Politicians and journalists scramble to tell us at every
opportunity that the recovery is in full swing, and that many
sectors of the economy are back to "normal."
But some industries have yet to recover - and these sectors are
potential areas for substantial growth as the economy continues to
normalize. Case in point: the recession absolutely capsized the
In 2010 the marine retail market in the United States was half
the size that it was in 2007. It's unlikely that it will return to
its former glory in the summer of 2011, but a modest recovery seems
to be brewing. According to the U.S. Census Bureau, Americans own
nearly 17 million pleasure boats, and buying and maintaining
pleasure watercraft is a $33.5 billion-a-year business.
There is one leading name in leisure watercraft that is worth a
look right now - and not just because of its exposure to the
Brunswick Corporation (
sells boats under dozens of brands including Sea Ray, Boston Whaler
and Bayliner. The company's Mercury and Mariner motors are
specified on other companies' watercraft as well.
Brunswick is a leisure products conglomerate. Beyond boating,
its products are the dominant name in bowling, billiards and
exercise equipment. It operates Brunswick bowling lanes as
During the recession American discretionary spending dried up
and smacked Brunswick's profits.
For 2009, Brunswick reported a net loss of $586 million. Sales
fell from $4.7 billion in 2008 to $2.8 billion in 2009. The company
was saddled with excess inventory as it had to take back unsold
boats and parts after its dealers went out of business.
But the company restructured, consolidated manufacturing to cut
excess capacity, and trimmed its work force by 24 percent. Now a
leaner Brunswick is starting to get back on track.
In 2010, the company still lost money - $1.25 per diluted share.
But that was a vast improvement as compared to a loss of $6.63 per
share the year before. Net sales improved 23 percent to $3.4
billion, excluding charges, and Brunswick reported positive free
cash flow of $163.2 million for the year. The company's operating
margin was 2.3 percent.
***With a leaner, meaner, operating strategy and a modest
recovery in its recreational markets, Brunswick's stock is
attracting investors once again. The share price increased in 2010
by 48 percent and is in a sustained uptrend, trading well above its
50-day moving average.
The company still offers investors another incentive - it continues
to pay a dividend. Currently the annual rate is $0.20 per share,
for a yield of 0.25 percent.
On the January 27 conference call, CEO Dusty McCoy sounded more
optimistic about the 2011 outlook for his company, and gave
indications that the boating industry's retrenchment had bottomed
out. Of course, CEOs are supposed to sound optimistic, but he did
provide analysts with compelling reasons to believe him.
One of those reasons is overseas demand. The company recorded
improved fourth-quarter volume in emerging markets including China,
Brazil and Russia. In the quarter, marine sales outside the United
States grew by 8 percent.
There is a big boat show in Miami later this month which will
help manufacturers get a better handle on whether demand is truly
increasing or if this is just a blip in a bear boating market. One
other concern: tight credit markets could keep potential buyers out
of the market if banks refuse to supply loans.
Mr. McCoy believes that Brunswick can return to profitability in
2011 and deliver EPS between $0.05 and $0.40. Analysts who cover
the company expect $0.26 per share in earnings, according to
Thomson Reuters. Even better, EPS is expected to quadruple in
In other segments, bowling product demand is down but Brunswick
sees growing demand for its exercise equipment. The company's Life
Fitness division is working to incorporate the Internet in its
fitness equipment, and promises a smartphone app that will
integrate with its Virtual Trainer website.
Brunswick offers a good value at current levels. The stock is
currently trading under $20, and it has a forward P/E of 18.
Keeping the dividend intact during its painful restructuring likely
kept some shareholders on board as well.
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