(Brunswick Corporation)
By Michael Oneal | The weather’s still cold, the economy is frostier, and nobody can find a
job. So why are investors jumping aboard Lake Forest-based Brunswick
Corp., the world’s largest recreational boat maker?
In a burst of trading over the past week, Brunswick shares have soared
almost 50 percent to a new 52-week high of $15.89 a share, as
opportunists look to capitalize on what many see as an inevitable
turnaround in boat sales after an especially brutal ride through the
recession.
A bullish presentation by Brunswick Chief Executive Dustan “Dusty” McCoy at a Raymond James investment conference this week helped ignite a fresh rally in the shares Wednesday, prodded along by Rochdale Securities analyst Hayley Wolff, who issued a note saying dealer inventories are historically low. That has set the stage for a strong recovery in sales, especially since Brunswick has recently restructured with the aim of operating profitably at lower volume.
“The boat market continues along the road to recovery, particularly on the wholesale side,” Wolff wrote after a meeting with Brunswick management. “While retail sales remain in negative territory, retailers…must increase orders.”
Anyone who gave a passing glance to Brunswick’s 2009 earnings report in late January would be mystified by the recent stock run-up. Since the violent storm in the marine business began in 2007, Brunswick has lost a total of $1.4 billion from continuing operations on a 51 percent drop in sales to $2.8 billion. All of its business units have been down (Brunswick also makes bowling, billiard and fitness equipment) but the big hit has come in boats and engines. Boat sales alone plummeted 71% from $2.4 billion in 2007 to just $616 million in 2009.
The corporate totals, however, have included almost $350 million in restructuring charges, which McCoy has used to reshape the company. He has sliced off eight brands and halved the number of boat manufacturing plants to 14. And in an interview with The Wall Street Journal published in late February he explained that the company has adjusted its production schedule from a push model, where the company made boats all year long, to a pull model, where Brunswick only make boats when dealers need them, better matching inventory to demand.
While analysts have loudly applauded the changes, Wolff at Rochdale Securities noted that the boat market remains choppy. Dealers still have plenty of distressed inventory — either old boats or foreclosed ones . But total inventories are clearing out, making room for new orders as the economy improves. Wolff also said that Brunswick dealers are healthier than most and that a joint venture between Brunswick and General Electric Capital Corp. means they have access to scarce inventory financing.
Despite its grim bottom line results, Brunswick, meanwhile, used tax refunds and inventory liquidation to generate $126 million in operating cash in 2009 and free cash of $92 million, Wolff said. It ended the year with $527 million in cash on hand.
The cost of survival, however, provides a good illustration of why jobs are still so hard to find in this economy. Amid all the plant closings, Brunswick has reduced its overhead by $420 million over the past two years, Wolff said. It has cut a staggering 12,000 jobs, or 44 percent of payroll, since 2007, shaving workers from each of its four business segments.
That sort of restructuring is good for Brunswick and other companies that have scraped to survive the Great Recession. But as recent national employment numbers show, the U.S. economy as a whole has yet to adjust to the jarring new reality. The good news is that the drop in inventories means the company is gearing up to meet new demand and has begun to call some workers back, said Brunswick spokesman Dan Kubera.
“We entered 2010 the assumption that we would be ramping up production steadily this year,” Kubera said. “The fact is we have been hiring back folks in the boat business.”
