Brunswick slows production to match demand

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Value segments such as pontoons have been challenged throughout the industry.

Value segments such as pontoons have been challenged throughout the industry.

The next three months will be critical in terms of retail sales for Brunswick Corp., given a soft first half of the year, and the company will curtail production in the third quarter to match waning demand, particularly in value and aluminum segments.

“Although there’s a bit of stabilization, we’re not expecting the market to change significantly in the second half of the year, so we’re planning for that,” Brunswick CEO David Foulkes told analysts on a call discussing second-quarter earnings.

The company has made higher discounts than it has had to in recent years, Foulkes said. “The full weight of that isn't going to be in the back half of the year,” he said. “We've already taken some of that in the first half of the year.”

“We did take a fair amount of discounts through the P&L, which we were able to mitigate through some cost-reduction efforts, as well as probably a little bit more favorable mix,” CFO Bill Metzger said. “But in general I wouldn't take and read through that because we had stable margins, it didn't mean we didn't take care of it in the quarter. We actually did have some meaningful discounts that we recorded in the quarter.”

Brunswick expects Freedom Boat Club to be in 200 locations by the end of the third quarter, and the fleet of boats is near 2,500 — a “meaningful quantity” that gets replaced every two or three years, Foulkes said.

“We have around 20 or so company-operated locations,” Foulkes said. “Obviously, we'll be refreshing those with Brunswick product as quickly as we can. We believe that Brunswick can offer our franchisees extremely attractive boats, engines and services, including financing, extended warranties and many other things that will cause our franchisees, just by themselves, to want to accelerate transition to Mercury products and to Brunswick boats.”

Adding capacity at Mercury should provide a boost in 2020 as the company experiences “significant backlogs” on engines from 175 to 300 hp, Foulkes said.

The company also addressed announcements that it would eliminate 300 salaried positions. “That scale of restructuring takes quite a long time to plan, and so none of it was reactive,” Foulkes said. “The corporate enterprise kind of functional reductions were a result of us right-sizing after the fitness sale. But I would say that when you're in a business that is seeing growth for eight consecutive years, you're focusing typically on how to grow the business, not necessarily how to fully optimize the structure.”