There seemed to be a "muted reaction" to Brunswick's earnings report attributable to "rising expectations into the quarter and subdued industry retail commentary," analyst Edward Aaron, of RBC Capital Markets, wrote after Thursday's announcement.
"We see good risk/reward here, but we acknowledge that industry retail sales likely need to turn positive for the stock to move much higher from current levels," he added. "Q2 retail trends will be key, and we will be monitoring closely."
Brunswick's stock opened at $25.12 this morning, down slightly from its closing price of $25.18 on Thursday.
Although the company Thursday reported a 17 percent increase in net sales and net earnings of $27.5 million for the quarter, in remarks to analysts CEO Dustan McCoy said the higher earnings largely reflected higher marine wholesale shipments, which could level off, depending on demand during the upcoming selling season.
Heading into April and the key spring selling season, momentum seems to be "all over the map," he said. But with gas and food prices rising, there's nothing to show that momentum is improving, McCoy noted.
Although he wouldn't predict what the market will do in the coming months, McCoy said Brunswick is planning for a flat year, based on what it has seen.
However, he added, "The possibility of a down market exceeds that of an up market. It's just too early for us to call sitting here today."
"On the call, management expressed growing unease about the potential impact of rising gas prices and spoke somewhat cautiously about April retail trends. We understand the caution, but we doubt that this conservative management team would raise guidance this early in the year if retail trends were slipping materially," Aaron noted.
Tim Conder, an analyst with Wells Fargo Securities, also acknowledged management's cautious comments, but pointed out that while weather could be negatively affecting April sales, Brunswick continues to expect market gains and fuel prices have not historically affected boat sales as much as usage.
Also, he said in a report after Thursday's earnings release, U.S. powerboat sales have a strong correlation to consumer confidence and to the Conference Board's Present Situation Index, both of which improved in April.
"Management also raised guidance despite what appears to be a prudently cautious and (we believe) conservative outlook as the company is/should continue to gain share in engines (Japanese competitors supply problems, sterndrive vs. Volvo, outboard internationally), boats and LifeFitness," Conder wrote. "We see minimal changes to our $0.40 EPS base case scenario estimates for 2011."