Brunswick navigates ‘somewhat choppy’ market

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Though there was much good news in Brunswick Corp.’s second-quarter earnings report, chairman and CEO Dustan McCoy reiterated that 2011 is expected to be a “flat” year overall in the marine industry.

In a call with analysts Thursday, McCoy noted that retail demand was up this quarter in certain segments, most notably aluminum, although some areas of the fiberglass market were also showing increases. Total demand was up 1 percent in the second quarter, he said, and for the first half of the year total unit demand was down less than 1 percent from the same period last year.

So far in 2011, he said, the market has been “somewhat choppy.”

Brunswick, McCoy said, is focused on growth through market share gain and “organic growth opportunities.” McCoy estimated that Brunswick captured more than a full point of market share in the second quarter.

Some brands, he acknowledged without naming them, are underperforming, and Brunswick is working to fix those businesses. However, the company will “take other action” if a fix can’t be found, McCoy said.

On Thursday Brunswick reported net sales of nearly $1.1 billion for the quarter, up 8 percent from $1.01 billion a year earlier. The company reported operating earnings of $107.9 million for the second quarter that included a gain from restructuring activities of $300,000, primarily resulting from the sale of idled marine properties. In the second quarter of 2010 the company had operating earnings of $55.7 million that included $24.2 million of restructuring and impairment charges.

The boat segment reported net sales of $326.7 million for the second quarter, an increase of 10 percent from $296.6 million in the second quarter of 2010. International sales, which represented 39 percent of total segment sales in the quarter, increased 14 percent during the period.

The boat segment reported operating earnings of $9.4 million in the second quarter. The segment had an operating loss of $23.6 million, including restructuring charges of $21.7 million, in the second quarter last year.

McCoy said the boat segment registered its first quarterly operating profit since 2007.

The marine engine segment reported net sales of $618.5 million for the quarter, up 7 percent from $579.2 million in the second quarter of 2010. International sales, which represented 41 percent of total segment sales in the quarter, increased by 6 percent.

The segment reported operating earnings of $95.5 million for the second quarter that included a gain from restructuring activities of $300,000, primarily related to the sale of idled properties.

In discussing international sales, McCoy said Latin America, particularly Brazil, is showing strength, and Asia continued to be “robust,” especially China. Sales volume was improving in areas of Europe, he said, although countries such as Spain, Greece and Portugal remained depressed.

McCoy called dealer pipeline levels “ideal levels for current market condition,” with smaller boats outperforming larger boats — those bigger than 24 feet. He said he expected the trend to continue. Dealer inventories are up 10 percent year-over-year.

Edward Aaron, an analyst with RBC Capital Markets, said there is potential for Brunswick shares to trade to $30 or more “if a convincing industry recovery takes hold.”

Brunswick stock closed Thursday at $21.98 a share.

“The boat market is slowly starting to turn. … Upside potential far outweighs downside risk, yielding favorable risk/reward,” Aaron said.

— Beth Rosenberg

b.rosenberg@tradeonlytoday.com

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