Brunswick Corp. this morning said it plans to reduce its fixed-cost structure by $300 million by further shrinking its North American manufacturing footprint.
The company plans to have 17 or fewer plants by the end of 2009, compared with the 29 it had in 2007. This will require the closure of four plants in addition to eight plant closures already completed or announced.
The company also notified employees today that it would reduce its hourly and salaried workers at some of its marine plants by 1,000. Further work reductions of about 1,000 hourly and 700 salaried employees across the company’s marine business units are under consideration.
Lake Forest, Ill.-based Brunswick previously announced furloughs at nearly all its U.S. fiberglass plants in July.
“The objective of our downsizing efforts is to ensure solid profitability for our business in this tough domestic marine market,” senior vice president and CFO Peter Leempuette said this morning during a conference call.
“Efforts to reduce our hourly workforce help to ensure that direct labor remains a truly variable cost as we face lower unit volume. In other words, it is a key factor to prevent further slippage in growth margin,” he added.
Leempuette said savings of about $100 million are expected by the end of 2008, with the full $300 million in savings coming by the end of 2009.
“Maintaining liquidity will continue to be a key priority in these uncertain times,” said Dustan E. McCoy, Brunswick’s chairman and CEO. “We are resizing the company for solid profitability under current conditions.
“We cannot plan based on an assumption that markets will, on a unit basis, reach levels of three or four years ago in the near term,” McCoy said during this morning’s conference call. “We’re not predicting where the market is going, what we’re doing is sizing ourselves so no matter what happens with the market, we’ll be able to be profitable.”
In mid-afternoon trading, Brunswick stock was selling at $11.63 per share, down from today’s opening of $11.90.
Brunswick’s news did not surprise Phil Keeter, president of the Marine Retailers Association of America.
“Brunswick has to react to the market,” Keeter said. “It has to answer to its shareholders and dealers are not selling anything.
“None of this makes me terribly happy.”
Given its size, Brunswick can weather the storm and consolidate, Keeter said.
“I just wish there was some way to gain back consumer confidence. The industry is doing everything it can with its dealer certification programs, Grow Boating and Discover Boating campaigns,” added Keeter.
McCoy, in his statement, said the company has addressed “the prolonged downturn in the U.S. marine market by continually reducing production rates throughout our marine businesses, divesting under-utilized assets, exiting or divesting certain businesses, eliminating discretionary spending and reducing head count.
“While these efforts have resulted in significant savings, the realities of the current U.S. marine market have caused us to step up the pace and magnitude of these efforts.”
Retail sales of powerboats in the U.S. have been in decline since late 2005, but that number has been escalating, said McCoy. Industry retail unit sales were down 13 percent in the fourth quarter of 2007 and down 21 percent in the first quarter of this year, compared with the respective year-ago quarters.
He said Brunswick is not assuming that the uncertain economy, high fuel and food prices, slumping home sales and values, rising unemployment and other factors that continue to erode consumer confidence will ease up anytime soon.
“Our objective is to thrive and prosper while the U.S. marine market remains under pressure and to outperform when we see a rebound in demand,” McCoy said in a statement.
McCoy, in his statement, acknowledged his company has been making “difficult” decisions.
The company’s immediate focus remains on managing inventories at its dealer network. “We will continue to produce at rates below retail demand to lower pipeline inventories. A reduction on production rates also results, unfortunately, in the need for fewer workers.”
The company said its actions are estimated to result in restructuring charges in the range of $200 million to $220 million pretax, which includes about $75 million of previously announced restructuring charges related to actions taken earlier this year. Brunswick estimates that between $170 million and $180 million of these charges will be incurred in 2008, with the balance in 2009.
— Lois Caliri
— Beth Rosenberg