Brunswick CEO charts the company’s future course

Posted 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.”

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Comments

5 comments on “Brunswick CEO charts the company’s future course

  1. Chris Foster

    “cost versus benefit is out of balance right now for new product.”
    Truer words were never spoken but I don’t really see anything being done by manufacturers to remedy this. As Mr. McCoy 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.” I sincerely doubt this statement as I believe consumers will not replace old boats like they do old cars at the current level of extreme pricing. Very few of us HAVE to own a boat. It is still a very POSTPONABLE purchase unlike an automobile for most of us. The obsolescense factor doesn’t work in boating as it does in automobiles. Manufacturers need to realize that $10,000 per foot is not a sustainable pricing formula for the boating public.

  2. Kirk Smith

    I am a boating for life type person. . However, my kids are not and now they are grow. I always thought that if you grew up in it, then it would follow your family down the road. I was dead wrong and today I just watch families chase youth sports program. The boating industry is just a victim of a cultural shift and not in a very good way. Young families today are chasing “Phantom” scholarship programs trying to pay for college. Reality is, little Johnny and little Jennifer are just not very good athletes like their parents think they are. And the scholarship programs they desire so much just aren’t worth what they think they are. Go Boating and make some great memories and get away from the TV!

  3. pilothouseking

    Changing demographics, aging of baby boomers, with the offspring not following even if offered free use of the boat if only having to pay for fuel. The housing costs today along with mandatory auto insurance (something not required when I was young) leaves very little cash in young peoples pockets even if they have no kids. THEN when they do go out to have some fun, the waterways now have cops everywhere (I’m in Miami) who put a damper on their day. Now let’s go back to dad and granddad who do have cash on hand for toys, and maybe would buy a boat.” WHERE do they keep it?” I get asked this all the time by those who don’t have waterfront dockage. Well you can go buy a condo slip for the price of a condo or pay $1100. -$1600. A month for a 48′ boat. “How about insurance?”…now they’re not buying a boat. Instead will buy that nice classic car or young girlfriend they’ve always dreamed about. The math is better.

  4. Tom T

    I would have to agree with Chris. After looking at the prices of new Sea Rays, then Merrdians, I chose to by a used 48ft trawler. I got much more bang for my buck. Need to bring the 30-40 fts back down to a reasonable price or Brunswick will see a lose in 2014….

  5. Capt. Jay

    The price of new boats is VERY important, but the entire value proposition is also key. I have purchased four boats myself, three used, and one brand new, from the manufacturer in this article. While the price is high and hard to justify; if I am getting a new product with warranty and a service organization to back it up, the value is there. My time is limited, so when the weekend comes, I want to take the boat out! However, in the case of the new boat/ motor package; I’ve have had more issues with the new product, then with two of the three used boats I purchased. (maybe the low hour boats had the bugs worked out?). And the service experience should mirror the automotive model, with Saturday service, a qualified, knowledgeable, honest service writer who will respond, communicate, and return phone calls. On time deliveries, instead of trying to up-sale the consumer to the next model. In my case, the value proposition was not there, so I recently purchased a used 25 CC, rather then pony up for the new model. I’m not necessarily proud of this, being in the industry, BUT if the extra $$s spent on new, don’t get you added quality and/ or service, why spend it?

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