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Brunswick Corp. gains market share as powerboat industry treads water

Written By: Kyle Clapham on February 9, 2012 No Comment

Boat motor classification. Images courtesy of boaterexam.com. Kyle Clapham/MEDILL

Brunswick Corp. recently reported 10 percent revenue growth in 2011 as the recreational-equipment producer forges ahead in a depressed powerboat market struggling to stay afloat since bottoming out in 2010.

The Lake Forest, Ill.-based company said revenue from its boat segment, which accounts for almost a quarter of its income, jumped 20 percent in 2011, well ahead of its three other divisions: fitness (11 percent), marine engine (6 percent) and bowling and billiards (2 percent).

U.S. powerboat sales fell to 139,000 units in 2010, a 54 percent drop from the pre-recession run-rate of nearly 300,000 units, according to data from the National Marine Manufacturers Association.

The economic downturn forced more potential boat owners to consider smaller, less expensive options—such as outboard motors instead of inboard or sterndrive motors and aluminum bodies over fiberglass.

Brunswick, whose fourth-quarter earnings exceeded Wall Street expectations by 7 cents per diluted share, has taken steps toward recovery despite overexposure in the inboard and sterndrive areas of the market.

“Even though the market continues to trend away from the Brunswick boat brand [inboard/sterndrive motors], Brunswick has been able to gain a tremendous amount of share through both the quality of its products and the strength of its dealer network,” says Jimmy Baker, an analyst for B. Riley & Co. in Los Angeles.

Brunswick’s dealer count has held steady as the entire boat industry’s dealer base has decreased by almost 40 percent since 2007, before high unemployment and low consumer confidence sapped discretionary spending, Baker adds.

The Brunswick Boat Group, which includes 15 North American-based brands, exited the economic downturn with around 2,000 dealers worldwide, roughly equal to its pre-recession levels despite widespread industry consolidation, says Craig Kennison, an analyst for Robert W. Baird & Co. in Milwaukee, in a Jan. 27 research note.

“Brunswick has reduced its number of boat brands (24 to 15), realigned its manufacturing footprint (28 locations to 11), and right-sized its labor force (headcount down 46 percent; labor contracts restructured) in order to streamline its operations in a smaller boat market,” Kennison notes. Those moves have reduced approximately $450 million in fixed costs through 2011, he adds.

The company’s efforts to cut inventory and focus on lower-end boats have been critical to the recovery process. Wholesale shipments rose 16 percent to 29,000 in 2011 from 25,000 the previous year. Channel inventory, or the number of units in the pipeline, increased 12 percent, with all of the gain in lower-end fiberglass and aluminum boats.

“Leaner inventory leads to firmer prices, which protects dealer profits, creditor portfolios and consumer trade-in values,” Kennison notes.

Brunswick divested one of its money-losing boat brands, Sealine, in August. As the market recovers it’s “not out of the realm of possibility that Brunswick would entertain offers for certain brands in its boat group,” Baker says, “but I don’t think that it’s management’s strategy to aggressively pursue any further divestures.”

Selling high in the traditionally cyclical boat business could help prevent more hardship in the event of another economic downturn, but for now Brunswick will continue to slash costs and rebuild its balance sheet in hopes of maximizing profit growth once discretionary spending recovers.

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