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Analysts lower Brunswick’s earnings estimates, but still see hope

Analysts are lowering their earnings estimates for Brunswick following Thursday’s release of weaker-than-expected results for the third quarter. However, those same analysts say Brunswick’s liquidity is manageable, despite the recent downgrade of its debt rating by Moody’s Investors Service.

“We continue to believe bankruptcy is a low probability outcome,” said Ed Aaron director of Equity Research for RBC Capital Markets, in a report released this morning.

He said the ratings downgrade will have minimal impact on Brunswick's financial picture. He cited several factors supporting this view: a decent cash cushion of $343 million, aggressive cost-cutting measures, a significant spread between D&A and Capex, and a reduction in working capital needs. Aaron also noted that Brunswick’s board of directors will most likely cut the company’s annual dividend.

Tim Conder, managing director of leisure equity research for Wachovia Capital Markets, agreed that Brunswick’s liquidity appears controllable. After refinancing debt due in July 2009, Brunswick does not have any material debt maturities until 2011, he noted.

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

He said a likely technical violation of revolving debt covenants in the fourth quarter should not be a major hurdle considering that nothing is currently drawn under this revolver, and Brunswick should be able to renegotiate this by the end of the year.

Nevertheless, the analysts did lower their earnings estimates for the Lake Forest, Ill.-based boatbuilder.

Wachovia is revising its 2008 and 2009 earnings estimates to a loss of $1.40 per share and a loss of 30 cents per share, respectively. Previous estimates for 2008 and 2009 were a lost of $1.42 a share and a gain of 22 cents a share, respectively. Conder said downward revision is based on ongoing deterioration in U.S. and global marine market conditions, and accelerated core business restructurings/resultant cost savings.

RBC also lowered its estimates for Brunswick following Thursday’s third quarter earnings release. RBC analysts now expect Brunswick to report a loss of $1.53 per share in 2008 and a loss of $1.09 per share in 2009. This compares to previous estimates of a $1.37 per share loss in 2008 and a 26 cents per share loss in 2009.

Brunswick stock dipped below $3 a share following yesterday’s earnings release, before closing at $3.48 a share. The stock was trading at $3.34 a share this morning. This compares to a 52-week high of $22.85.

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