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Analyst sees progress ahead for Brunswick

Brunswick Corp. is “one of the most attractive risk/reward profiles” among the leisure companies covered by Wells Fargo analysts and testing is taking place now for sterndrives built in-house that are due out later this year.

“Management tone remains optimistic, based on industry initial seasonal sell-through and new-product reception,” Wells Fargo senior analyst Tim Conder wrote in a report based on a recent meeting with Brunswick management.

U.S. retail boat sales are up 5 percent year over year in April in Brunswick’s main powerboat segments.

The retail environment is picking up, with risks largely economic, Conder wrote.

“Brunswick is taking share in aluminum and pontoon, driven by new products,” he wrote. “Northern tier state dealers [are] pushing to get purchased boats in the water as soon as possible.”

Some delays were felt in those states as lakes remained frozen beyond the time when they typically would have thawed, Brunswick CEO Dusty McCoy said recently at a B. Riley investor meeting.

Brunswick management is concerned that aluminum-boat channel inventories could be too lean, Conder says, but overall there are no channel issues.

Sea Ray is also well-positioned to regain share with new mid- and large-sized product introductions, Conder wrote.

“Brunswick is accelerating [the] new-product development pace, with each new model pricing equal or less than the model it is replacing,” he said. “The boat segment [is] on track for 12 percent operating margin in 2014, but second-quarter EBITDA growth will be challenging. Management is confident the boat segment will achieve 4 to 6 percent operating margins in 2016.”

In the engine segment, internally produced sterndrive products — as opposed to those procured from the automotive industry, as they had been in the past — will ship in the third and fourth quarters this year “with opportunity to better manage costs,” Conder wrote.

“Yamaha continues to be a rational competitor recouping margins,” he wrote. “Auto companies [are] currently testing BC patented alloy technology. Management expects tests to be successful, but uptake is yet to be determined. Modest incremental royalty income assumed in 2016 projections.”

The company is also looking to acquire parts manufacturers on a regional basis that Brunswick can leverage globally, Conder wrote.

This article was updated to reflect the accurate anticipated profit margin in 2016.


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