Brunswick Moves to Catch a Wave
An incoming tide of economic growth and rising consumer confidence should continue to boost new boat sales and give a lift to shares of Brunswick (BC), the leading maker of recreational power boats and marine engines in the U.S. Its brands include Sea Ray, Boston Whaler, Bayliner and Mercury.
One Wall Street analyst expects the stock to reach $57, up 20% from the $47.25 a share it changed hands at recently. That’s based on the shares trading at 10.5 times 2015 enterprise value to Ebitda (earnings before interest, taxes, depreciation and amortization) according to Rommel Dionisio, analyst at Memphis-based Wunderlich Securities. New products being introduced at the winter boat shows, a strong distribution network and rising demand for new boats justify the premium valuation, compared with the current level of about nine times.
“Our plan is working,” says Chief Executive Dustan “Dusty” McCoy, of the company’s restructuring program. It’s aimed at making Brunswick more innovative by bringing technologically advanced boats to market faster, and less cyclical by placing more emphasis on its parts and accessories business, which proved resilient in the recession of 2008-09 and represents 56% of sales.
“We want to make more money when the annual volume of boat sales is 200,000 than when it was 300,000,” says Mr. McCoy of the drive for a moreefficient, diversified business. He doesn’t expect boat sales to return to prerecession levels anytime soon. In the latest cycle, new-boat sales in the U.S. peaked at 308,000 in 2004 and fell as low as 138,000 in 2010 before slowly rising to their current level of about 166,000.
The Lake Forest, Ill.-based company is also expanding its fast-growing, high-margin fitness segment, which includes Life Fitness and Hammer Strength exercise equipment and represents 17% of sales. Boats represent 27% of sales. The company is exiting its bowling business, recently selling its bowling centers to Bowlmor AMF for $270 million. Its bowling-products business is also for sale. Brunswick plans to retain its legacy billiards business, which served as the foundation of the company at its start 170 years ago and is now part of the fitness group.
During the Great Recession, Brunswick slashed its workforce, closed more than half of its boat-making plants, and pared its lineup of models by one-third after its sales dropped by half. At the same time, Brunswick continued to invest in research and development and subsidized its important dealer network.
The network has grown since the recession, a time in which one-third of all recreational boat dealers in the U.S. went out of business. Brunswick’s support of its boat-dealer network in the bad times is paying off in the good times: In the most recent quarter, ended Sept. 30, the company posted a 13% rise in revenue and beat earnings expectations, on strong new boat sales.
Anchors aweigh.