Brunswick Corp. anticipates flat revenue growth for the first quarter of 2014, but says that will be inconsistent with subsequent quarters as the boat group continues to curtail the production and sales of existing large fiberglass boat models and transitions to the production of several new models of large fiberglass boats.
The company has gotten such positive feedback on its new Sea Ray 350 SLX that is trying to ramp up production accordingly.
“We’re sold out and trying to figure out how to double, triple production,” Brunswick chairman and CEO Dustan McCoy told investors and analysts during a conference call Thursday to discuss fourth-quarter and 2013 annual results. “But very few of these have come to marketplace here. That will start in the first quarter and continue into the second quarter.”
The company announced a 16 percent increase in boat sales for the fourth quarter. The marine engine group realized a 5 percent gain in sales for the quarter.
The boat segment reported an operating loss of $21.9 million for the quarter, including restructuring charges of $5.8 million, which compares with an operating loss of $33.4 million in the fourth quarter of 2012, including restructuring charges of $8.9 million. The operating loss improved 8 percent from the previous year, CFO and senior vice president William Metzger said.
The company saw stability in sales of boats above 40 feet in the fourth quarter, McCoy said. “We saw some building momentum, but those are also very small numbers,” McCoy cautioned. “We believe that’s a segment that has some real opportunity for us and that’s where we’re bringing six new models to market and we will have all in the marketplace by 2015.”
Ramping up production of new large fiberglass boats
The new models will “begin to reach the market later this year,” he said. “We will reach full production of these new models in 2015.”
If bigger boats outperform expectations, the company will be able to capture more of that demand in 2015 than it would be equipped to grab in 2014, based on manufacturing capabilities and the ability to ramp up production, McCoy said. “I don’t want to go into more detail … but there is some ability to flex.”
“We expect 2014 to be another year of strong growth,” McCoy said. “Our strong operating results, cost control and reduction and cash flow generation and debt reduction have combined to produce strong and steady earnings growth over the past four years. With these actions and results behind us, we're now focused on revenue growth.”
The company not only will invest in R&D, marketing, sales, IT, talent and capacity, McCoy said, but “we will also invest in new adjacent business opportunities and small acquisitions which bolt onto existing businesses.”
Brunswick reiterated its mission to replace each model with a lower-cost model, albeit with more innovations and features to drive consumers away from the used-boat market and toward new boats.
Targets for 2014
Brunswick anticipates solid performance in outboard boats and contributions from Brazil operations, McCoy said.
“Small fiberglass boats should also provide growth during the year as we continue to extend our dayboat offerings,” McCoy said. “In the second half of the year our large-boats strategy should begin to generate growth as an increasing number of new products are shipping to the market in the latter half of the marine season.”
Year-over-year growth will be driven by modest improvements in global industry demand, market shares and new-product introductions, McCoy said.
“As a result, we're targeting revenue growth in the high-single-digit range, with a solid improvement in operating earnings,” McCoy said.
The company is on track to innovate with its own engine blocks instead of relying on GM blocks, McCoy said.
“I said a couple of calls ago [they would have] a couple of technology features, and all my friends up at Mercury called me up and screamed at me for getting ahead of the marketplace,” McCoy quipped. “But the engines are on track to bring into the market, mostly likely in the second half of this year.”
There will be a slight margin improvement on an engine-per-engine basis, but there is “a real margin pickup that would occur if the sterndrive market begins to improve,” he said.
Europe is going to remain “a tough place to be,” McCoy said, although the markets are fragmented.
Italy, Spain and France remain challenged, Germany, Belgium and the Netherlands are strong, and Scandinavia is improving. “But of course, Italy was by far our biggest boating country,” McCoy added. “I think [parts and accessories] will continue to grow, although generally a little slower than in the United States.”
Brazil might also be challenged in the months ahead because of an upcoming election and the World Cup event being held there.
“A lot now is going to depend upon what happens economically down there,” McCoy said, adding that the pending election has “had people in the streets.”
“The World Cup is a great thing for the economy and the infrastructure, but it could be a bit of a distraction as we work our way through ’14,” McCoy said. “So we think there's going to be improvement in Brazil, but we're a bit cautious about how much. Longer-term, it's going to be a real good place to do business.”