Brunswick reports 3Q results


Brunswick Corp. today reported a 36 percent decline in sales for the third quarter of 2009, attributed primarily to a 40 percent drop in marine sales from year-ago levels.

However, the company also reported the lowering of inventory levels to 21 weeks of supply in the pipeline, an improved cash position up by more than $300 million from the 2008 year-end balance, and a reduction in debt.

"The overall outlook, in our view, remains uncertain," Brunswick chairman and CEO Dustan E. McCoy said this morning in a conference call with analysts. "Our task is to remain patient and execute well."

For the quarter, Brunswick reported net sales of $665.8 million, down from $1.03 billion a year earlier. The company reported an operating loss of $109.4 million, which included $28.8 million of restructuring charges. In the third quarter of 2008, the company had an operating loss of $566.3 million, which included $534.2 million of impairment and restructuring charges.

Brunswick also reported a net loss of $114.3 million, or $1.29 per diluted share, compared to a net loss of $729.1 million, or $8.26 per diluted share, for the third quarter of 2008. Cash totaled $624.1 million, up from the 2008 year-end balance of $317.5 million.

"We continue to make great strides in improving our overall liquidity position, reducing our marine dealer pipeline and executing our cost reduction program," said McCoy in a statement. "These significant accomplishments have been achieved against a global marine market that has experienced its lowest level of demand in more than 45 years."

"Our overall liquidity at the end of the third quarter was $740 million, $222 million higher than existed at the end of 2008. During the quarter, we retired notes maturing in 2011, which eliminates any material debt maturities over the next three years," he said.

One of the company's top priorities this year was inventory management and implementing a pipeline reduction strategy intended to assist dealers through this difficult period. By producing fewer units than it sold at wholesale, and selling lower amounts at wholesale than dealers are retailing, Brunswick has been able to reduce the number of boats in dealer showrooms, as well as in factory yards, to extremely low levels, McCoy said.

"This strategy of taking all reasonable actions to maintain the health of our dealers has thus far led to very manageable levels of dealer exits and any related Brunswick boat repurchase obligations," he said.

Analysts had a generally positive outlook of Brunswick's third-quarter results.

"We continue to applaud management's execution in what has likely been one of the worst marine downturns in history. We believe [Brunswick] is well-positioned to expand its lead ... in the industry as the recovery unfolds," said Tim Conder, senior analyst with Wells Fargo Securities. "We feel that [Brunswick's] losses will materially narrow in '10 versus '09 and that the company will likely turn profitable in '11."

"However, the degree of both will obviously be determined by consumer's appetite for highly discretionary purchases," he added. "Investors perception of this latter point will likely be the determining factor of risk appetite ... in discounting a recovery to new peak earnings power."

Marine and Boat Group results

The marine engine segment, consisting of the Mercury Marine Group, including the service, parts and accessories businesses, reported net sales of $363.5 million in the third quarter, down 29 percent from $515.2 million in the year-ago third quarter.

For the quarter, the marine engine segment reported an operating loss of $13.4 million, including restructuring charges of $18.8 million. This compares with an operating loss of $9.7 million in the year-ago quarter, which included $18.6 million of impairment and restructuring charges.

Sales were off across all marine engine operations, with sterndrives experiencing a greater decline than outboards.

The boat segment, which comprises the Brunswick Boat Group and includes 17 boat brands, reported net sales of $118.2 million for the third quarter, down 62 percent from $314.2 million in the third quarter of 2008.

For the third quarter, the boat segment reported an operating loss of $86.7 million, including restructuring charges of $6.6 million. This compares with an operating loss of $536.3 million, including impairment and restructuring charges of $491.6 million, in the third quarter of 2008.

Boatbuilding facilities continued to cut production and take plant furloughs during the quarter to address inventory levels held by the company and its dealers.

During this morning's conference call, McCoy noted that unit demand for most boat segments fell between 17 and 21 percent for the third quarter. This decline, he said, is lower than in the previous quarter and the same quarter of 2008.

Brunswick, he added, is working with closely with its dealers to examine what is needed to meet demand while not taking on more inventory than a dealer can sell. Also, Brunswick is encouraging its dealers to work together and move product around to meet demand.

"It's all new for both the dealer and we," McCoy said this morning. "I'm confident it's going to work out well."

"As we enter 2010, the majority of our boat and engine manufacturing facilities will begin to ramp up production. This is primarily the result of dealer inventories being at historically low levels, which means we will need to increase our wholesale shipments of boats and engines to meet retail demand. Increased production combined with higher wholesale shipments should provide improved revenue and reduced losses throughout 2010," McCoy said.

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— Beth Rosenberg


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