Analyst optimistic about Brunswick's restructuring

Some investment analysts are praising Brunswick Corp.’s recent announcement to drastically cut back production over the next year and a half.

“This plan should enable the company to be profitable, even in a very difficult environment,” said Ed Aaron, director of equity research for RBC Capital Markets, in a report following Brunswick’s announcement Thursday that it plans to cut jobs and close plants.

“From an investment perspective, these measures make the story less about the cycle and more about execution,” Aaron continued. “While we would like to see industry trends at least stabilize and estimates sufficiently correct before getting more aggressive with the stock, we are much more willing to bet on Brunswick's ability to execute than on an outright cyclical recovery.”

Brunswick 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 plans to 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.

While praising Brunswick’s business plan, RBC Capital Markets lowered its earnings estimates for the boatbuilder because of restructuring charges associated with the cutbacks, coupled with recent industry trends. For 2008, RBC expects Brunswick to report a loss of $1.13, compared to the prior estimate of a 28 cent per share gain.

RBC also lowered its price target for Brunswick stock to $15 from $18 to reflect additional recent pressure in the leisure industry.

“A continued slowdown in the boating industry growth could impede achievement of our price target,” Aaron said in his report. “Additionally, higher interest rates as well as higher gas prices may slow demand for Brunswick's boat and engine businesses.”

Tim Conder, senior analyst with Wachovia Capital Markets, said, “It will be at least this time next year before initial evidence could emerge that the U.S. retail marine market is stabilizing.”

Still, not everyone has such a gloomy prediction for the marine industry. Genmar Holdings chairman Irwin Jacobs, responding to Brunswick’s recent announcement, sent a letter to his dealers with a more positive outlook.

“It surely is no secret that the present retail boating market is less than desirable regardless of who you speak with and/or what you are hearing and personally experiencing,” Jacobs wrote.

He goes on to say, however, that “the recreational boating industry is not only going to come back again, but it will be back bigger and better than ever before.

“I am not suggesting that the 2009 retail boat market is going to come roaring back, but I do believe that once the presidential elections are behind us in early November 2008, we’ll most likely begin to see market conditions improve and continue from there in a positive direction for those who have the right boat products, best services and a positive attitude throughout their organizations,” Jacobs wrote in his letter.

— Melanie Winters


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