Strong dollar, overseas weakness at play in Brunswick’s 3Q

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Brunswick Corp. maintained a profitable third quarter despite challenges from a strong dollar and softness overseas, particularly in Brazil, and it reported strong demand for its new high-horsepower engines, as well as parts and accessories.

Mercury has been unable to address the backlog in high-horsepower engine orders because demand has outpaced capacity, but president and COO Mark Schwabero told analysts and investors on a conference call that capacity would be added by year’s end.

“We're producing high volumes every day,” said Schwabero, who took many of the questions following the presentation as he prepares to succeed CEO Dustan McCoy in 2016. “The rate of demand is a little higher right now, and/or the rate of demand is equal to production, but it makes it tough to really make a dent in the backlog. We're running and delivering product every day out to our customers.”

The South American boat market “continues to be down double digits” compared to last year, McCoy said.

“The weakening really has severely limited boats being imported into Brazil from the United States or Europe,” McCoy said. “Brunswick brands manufactured in Brazil have continued to pick up market share, but we're still challenged for sales into an overall weak retail boat market.”

European competitors are continuing to take advantage of the strong U.S. dollar with competitive pricing, Schwabero said. “A lot of the focus is on … competitiveness in the U.S., but we are nicely growing U.S.-branded products manufactured in Europe,” he said.

“When you look at the global boat market, we are starting to settle in with just a handful of global players — people who can be in every region,” McCoy said. “And the European boatbuilders come to the U.S. They are doing exactly what one would expect them to do, but we are working really hard in Europe.”

In the third quarter, on a constant currency basis, Brunswick brands were up 28 percent in Europe, McCoy said. “We're able to take the fight to this handful of players anywhere in the world … and we're being successful doing it,” he said.

Brunswick executives emphasized that certain products dealers say have been difficult to get, such as the L650 Fly and the L590 Fly, are being built to meet demand.

“When people say they can’t get enough of them, it’s not a case where we’re limiting supply for higher margins. It’s just a situation where try to create demand and fill demand,” Schwabero said. “Additionally, a lot of these are not inventory boats, so obviously when a dealer gets a retail order, he’d like to deliver it tomorrow, and that order goes into system and starts the build process. I wouldn’t say we’re limiting supply — it’s just the nature of some of the exciting new product we’re bringing out.”

The company plans to roll out its long-term plan at an investors day in New York on Nov. 10.


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