Of the several hundred U.S. companies that tried to get exemptions for tariffs on products being built in China and imported here, only 15 were granted to marine companies.
“As you now likely know, very few exemptions were extended,” said Brunswick CEO David Foulkes on a call discussing financial results for fiscal year 2019 and the fourth quarter. “We are highly disappointed in this outcome and would note our non-US engine competitors are not affected by these, despite using the same Chinese supplier components.”
An exemption to 25 percent tariffs on Mercury’s 40- to 60-horsepower motors, built at Brunswick’s China facility, was granted last year. After it expired, the company had to appeal to the Office of the U.S. Trade Representatives.
“The [exemption] process, as it turns out, is different every time,” said Foulkes. “When we first were granted the exemption, the USTR was speaking with companies individually. This time, out of the several hundred extension requests, only a handful of them were granted. The message we received was that was it — no further exemptions are on the table.”
Brunswick expects a net impact to 2020 pretax earnings of between $30 million and $35 million or $10 million to $15 million incremental to the 2019 impact.
The $10 to $15 million is due solely to the exemption not being extended into 2020, said Foulkes.
The company believes that headwind will be offset by strong customer demand for new products, and having access to more engine capacity after a Mercury expansion was completed last year.
Foulkes also discussed how it will segment the company and earnings moving forward.
Starting in 2020 and moving forward on earnings statements and calls, the company will now focus on four main areas — propulsion; parts and accessories; boats; and business acceleration.
The propulsion segment will contain both outboard and sterndrive engine businesses, along with controls and rigging products, said Foulkes.
The P&A segment will contain all of the P&A categories including engine parts and consumables, electrical products, boat parts and systems and our distribution business.
“Concurrent with this change, the company has also decided to change its measurement of segment profit and loss due to a decision to streamline internal and external reporting practices related to marine engines sold from the propulsion segment to the boat segment,” said Foulkes.
“This change in presentation, which is not the result of a change in business practice, more closely follows current market dynamics and provides improved comparability with other boat companies,” said Foulkes.
The idea is to be brand-focused rather than focused on individual businesses, said Foulkes.
The aluminum boat group, for example, consists of Lund, Lowe, Crestliner, and Harris.
“There is a lot of commonality around operations, a lot of need to enhance the digital marketing, which is not necessarily possible on individual brand basis but is very possible on a collective basis,” said Foulkes.
A new venture group on the value fiberglass side is designed to achieve “something similar,” said Foulkes.
“This is really about making sure we have strong brands, but we leverage our scale and bring to bear the highest possible of level of expertise through leverage kind of back-end operations, if you like,” said Foulkes.
That will not extend to the Sea Ray and Boston Whaler brands, Foulkes added, because they are “strong, individual operations.”
“But we have put together the fiberglass tech center, which is serving both of those brands,” said Foulkes. “And you will see, and possibly have already seen, but certainly will see over the next year — the rate at which that tech center can push out new products for both of those brands and others is extremely high. And we have 160 engineers and technicians in that group now. That is more horsepower than any other company can bring to bear in that kind of product line. So, think about it as maintaining strong brands, leveraging infrastructure, improving capability and sharing best practices.”