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Analyst says Brunswick is positioned well in slow recovery

The weather in May will determine the degree that pent-up marine retail demand is "unleashed."

That's according to Wells Fargo analyst Tim Conder, who said in a new report that U.S. marine industry dynamics should keep a relative floor under new-boat demand.

Historically low inventory channels of new and used boats, as well as a desire by manufacturers, dealers and banks to keep them low will help to do that. Limited availability of high-quality 3- and 4-year-old used boats and an aging U.S. boat fleet also will help keep the industry solid, Conder wrote.

Still, the domestic marine industry continues to experience a gradual and elongated recovery because boats are a discretionary purchase, combined with slower-than-normal income growth and consumer "wealth-rebuilding," Conder said. Uncertainty of small business owners because of regulations and pending health care laws affects the industry's target demographic for mid-size and larger boats, he wrote.

"However, based on the company's restructuring moves we believe Brunswick Corp. continues to further enhance its position as the industry low-cost manufacturer," Conder wrote.

Brunswick will be well-positioned to gain domestic and international market share as the "low-cost producer with a strong relative financial position, leading U.S. dealer network and diverse international exposure," Conder wrote.

Brunswick's R&D investments are producing a strong pipeline of higher-margin boats and outboard engine products for late 2013 into 2014.

Because the company's other growth drivers remain intact — such as inventory channels being at record lows, a higher-margin product mix and complete debt refinancing — Conder speculates that weather will be the most influential factor in the company's marine segment performance.

"New Japanese engine products are more of a 'catch up' versus a leapfrog of Mercury," Conder wrote. Estimated revenue for marine in 2014 is up 5.5 percent as "both boats and engines see ongoing volume and modest mix improvement."

Wells Fargo is raising 2013 earnings per share to $2.58 from $2.44, reflecting the just-completed debt refinancing and stronger 2013 outlook. The EPS for 2014 has been "fine-tuned" to $2.58 from $2.59.

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