Seeking Alpha
Long only, value, long-term horizon, dividend growth investing
Profile| Send Message|
( followers)  

Some companies like Coca-Cola (NYSE:KO) are spot on with their product line. When you hear Coca-Cola you know what you are going to get, beverages. That's all they do is non-alcoholic beverages. Then there are other companies that have different business segments that are categorized the same but lack a commonality. Brunswick Corporation (NYSE:BC) operates in four segments; Marine Engine segment, Boat segment, Fitness segment and Bowling & Billiards Segment.

The marine engine and boat segment have everything in common. However, it's difficult to see how fitness and then bowling & billiards fit into the picture. Brunswick started as a carriage builder in 1845. The company soon changed to billiards and billiard tables. After a long history of manufacturing various products from tires to toilet seats; Brunswick merged with Mercury Marine in 1961.

Brunswick's revenues came in at $3.75 billion for the past twelve months. The company's current assets are $2,444,100,000 and liabilities are $2,313,500,000.

Currently, Brunswick's earnings are at $0.65 a share. The company currently pays a $0.05 annual dividend. Brunswick has paid this dividend since 2008, down from an annual $0.60 dividend. Brunswick's Graham Number is at $4.59. Earnings for the past seven years are as follows.

Year

2012

2011

2010

2009

2008

2007

2006

AVG

EPS

$1.60

$0.98

-$38.35

-$6.63

-$8.93

$0.88

$2.78

-$6.81

As we can see Brunswick was hit hard during the recession. However, we can also see that 2007 earnings are substantially less than 2006 earnings. Earnings were down by 67%, before the economy tanked.

Restructuring

According to Brunswick's 2012 annual report its segments are divided in terms of revenue.

  • Marine Engine Segment - $1,988,500,000
  • Boat Segment - $1,006,200,000
  • Fitness Segment - $635,900,000
  • Bowling & Billiards Segment - $322,300,000

In 2009, union leaders put it to a vote as to whether the employees at Mercury Marine would agree to a new contract with Brunswick. Brunswick informed the union that if the contract concessions were not agreed to then manufacturing at the Fond du Lac, Wisconsin Corporate Office would be closed and moved to Stillwater, Oklahoma.

The International Association of Machinists and Aerospace Workers Lodge 1947 union members rejected the new contract. Brunswick released a statement that was reported as such.

Three years from now, however, the manufacturing presence is likely to be scaled back. There might be "zero to 200" jobs left at the plant, Schwabero said, compared with nearly 850 now and more than 1,500 a few years ago.

The company has said its sprawling industrial complex in Fond du Lac isn't an economical place to build engines, and it could start moving work to its Stillwater plant yet this year. The company has been a presence in Fond du Lac for nearly 70 years.

The company says it will honor its labor contract, which expires in 2012, while it steps up efforts to move manufacturing to the non-union Stillwater facility.

A few weeks later Three union members petitioned the union to revote on the concessions. After an 11th hour vote the union accepted the concessions.

As a clincher, Fond du Lac County loaned Mercury Marine $50 million, half of which is to be put toward the development of a new motor. Earlier this year Mercury started to payback the original loan with a $3.2 million payment

Conclusions

Many companies were hit hard with the recession. Some have bounced back; others have had a more difficult time. Even with a complete reworking of the labor contracts in its largest division, Brunswick is still lagging behind. However, there are many who believe that Brunswick is a growth story now as it is trading at 50 times earnings with a forward P/E of 12.40, based on 2014 projected earnings. Mercury currently has 90 job openings so they obviously need the labor to meet the demand for new orders.

Brunswick's problems started before the recession and they are still not back up to where they were before. I do not have any doubt that Brunswick will eventually get back to pre-recession numbers but the question is how long will it take? Does a current price of 50 times earnings justify the potential growth Brunswick is poised to see over the next couple of years? For me it's too high but each investor should decide for themselves.

Source: Will Brunswick Corporation Grow As Expected?