Decision to discontinue Sea Ray yachts was “a difficult one” - Trade Only Today

Decision to discontinue Sea Ray yachts was “a difficult one”

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Sea Ray will increase its emphasis on outboard-powered boats under 40 feet. Shown here is SDX 270 OB, courtesy of Sea Ray.

Sea Ray will increase its emphasis on outboard-powered boats under 40 feet. Shown here is SDX 270 OB, courtesy of Sea Ray.

Brunswick Corp. will better address changing market preferences and evolving demographics with its Sea Ray brand as it moves to shut down its yacht and sport yacht division and continue to emphasize outboard-powered models under 40 feet.

The company will close its Palm Coast facility “as soon as practical” in 2018, Brunswick chairman and CEO Mark Schwabero said during a call with analysts following the announcement to stop the sales process for the brand.

A portion of Sykes Creek will continue to operate for the foreseeable future to support customer service, warranty obligations and other operational requirements, said Schwabero.

The company, which anticipates the loss of around 825 jobs, expects for net cash expenditures to institute these actions to fall between $10 million and $20 million, a figure that includes supporting dealers in selling existing models.

Brunswick announced on Monday that it would discontinue the yacht and sport yacht models and revitalize the 24- to 40-foot category, after it said in December it would sell the iconic brand.

It pulled out of the sales process because offers received “did not reflect appropriate value for the premium brand, and did not meet expectations,” the company said.

A reinvented Sea Ray will complement the existing portfolio with a continued emphasis toward outboard propulsion, said Schwabero.

“We will continue to opportunistically pursue acquisition targets in the boat business while concentrating our primary M&A efforts on expanding our P&A business,” said Schwabero.

The Tennessee plant, which produces the Sea Rays between 24 and 40 feet, will continue to operate, but Brunswick said it would “take some of the complexity out of the business,” Schwabero said.

“The only drawback [to the decision] is relationships, but at the end of the day, they can’t keep losing $30 million a year in that business,” Michael Swartz, equity research director at SunTrust Robinson Humphrey, told Trade Only Today.

On an annual basis, Sea Ray shipped over 2,000 boats annually, Swartz said, estimating that around 300 to 400 of those were in the over 40-foot category.

MarineMax, Sea Ray’s largest dealer, saw stocks tumble 14 percent on Monday following the announcement. Brunswick shares dropped 3.3 percent, according to SeekingAlpha.

Craig-Hallum analyst Steve Dyer downgraded MarineMax to hold status from buy, saying that Brunswick's failed attempt to sell its Sea Ray division and its decision to discontinue Sea Ray's yacht and sport yacht business presents "risk and uncertainty" for MarineMax, according to The Street.

MarineMax is the largest retailer of Sea Ray boats in the world, historically representing over 50 percent of Sea Ray’s worldwide sales. The Sea Ray brand accounted for approximately 23 percent of MarineMax’s fiscal 2017 revenue, according to a statement MarineMax issued on Monday.

Sea Ray’s sport yacht and yacht division represented less than 10 percent of MarineMax’s rolling 12-month revenue in the period that ended March 31. The company believes its brand and product diversification will allow it to replace the Sea Ray sport yacht and yacht revenue.

“Over the years, we have diversified our product offerings by adding complementary products and manufacturers, such that the sales of Sea Ray sport yachts and yachts as a percentage of our business declined to less than 10 percent on a rolling 12-month basis through March 2018,” said MarineMax CEO Bill McGill. “Brands such as Azimut, Galeon, Aquila and Ocean Alexander, have all been growing well and taking market share.”

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