will go from losing money to being in the black in 2014, with CEO Dustan E. McCoy predicting operating margins between 4 and 6 percent this year.
“Our boat business lost money in 2012 and lost money in 2013, though our guidance was that our boat business could be slightly profitable or break even in 2013,” McCoy said Tuesday at the Raymond James 35th annual Institutional Investors Conference in Orlando, Fla. “And we didn’t make it because the fiberglass sterndrive-inboard market continued to decline, against our expectations that it would generally flatten.”
“We’ve guided this year that the business will make money,” McCoy said.
The layout of the segment is much different than in prerecession days in terms of dollars, he said.
Sterndrive and inboard fiberglass yachts used to be 80 percent of dollar sales, but now account for only about 35 percent.
Aluminum fishing boats and pontoons now account for 44 percent of sales, and fiberglass outboards are 21 percent of revenue.
“We saw something we hadn’t planned on and that was that the boat recovery became very uneven,” McCoy said.
The aluminum category is about 70 percent of 2007 levels, he said. Pontoons are about 90 percent what they were before the recession. About half as many fiberglass outboard boats are being sold today, compared with 2007.
“And large boats, where we make a lot of our margins, we’re only back to 15 percent of 2007 levels,” McCoy said. “We actually didn’t quite make 5 percent [compound annual growth rate]. And the reason is we didn’t anticipate Europe disappearing in 2012.”
However, McCoy still anticipates a turnaround despite low expectations about a rebound overseas.
“As in our engine business, new product is the key to us moving forward,” McCoy said. “In order to be really good [at delivering] new product, we have to be able to listen to the voice of the customer and translate that into new product. We’ve been hitting home runs with new product. One thing we’ve done really well at Brunswick is … to really understand the consumer and turn consumer needs into products. The real key is to understand the art of the possible after talking to consumers, and we’re getting very good at that.”
Brunswick aspires to be “the low-cost producer” of boats, McCoy said. “We’ve taken, in round numbers, $450 million of fixed cost out of our company. We’ve significantly reduced our model count, our brand and our manufacturing footprint in order to achieve the sort of numbers we’ve been hitting in a very low-growth economy. And we continue to be a business that fundamentally lists the strength of the distribution and do a lot of work to ensure they’re the strongest in the market.”
Investing in new-product development is key to becoming profitable, McCoy said, despite new-boat sales being down globally.
“New-product sales around the world are down and used product sales were up in 2011,” McCoy said. “As we surveyed boaters, it comes down to one thing — cost versus benefit is out of balance right now for new product. The cost-versus-benefit ratio works very well for used product.”
But McCoy said that because more used product is selling today than was sold prior to 2007, “we’re comfortable and relaxed, like the car industry, except it unfolds in slow motion in the marine industry,” he said. “But as the availability of used product begins to decline and new products continue to increase, as we see that delta between new and used close, new sales will begin to come back.”
As a result, “we will go from losing money to generating a 4 to 6 percent operating margin in 2014 to 2016,” McCoy said. “In 2014 will have revenue growth in the high single digits as we bring new product to the market and, again, we think that business will become profitable.”
Welcome to TradeOnlyToday’s premium content! To continue reading, please register now, for access to 10 free stories per month. Or subscribe, for unlimited access to all TradeOnlyToday content!
Basic subscription: Registered members get free access to 10 premium content stories each month!
Individual subscription: $29 for unlimited site access for one year.
Small Business subscription: $140 for unlimited site access for up to 10 members of a company for one year.
Corporate subscription: $300 for unlimited site access for all members of a company for one year.
You may close this dialog after seconds.