In a conference call with analysts today, Brunswick Corp. chairman and CEO Dustan McCoy said the current slump in marine sales likely will continue through 2009, and when the recovery does come it will take longer to return to previous highs.
"My judgment is we haven't really seen the bottom yet, but we've got to be getting close," said McCoy, commenting on first quarter earnings that show the company posted a 45 percent decline.
"We're not planning for the market to come back to 2005 levels likely within my working career," he added, "and I plan to be around for a while."
The long-term outlook is that dealers will continue to carry less inventory in their showrooms, especially given the crunch in floorplan financing, McCoy said. Brunswick, therefore, must continue working with dealers on reducing current inventory and develop more flexible production plans to accommodate more just-in-time delivery of product.
In its earnings report released today, Brunswick said the 45 percent decline in net sales was driven primarily by a 52 percent drop in marine sales. However, executives say they are successfully managing cash flow.
"This was demonstrated by the $359 million of cash on our balance sheet at the end of the quarter, a $42 million increase from year-end levels," said McCoy, in a statement.
Net sales for the quarter that ended April 4 totaled $734.7 million, compared to $1.3 billion in the quarter ended March 29, 2008. The company reported a net loss of $184.2 million, or $2.08 per diluted share, compared with net earnings of $13.3 million, or 15 cents per diluted share, for the first quarter of 2008.
"Retail demand for marine products was impacted in the first quarter of 2009 by declining consumer confidence and the tightening of consumer credit terms by national lenders," McCoy said. "As our dealers work through this difficult economic climate, we continue to reduce our wholesale shipments to reduce the number of boats and engines on their showroom floors."
The Marine Engine segment, which now includes the service, parts and accessories businesses from both engines and boats, reported net sales of $343.9 million, down 45 percent from $628.6 million in the year-ago first quarter.
The segment reported an operating loss of $50.6 million, including restructuring charges of $11.7 million. This compares with operating earnings of $33.6 million in the year-ago quarter, including $1.5 million of restructuring charges.
Sales were off across the board, with sterndrives experiencing a greater decline than outboards. However, sales from the marine service, parts and accessories businesses were down significantly less than Brunswick's other marine businesses, the company said.
The Boat segment reported net sales of $205.3 million, down 64 percent compared with $565.6 million in the first quarter of 2008. The segment reported an operating loss of $72.3 million, including restructuring charges of $25 million. This compares with an operating loss of $17.4 million, including restructuring charges of $13.8 million, in the first quarter of 2008.
All of Brunswick's engine and boat manufacturing facilities continued to cut production rates and take plant furloughs during the quarter to address inventory levels held throughout the pipeline. Lower sales and reduced fixed-cost absorption on lower production had an adverse effect on operating earnings, which were partially offset by reduced expenses.
With no "meaningful economic recovery" expected in 2009, McCoy said Brunswick will strive to maintain strong liquidity without additional borrowings, reduce inventory, maintain dealer health, and evaluate cost structure and take actions necessary to match overall demand in the marketplace.
"As each day passes and we successfully execute against these actions, we become increasingly confident that we are well positioned to benefit from an economic recovery," McCoy said.