Brunswick’s ready to cut deeper if it has to

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Big boatbuilder plans to eliminate 1,450 jobs, says it will go beyond that if sales don’t improve

The string of bad news regarding layoffs from struggling U.S. boat manufacturers has received a punctuation mark from the industry giant.

Brunswick Corp. announced Oct. 9 it will accelerate its previously stated efforts to resize the company and remove $300 million in fixed costs by the end of 2009. By the end of this year, plants in Arlington, Wash., and Roseburg, Ore., will be permanently closed, and the Navassa, N.C., plant will be mothballed. The Pipestone, Minn., permanent closure is expected to be completed during the first quarter of 2009. The moves will result in the eventual elimination of approximately 1,450 hourly and salaried positions at these facilities.

Brunswick also says it plans to temporarily suspend production at three of its boatbuilding facilities near Knoxville, Tenn., beginning the week of Oct. 27 and continuing through the remainder of the year. During this time, Brunswick will transition boat models from the plants that are closing into these facilities.

Brunswick chairman and CEO Dustan McCoy said the actions are dictated by turmoil in the markets and the continuing slump in housing and consumer confidence.

“We have no doubt that the actions we are announcing today are correct,” McCoy said in an Oct. 9 conference call with investment analysts.

No liquidity crisis
The analysts seemed most interested in whether or not the company would be able to meet certain loan covenants, given the accelerated downsizing and the restructuring charges involved. McCoy acknowledged that one of Brunswick’s covenants may be “under stress” if the market slump continues.

He noted, however, that Brunswick has already opened discussions with its bank to set up a revolving line of credit. He also said Brunswick has enough cash on hand to “live out of our own pockets” through the first half of 2009 beore having to rely on revolving credit.

“We are not in breach of any covenants as of the third quarter,” CFO Peter Hamilton emphasized. However, he added, “As we go forward, there will be stress on covenants, and we’re in discussions with the bank on a revolver.”

According to Tim Conder, managing director of leisure equity research for Wachovia, “Potential fourth-quarter technical violations of revolving debt covenants should not be a major hurdle, considering nothing is currently drawn under this revolver, and Brunswick should likely be able to obtain temporary waivers.

“We do not believe Brunswick is in any imminent danger of a liquidity crisis,” Conder said in his report.

More to come?
Analysts also asked if there would be more downsizing to come if the economy continues to lag.

“If the market continues quarterly declines of 40 percent, we will have to do more,” McCoy said. “We have very strong contingency plans, and we’re prepared to make other moves if we need to.”

McCoy noted that the measures taken this week already assume the European markets will weaken. A number of analysts have have said sales in Europe are beginning to slow and may falter even more as the credit and liquidation crisis in the United States spreads abroad.

Brunswick stock lost nearly $2 a share in afternoon trading Oct. 9 before closing at $8.12, down from a 52-week high of $24.18. It opened Oct. 10 at $7.63.

Wachovia Capital Markets revised 2008 and 2009 earnings estimates for Brunswick to a loss of $1.41 and earnings of 22 cents per share, respectively. This compares to Wachovia’s previous estimates of 63 cents per share loss for 2008 and 87 cents per share gain for 2009.

The revised numbers are based on “ongoing deterioration in the U.S./global marine markets, and accelerated core business restructuring and resultant cost savings,” said Conder in his report.

This article originally appeared in the November 2008 issue.

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