Brunswick fallout, economic news impacting marine industry

Published online: Oct 13, 2008 News Melanie Winters, Soundings Trade Only
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Brunswick stock lost nearly $2 a share in afternoon trading last weekend before closing at $8.12, down from a 52-week high of $24.18. It opened this morning at $7.63.
Wachovia Capital Markets revised 2008 and 2009 earnings estimates for Brunswick to a loss of $1.41 and earnings of 22 cents per share, respectively. This compares to Wachovia's previous estimates of 63 cents per share loss for 2008 and 87 cents per share gain for 2009.
The revised numbers are based on "ongoing deterioration in U.S./global marine market conditions, and accelerated core business restructuring and resultant cost savings," said Tim Conder, managing director of Leisure Equity Research for Wachovia, in a report.
Brunswick is pushing up plans to close four boatbuilding facilities and eliminate 1,450 hourly and salaried positions. Three manufacturing plants will be permanently closed - Pipestone, Minn., Roseburg, Ore., and Arlington, Wash. A fourth plant, in Navassa, N.C., will be mothballed.
The Arlington, Navassa and Roseburg shutdowns are expected to be completed by the end of the year, with the Pipestone shutdown expected to be completed during the first quarter of 2009.
Brunswick also said it will temporarily suspend production at three of its boatbuilding facilities near Knoxville, Tenn., beginning the week of Oct. 27 and continuing through the remainder of the year. During this time, Brunswick will transition boat models from the plants that are closing into these facilities.
Brunswick chairman and CEO Dustan McCoy said the actions were necessary given the current turmoil in the markets and the continuing slump in housing and consumer confidence.
"We have no doubt that the actions we are announcing today are correct," McCoy said in a conference call with investment analysts yesterday afternoon.
The analysts seemed most interested in whether or not the company would be able to meet certain loan covenants given the accelerated downsizing and the restructuring charges involved. McCoy acknowledged that one of Brunswick's covenants may be "under stress" if the market slump continues.
He noted, however, that Brunswick has already opened discussions with its bank to set up a revolving line of credit. He also said Brunswick has enough cash on hand to "live out of our own pockets" through the first half of 2009 before having to rely on revolving credit.
"We are not in breach of any covenants as of the third quarter," CFO Peter Hamilton emphasized. However, he added, "As we go forward, there will be stress on covenants, and we're in discussions with the bank on a revolver."
Said Wachovia's Conder: "Potential fourth-quarter technical violations of revolving debt covenants should not be a major hurdle, considering nothing is currently drawn under this revolver, and Brunswick should likely be able to obtain temporary waivers.
"We do not believe Brunswick is in any imminent danger of a liquidity crisis," Conder said in his report.
Analysts also asked during Thursday's conference call if there would be more downsizing to come if the economy continues to lag.
"If the market continues quarterly declines of 40 percent, we will have to do more," McCoy said. "We have very strong contingency plans, and we're prepared to make other moves if we need to."
McCoy noted that the measures taken this week already assume the European markets will weaken. A number of analysts have noted in recent months that sales in Europe are beginning to slow and may slow even more as the credit and liquidation crisis in the United States spreads internationally.

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