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Brunswick plans new investments in Mercury Marine

Brunswick Corp. will look at expansion opportunities in new categories, such as the recreational vehicle market, as it grows the parts and accessories arm of its business.

The company also will be investing heavily in product development for Mercury Marine — the engine business that accounts for 80 percent of the company’s profitability — to aggressively develop new products that will not come to market until late 2017 or early 2018, according to Brunswick CEO Dustan E. McCoy.

Those products will be executed by COO Mark Schwabero, McCoy’s successor, as McCoy announced that his departure will come in the first quarter of 2016.

“As we looked at the product side [of our parts and accessories business], we said, ‘We’re only focused on marine.’ But if you look at RVs, any water that you move around inside a boat needs to get moved around the same way on an RV, but we’ve never looked at engineering to take care of the RV market, which is a growing market,” McCoy told analysts and investors at the Raymond James 36th Annual Institutional Investor Conference in New York, which was webcast on Tuesday.

“We never thought about, frankly, going after categories that we’re not in, but are really close to what we do,” McCoy said. “We’re also not very global in our product thinking in our P&A business. So we decided, let’s go attack this weakness on the product side. We need to be in product that will function globally, not just in the U.S. And we need to be in product that will allow us to go into adjacent markets.”

McCoy told investors that 80 percent of Mercury’s profitability comes from parts and accessories and 80 percent of Brunswick’s profitability comes from Mercury. And that comes from having a “large installed base,” McCoy said.

“Any product we sell under 40 feet has a Mercury engine on it,” McCoy said. “A lot of dealers are doing a lot of hand-clapping over our new product, and we are, too. We’re lowering the age of the average model lineup in our Sea Ray brand from 4-1/2 years of age to 2 years of age. Where we’re really winning is, faster, cheaper, more technology — new product has to hit. We can’t have any misses and we’re not having any misses.”

“We’re now going through a time where we’re going through significant investment in Mercury for new products and you’ll not see some of the new product coming to market either in ’15 or ’16,” McCoy said. “Maybe late ’17, early ’18 is the first time you’ll see it. It’s a great investment for us.”

Brunswick has continued to reduce its focus on sterndrive and inboard products, he said.

“We’ve fine-tuned our ability to make changes in response to the marketplace and we’ve gotten good at listening to the voice of our customer,” McCoy said. “We used to be very good at listening to the voice of the executive, and then got around to being a little better at listening to the voice of the engineer. We’ve finally gotten around to, and have put a lot of hard work into, listening to the customer. And we’ve not had, I’m very proud to say, a product miss in engines, boats or life fitness, in about five years. Every product we’ve had has exceeded demand levels that we planned for them.”

New-boat sales in America are hurt by the ever-increasing price of boats over time, where price increases have significantly outpaced normalized inflation, McCoy said. That’s largely why only one of every eight boats sold is new. The other seven are used.

“Every new model we bring out costs equal to or less than the model it replaces, so we can bring new and used pricing together,” McCoy said. “And then if we focus on product, you can only get it new, we will win this new-used battle. This will take many years, and my judgment is we are 40 percent on the way to winning that battle.”

McCoy said Schwabero will execute the future growth initiatives.

“We’ve been working very hard for three years to get me out the door,” McCoy said. “I will be leaving first quarter of 2016, when Mark will replace me. I need everybody to understand that this guy will be much better than me. We’ve been working through our strategy through the board, and he will be the one implementing these growth strategies.”



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