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Is Brunswick On The Road To Recovery?

Posted: Aug 25, 2009 09:51 AM by Will Ashworth

Tickers in this Article: HOG, ACAT, PII, BC, MPX

Recreational products icon Brunswick is on a bit of a roll in 2009. Its stock closed Friday up 16.3% for the day and 127.8% year-to-date. Is it time to celebrate Brunswick's near-death experience and subsequent rebirth or are these recent events eerily similar to the American economy and simply the mid-point in a double-dip recession? I can't really speak on the overall economy, but I'm hoping after this article we'll all have a much better idea what's really going on here and more importantly, whether or not Brunswick is a good long-term investment.

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Brunswick and Its Competitors

Company	Stock Price - YTD	Stock Price - Past 52 Weeks
Brunswick (NYSE:BC)	147%	-32%
Polaris Industries (NYSE:PII)	35%	-17%
Arctic Cat (Nasdaq:ACAT)	55%	-27%
Harley Davidson (NYSE:HOG)	28%	-45%
Marine Products (NYSE:MPX)	-3%	-32%
As of market close August 24, 2009.

Too Many Brands Chasing Fewer Dollars
In mid-August, Brunswick announced it was discontinuing its Maxum boat line as part of a continuing cost-cutting movement at the company. Maxum, in existence since 1988, was one of many initiatives the company was undertaking to make it more competitive in the future. Brunswick spokesperson Dan Kubera had this to say about the move: "This decision emerged from our continuing efforts to review every aspect of our operations, including our brand portfolio, in an effort to position Brunswick to emerge from this downturn a stronger company." Brunwick is no different from Chrysler or GM in that it has too many brands chasing too few buyers. (Find out how this economic cycle affects both small and big business, read The Impact Of Recession On Businesses.)

A Shrinking Business
It's hard to know whether the economy is solely to blame for Brunswick's declining sales or if people's tastes and interests have changed. Sure, $100,000 boats aren't exactly in demand right now but troubles were brewing long before this recession hit. As early as November 2006, Brunswick management was initiating restructuring activities to meet the demands of a difficult marine market. Indeed, sales and operating earnings in its boat division were down in the last two years by 29.8% and 582.1% respectively. Its operating earnings deficit in 2008 includes $688.4 million in pretax goodwill impairment charges. Excluding those, the earnings decline was down to a more palatable 74.4% over those same two years. Two bright points in an otherwise dreary situation was the fitness division actually growing sales and earnings between 2006 and 2008 and both the marine engine and bowling/billiards segments managing to keep sales from declining while still producing small operating profits. There is some reason for optimism.

Analysts Warming
Towards the end of July, analysts were saying good things about Brunswick stock. Nothing that said it was a screaming buy but it was enough to move the stock ever closer to the $10 mark, a level not seen since October 2008. Analyst Hayley Wolf of Rochdale Research believes Brunswick will emerge from the meltdown of the boat business as the strongest player in a smaller industry. Rochdale rates it a "Buy" with an 18-month price target of $8, which it's easily reached. Wells Fargo analyst Tim Conder added that it should do much better in 2010 when production levels increase and restructuring expenses decline.

While both opinions reflect a similar feeling about the company, it's not enough to sway me. What is, however, is the almost 6% holding by Fisher Investments. Ken Fisher is one of the world's best investors and he learned from his dad Phil, a legend in investing circles. His stamp of approval means more than any analysts, that's for sure. (The type of stock that analysts cover can heavily influence their predictions Analyst Forecasts Spell Disaster For Some Stocks.)

Bottom Line
Brunswick's stock has performed terribly in the last five years, turning $100 into $14.23 or a loss of 86%. This compares with the S&P 500, which lost only 19% in the same period and a loss of 32% for its Consumer Discretionary sub-index. Personally, I've always felt shareholders were better served by separating the water-related businesses (boats, marine engines) from the land-related (billiards/bowling/fitness) ones, giving investors a clearer picture. Management obviously enjoys the stability, not to mention the profitability the land-related businesses deliver. If you have a three to five year horizon, I'd be hard pressed to give you a reason why you shouldn't invest in Brunswick.

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By Will Ashworth

Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.

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