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Analyst: Selling Sea Ray will be ‘painful but necessary’ for Brunswick

Brunswick Corp. said Tuesday that it will sell its Sea Ray brand after several consecutive quarters of weakness in the larger-boat segment. Shown is the L550 Fly.

Brunswick Corp. said Tuesday that it will sell its Sea Ray brand after several consecutive quarters of weakness in the larger-boat segment. Shown is the L550 Fly.

Brunswick Corp. announced it would sell its Sea Ray brand, facilities and inventory Tuesday afternoon, shocking some analysts and members of the marine industry despite weakness in the larger inboard and sterndrive segment for several quarters.

The company expects to take a loss on the sale, Brunswick CEO Mark Schwabero told analysts and investors during a conference call Tuesday evening.

“It’s not just a question of Sea Ray not coming back,” he said. “Things around the cruiser business and runabout business — the entire industry has not come back to the levels anywhere near where they were at the prior peak.”

The company has owned Sea Ray for more than three decades, having purchased it in 1986.

“We understand that this decision will be difficult for certain stakeholders, but we want to be clear that we will continue to diligently manage Sea Ray through the sales process by executing its business and product plans to support and protect the interests of our employees, dealers, customers and shareholders,” Schwabero said.

The sale signals both the company’s shift toward consumer trends, which continue to favor outboard power, and its strategy to decrease the most cyclical parts of the business.

A much larger portion of the boat and engine business will now be tied to outboard propulsion, “which has proven to be more cycle-resistant than sterndrive and inboard boats and engines,” Schwabero said.

The sale includes the company’s Sykes Creek and Palm Coast facilities in Florida, its manufacturing plant in Tellico, Tenn., and its Dandridge and Greeneville, Tenn., support facilities that are largely dedicated to, and are currently supporting, Sea Ray production, Brunswick spokesman Daniel Kubera told Trade Only Today.

Sea Ray parts, development and engineering, as well as international operations, will also be sold, Kubera said, as well as the Meridien brand, which has been out of production for several years.

“The specific impact on any plants and facilities will depend on the prospective buyer and an evaluation of their needs and capabilities,” Kubera said.

“As far as the Brunswick Boat Group facility in Knoxville [Tenn.], we are evaluating the impact on the BBG support organization, consistent with the execution of our boat strategy,” Kubera said. “It is likely that there will be modifications to the size and structure of those support groups, but it is premature to speculate on the specific impact until we identify a prospective buyer and understand their needs.”

Wall Street reacted favorably to the news, with Brunswick’s stock rising about 5 percent at one point this morning. The stock was at $56.50, up 52 cents a share, or 0.93 percent, shortly after noon on the New York Stock Exchange. The sale was announced at 3 p.m. Tuesday.

Analysts also responded favorably to the strategy, albeit with a sense of shock and even disappointment despite having known the company has discussed a potential divestment of Sea Ray for years.

Brunswick’s decision to jettison Sea Ray is “very much a surprise,” said SunTrust analyst Michael Swartz, “but recent softness in larger boats forced their hands.”

Swartz, calling the move “a painful but necessary step for Brunswick," views the strategic action favorably as it improves Brunswick’s growth and margin profile overnight, enables it to reallocate resources toward higher-return areas and reduces cyclical risk to its business.

Lazard will be managing the full sales process, which is in its early stages.

“Brunswick welcomes inquiries from interested buyers and can put them in touch with the specific team at Lazard,” Kubera said.

It is likely that the process will gain momentum early next year, with the sale expected to be completed in the first half of the year, he said.

“We believe that the Sea Ray business, through its leading brand and exciting product line, offers attractive value-creation opportunities to a new owner,” Kubera said. “Sea Ray is an iconic brand that is rich with history, with a reputation for craftsmanship, quality and styling. Sea Ray’s manufacturing facilities are among the most advanced in the marine industry, with talented and dedicated workforces.”

“In the meantime we will continue to diligently manage Sea Ray by executing its business and product plans to support our dealers and customers,” Kubera said. “It is business as usual.”

Read more about the sale in the January issue of Soundings Trade Only.



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