LAKE FOREST, Ill. — Brunswick shared its fourth quarter
results Thursday, reporting that sales of $837.7 million
represent a 42 percent drop versus a year ago, primarily
the result of marine sales that were down 50 percent.
The Brunswick Boat Group, which includes 17 boat brands
as well as a marine parts and accessories business,
reported fourth quarter sales of $293.7 million, down 54
percent from the fourth quarter of 2007. Similarly, the
Mercury Marine Group, which represents the company's
engine brands, reported fourth quarter sales of $297.5
million, down 46 percent from a year ago.
Those numbers were "messy, but not much different from
what we expected," according to Edward Aaron, an analyst
with RBC Capital Markets. Aaron said Brunswick's losses
were essentially in line with analyst predictions,
despite lower than anticipated sales, which he said
suggest that "the company is managing costs as well as
one could expect, all things considered."
Other analysts also treated the news as expected. Tim
Conder, an analyst with Wachovia Capital Markets, called
his firm's 2009 earnings per share estimate of $1.59
"reasonable/slightly conservative" because although
Brunswick faces additional restructuring charges for
January plant closures versus Wachovia's original
estimates, he said boat sales could be modestly better
than their assumption of a 50-percent decline.
Conder also said he was encouraged by comments that
Brunswick only plans to pursue sale leasebacks if it
makes financial sense, as there is no need to do this
for cash, as well as the likelihood that once retail
demand stabilizes, Brunswick will have to ramp up
production at a 50-percent rate given 2009 production
plans.
Brunswick expects lower sales again in 2009,
particularly in the first half of the year, and will
produce well below the rate of retail sales, according
to Dusty McCoy, Brunswick's chairman and chief executive
officer.
"Although we have limited visibility to a very volatile
marketplace entering the year, we expect our revenues to
be lower in 2009 with higher relative percentage
declines occurring in the first half of the year," he
said. "Our expectation of lower revenues reflects our
view that retail demand will continue to decline, at
least through the first six months of the year, and we
are planning for production at rates well below the
retail rate of decline."
The company said profitability will also be affected by
restructuring charges and pension-related expenditures,
but those expenses will be mitigated somewhat by $200
million in cost savings.
"Our overall profitability versus 2008 will be affected
by the expected lower production and sales levels,
restructuring charges that will decline to approximately
$50 million pretax and incremental pension-related
expenses of $75 million pretax," McCoy said. "Partially
offsetting these factors will be nearly $200 million of
net cost reductions resulting from the full-year effect
of actions taken in 2008, as well as further cost
reduction activities implemented and planned in 2009."
The company's cost-saving measures in 2008 included work
furloughs, pay cuts, and layoffs in addition to
shuttering plants and reducing production.
"We reduced production, brands, models, the
manufacturing footprint, employees, functions,
non-manufacturing facilities and other costs, while
taking steps to improve productivity and effectiveness
by such actions as moving multiple brands into single
production facilities," McCoy said.
Despite all that, "extremely depressed marine retail
conditions necessitate further cuts," according to Aaron
of RBC Capital Markets. He noted that because of current
market conditions, excess inventory and inventory aging
are still big problems in the sales channel.
Brunswick executives stressed the importance of
liquidity in 2009. The company ended 2008 with $317.5
million of cash without any borrowings under its
revolving credit agreement, just slightly less than the
$331.4 million of cash it had on hand at year-end 2007.
The company hopes to have as much or more cash on hand
at the end of 2009, thanks to working capital reductions
of more than $100 million.
"Liquidity remains important, and although our earnings
will be down significantly, we believe we can exit 2009
with cash at or above the amount that we reported on our
balance sheet at year-end 2008, without increased
borrowings. This net result will be reflective of our
continued focus on managing our businesses for cash,
which includes vigorous working capital management
plans, primarily centered on reducing our overall
inventory levels," McCoy said.
That liquidity made Aaron of RBC Capital Markets
optimistic about the long-term prospects for Brunswick's
stock. He wrote in an investment opinion:
"With the stock, it's not a matter of 'if' but 'when.'
It's early for us to get aggressive with this stock, but
our comfort level with the company's liquidity position
leaves us optimistic from a long-term perspective. We
think the stock will become timely once the industry's
supply problem is fixed. We're clearly not there yet,
but we think it's a matter of quarters, not years, from
here."
Brunswick's stock price rose 5 percent to $3.08 in early
trading today.
Previous
