Brunswick Corp. sold its retail bowling business, reaching an agreement Thursday with Bowlmor AMF for about $270 million of gross proceeds after Bowlmor made an unsolicited bid.
In a last-minute conference call Thursday with investors and analysts after the close of the New York Stock Exchange, Brunswick CEO Dustan “Dusty”McCoy also announced the company’s intention to sell its bowling parts business by the end of the year. The Bowlmor transaction should close within 90 days.
“Upon closing, we will be well-positioned to strengthen our marine and fitness segments, which we believe is our best opportunity to increase shareholder value,” McCoy said during the conference call.
Brunswick will continue to pursue potential marine parts and accessories business acquisitions, McCoy said, reiterating the company’s plan to grow the marine segment. Last month, Brunswick announced that it was buying Ireland-based water movement and heating systems manufacturer Whale.
“We anticipate additional acquisition activity in this area,” McCoy said during the call.
The move prompted investment bank B. Riley & Co. to upgrade the company’s stock to buy status before Brunswick “growth runs full-throttle.”The firm sees the “removal of the slow-growth bowling business”as a step toward an overall growth trajectory despite the boating industry’s slow start this year.
“I suspect Brunswick’s Boat Group will display growth rates in the back half of this year that are stronger than any seen since 2010,” B. Riley senior analyst Jimmy Baker told Trade Only. “Not to say the boat business isn’t still challenging—it is.But I think the worst is behind them.”
In the recent past, bulls on Wall Street seemed to have under-appreciated boat group share loss in critical categories and underestimated the cost to develop product and expand and/or adjust capacity in order to fuel growth, Baker wrote in a report to clients. “We believe these factors were also primary contributors to negative earnings revisions,” he wrote.
But he thinks Brunswick will start to gain market share, instead of losing, it as it has among some critical brands, as its new products help the company and its dealers play catch-up and expand into incremental segments.
“Brunswick controls very powerful brands and its dealers have remained surprisingly loyal during this challenging period, according to our checks,” Baker wrote.
“I actually think Sea Ray has reached its bottom and will start to recapture some market share as it comes back to the smaller sportboat market with both I/O and outboard variants,” Baker told Trade Only Today this morning. “And on the big-ticket side, it should be able to drive outstanding revenue growth from the 350/510/650, and ultimately 580.That said, I actually think Brunswick has a broad-based new product tailwind, ranging from Boston Whaler to the Bayliner Element and their aluminum lines.”
The “underwhelming”2014 retail season might also be a blessing in disguise. If a portion of the shortfall is made up in late 2014 or early 2015, Brunswick will be better-positioned to capture sales with its new product than it was in the early part of this year, Baker wrote.
If the first quarter had seen exceptionally robust retail demand, “we would have been concerned that BC’s product portfolio may not have been optimal,” Baker wrote.
Wells Fargo analyst Tim Conder also viewed the divestiture as positive news because cash is freed for investment in other areas, including the marine parts and accessories businesses.That’s also because the investment required in the bowling segment and infrastructure will be freed for use in other areas, Conder wrote in a note to clients.
Brunswick will hold a second-quarter earnings call on July 24. The company’s stock closed at $40.30 Thursday. It has a 52-week high of $47.69 and a low of $32.57.