Strong domestic sales of aluminum and fiberglass outboard boats, Mercury Marine’s new 150-hp 4-stroke engines and parts and accessories business helped bolster second-quarter profits for Brunswick Corp.
Those categories helped offset lagging European sales and an ongoing slump in sterndrive cruiser demand, CEO Dustan McCoy said in an earnings conference call Thursday.
In the coming months Brunswick will begin building a range of Sea Ray and Bayliner boats at its newly constructed plant in Brazil for that region, McCoy said.
In addition, Sea Ray will enter the jet boat market with plans to introduce a 21-foot sportboat this fall, to be followed shortly by a 24-foot model, McCoy said.
“The development of the new jet-propulsion sportboats is part of our ongoing effort to reach the full spectrum of recreational boaters,” McCoy said.
In response to consumer feedback, Sea Ray will also offer 22- and 24-foot versions of its Sundeck line, featuring Mercury Marine’s Verado engines.
The popularity of the company’s new 150-hp 4-strokes was unexpected, McCoy said.
“I hate to use too many adjectives, but demand for the new 150 has dramatically exceeded our expectations,” McCoy told investors. “The other thing is that a lot of people buying aluminum fishing boats and pontoons are moving the power up.”
Despite production increases, “we have not met all the demand, and we have quite a backlog,” McCoy said.
The customers whose orders are on backlog might not leave the orders in place, McCoy said. If they choose competing products, that will give Brunswick some stock to take care of 2013.
“If they leave them in place, which I’m hopeful will happen, we have allocated some capital and are in the process at the Mercury organization of increasing capacity for 13 so we can meet anticipated market demand,” McCoy said. “This is a really high-class problem. We said if we exceed capacity, we’ll go invest and that’s what we’ve done.”
“I believe customers that had boats to sell and couldn’t get the Mercury engines, my judgment is they’ve likely gone to competitors,” McCoy acknowledged. “We need to be up front with that.”
Capacity investment in engines requires expensive machining and tooling and is a major investment, McCoy said. It is “fractions” of the cost of adding capacity to the boatbuilding companies.
Parts and accessories growth, particularly at Land ‘N’ Sea Corp. and Attwood, has also been good for margins, even though growth has been in some of the lower-margin businesses, McCoy said.
Land ‘N’ Sea is a parts and accessories distributor.
Attwood makes an integrated fuel system that enables boatbuilders to meet tighter Environmental Protection Agency emission standards “both economically and efficiently,” McCoy said.
“Revenues from these systems are expected to double this year as sales continue to grow with boat manufacturers,” McCoy said.
Brunswick raised its outlook for the year, saying it now expects to earn $1.45 to $1.60 a diluted share. The company previously put the range at $1.30 to $1.50.
Brunswick’s stock closed flat Thursday at $20.21. The 52-week high was $27.40 and the low was $13.19.
The earnings report prompted Wells Fargo analyst Timothy Conder to maintain Brunswick’s “outperform” stock rating despite greater-than-expected European weakness, according to a report.
“BC appears to continue posting solid market share gains in multiple segments,” Conder wrote. “We feel the U.S. boat industry could be up 6-7 percent and the global industry up 3-4 percent. Bottom line: We continue to be buyers of this cyclical name.”
Click here for the full Wells Fargo report.
— Reagan Haynes