5/7/2013
By David Urani

Brunswick (BC) is a market leader in marine, fitness and bowling/billiards, but it’s in the marine engines and boats where all the action is right now. John Brunswick moved to US from Switzerland, started small carriage making company and expanded to furniture; in 1845 he makes his first billiards table for a wealthy meatpacker, and word of mouth brings requests for more pool tables.  They prided themselves on wood craftsmanship and by 1848 they had 2 factories. In 1886 Brunswick died, and his son in law took over in 1890 seeing potential in bowling (they went on to innovate automatic pin setters and electronic scoring). In the early 1900’s they 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 80’s and is now the company’s biggest business (75% of sales).

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

As of Q1, Europe is still declining but the US is picking up nicely; the good news is Europe is now just 8% of Boat sales so its potential impact looking ahead is becoming limited . The other thing is that in Q1 total US industry boat sales were down 7% largely due to the cold weather (BC Marine business up 4%), and that followed a 9% increase in Q412 (see table below); there should be a solid rebound in the US in Q2. For comparison, BC’s sales in the Marine segment had been up 12% in Q412. In the meantime, 2013 as a whole should continue the rebound in total US 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
• 1Q Sales breakdown: Marine +4%, Fitness +6%, Bowling -5%
• 1Q US Engines +13%, Europe and rest of world flattish
• 1Q US Boats +7%, Europe -30%, Rest of World -6%.
• US Fitness +1% (held back by government customers); Rest of world and Europe up 13% and 10%
• 1Q Bowling -6% US, +9% Europe, -16% rest of world
• 1Q gross margin +150 basis points

David Urani
Wall Street Strategies