Can Brunswick Float Your Boat?

May. 7.13 | About: Brunswick Corporation (BC)

By David Urani

Brunswick (NYSE:BC) is a market leader in marine, fitness and bowling/billiards, but it's in the marine engines and boats business where all the action is right now. John Brunswick moved to the U.S. from Switzerland, started small carriage making company, and expanded to furniture. In 1845, he made his first billiards table for a wealthy meatpacker, and word of mouth brought requests for more pool tables. The company prided itself on wood craftsmanship and by 1848 had two factories. Brunswick died in 1886 and his son-in-law took over in 1890, seeing potential in bowling (it went on to innovate automatic pin setters and electronic scoring).

In the early 1900s it made varying products, and even introduced phonographs that ended up being taken over by Warner Brothers. BC listed on the NYSE in 1925 and remained family owned until 1963. Over time it has been whittled back down to just the bowling/billiards, fitness, and boating businesses. It bought Mercury Marine in 1961, and the boating business flourished in the 1980s and is now the company's biggest business (75% of sales).

Brunswick is currently riding a powerboat rebound in the United States (the U.S. marine segment was approximately 65% of marine segment sales and half of total company sales). U.S. (and global) boat sales have been decimated since the recession, and in the U.S. sales are roughly half of what they were at the peak before the recession. However, a rebound began in 2011/2012. BC is a market leader in powerboats, and as the recession knocked other players down it was able to strengthen its share.

As of Q1, Europe is still declining, but the U.S. is picking up nicely. The good news is Europe now makes up just 8% of boat sales, so its potential impact going forward is becoming limited. The other thing is that in Q1, total U.S. industry boat sales were down 7% largely due to the cold weather (BC marine business up 4%), and that followed a 9% increase in Q4 2012 (see table below). There should be a solid rebound in the U.S. in Q2. For comparison, BC's sales in the marine segment had been up 12% in Q4 2012. In the meantime, 2013 as a whole should continue the rebound in total U.S. industry powerboat sales, which still has a long way to go.

In addition, the company has been executing well, beating consensus estimates by huge margins in each of the last four quarters, and earnings this year are expected to grow 19%. The stock received an upgrade today and gained further strength during an investor presentation.

Quick Stats

  • 75% of sales are marine engines and boats
  • Q1 Sales breakdown: marine +4%, fitness +6%, bowling -5%
  • Q1 U.S. engines +13%, Europe and rest of world flattish
  • Q1 U.S. boats +7%, Europe -30%, Rest of World -6%
  • U.S. fitness +1% (held back by government customers); Rest of World and Europe up 13% and 10%, respectively
  • Q1 bowling -6% U.S., +9% Europe, -16% Rest of World
  • Q1 gross margin +150 basis points

Click to enlarge

Click to enlarge

Click to enlarge