Here Come the 1980's again

Yes but ..... I wonder if the many message boards for boating ..... and problems with new boats ..... will curb the builders from backsliding as far as they got away with in the '80s?

new age Kelly

A short but true explanation of the situation is that old boats are not scrapped as with cars, why the price difference between all the used boats and the new can not be too high. Why buy a new 20 footer for the price of a used 30 footer?

So production are in huge series with less and less good quality, (eventhough the safety aspects are normally taken care of). Cutting corners is the only way to compete against low-labour-cost-countries and the margins are very tight.

Again, the major producers have not really looked into design as the competitive edge, they rather copy each other than trying new routes. This was much better during the GRP:s childhood when we got to see many new concepts where this new building material was showing what wood couldn´t do.

But all of this is of course due to the big companies structures, with finance departments and stock holders wanting fast profits instead of entrepreneurs who could work day and night for nothing to build up a company...

Never say Never, when a barrel of oil hits $80, Mega yacht sales and charters may follow a similar route of the Hummer 4x4 mountain tours.
It wont matter what the labor or material cost savings are, when the cost of vessel operation is "cost prohibitive".

Didn't read the initial article since it requires registration.
I don't know anyone at Brunswick so this is pure speculation.
Just the mumblings of an old man...
Business learned some good lessons from the AMF/Harley Davidson experience. Brunswick could quite well sell off a brand like Hatteras to a mix of employees and associated supplier/shareholders before the brand loses it's perceived value in the marketplace. There are numerous positive examples of what happens to production values and quality when even part of the labour force actually owns the company. Don't have the numbers but I'd bet that if Brunswick kept a minority position in Hatteras in that scenario, they'd have a better than even chance of seeing a decent return.
With the lower perceived value brands the customer expectations would not be as high so trimming back the costs wouldn't hurt sales as much and could in fact result in greater profitability for the parent. Perhaps taking some of the proceeds of a partial or complete disposition of Hatteras and taking control of a key supplier could work out better in the long run.

Lionel,

Yes, you can copy & paste, as long as the source is named.

Registration is free. I have been a long member since it is my old hometown.


Boat sales pull down Brunswick
Shares fall 7% after earnings warning

By James P. Miller
Tribune staff reporter
Published July 13, 2006

Shares of Brunswick Corp. dropped sharply Wednesday after the nation's leading recreational boat-maker, citing "significant declines" in sales at the retail level, warned investors that second-half earnings will fall well short of expectations.

The downbeat disclosure by the Lake Forest-based manufacturer, whose stock slid more than 7 percent to its lowest close in more than 2 1/2 years, represents unambiguous evidence that rising interest rates and high fuel costs are beginning to take a toll on the boating industry.

In view of the "precipitous" deterioration in sales, said Morningstar analyst Marisa Thompson, it appears the cyclical downturn facing Brunswick's key market "will be sooner and sharper than we expected."

Brunswick's troubles also might provide a clue to the state of the broader U.S. economy.

Because consumers normally cut back first on discretionary purchases when they begin to grow uneasy about their financial prospects, a slowdown in boat sales supports the view that the Federal Reserve's long series of interest rate hikes is slowing the economy.

In a conference call with Wall Street analysts, Brunswick Chairman and Chief Executive Dustan McCoy acknowledged as much.

"While desired by many consumers," he said, "our products aren't absolutely necessities for anyone. [Buying a boat] is both a financial and an emotional decision. Any discomfort, real or perceived, concerning one's financial position ... delays the purchase decision."

For Brunswick, which makes boats that retail at prices from $10,000 to $10 million, the high end remains strong.

"Sport yacht and yacht sales at retail held up comparably well," McCoy said.

Brunswick produces a variety of recreational products, including equipment used in bowling, fitness and billiards. But its fortunes rise and fall with the cyclical, economically sensitive pleasure-boat market, from which it derives the bulk of its revenue and profit.

In issuing its earnings warning, Brunswick emphasized that later this month it will report second-quarter profit of about 94 cents a share, in line with its own expectations but 2 cents shy of what many analysts had been anticipating.

The shortfall will occur in third- and fourth-quarter results because the company now is moving to reduce its output.

Because of seasonal factors, the second quarter is the biggest period of the year for Brunswick. The sales it rings up are sales it makes to dealers, however, and while the company's sales to dealers were solid, the dealers' sales to retail customers during the same period were disappointing.

"We're seeing much greater weakness than we expected," McCoy told analysts.

As the industry moves toward its slow season, he said, the pipeline of unsold marine products at the wholesale level is too high, particularly in the relatively high-margin fiberglass-boat category.

To lower that backlog, Brunswick is cutting back its second-half output. And because the industry's fixed costs are high, a decline in unit sales swiftly hurts profit margins.

Brunswick had been projecting that full-year earnings, excluding special items, would be in the range of $3 to $3.15 a share. But it trimmed that range by 60 cents, to $2.40 to $2.55 a share.

Based on its anticipated first-half results, that new forecast suggests that combined third- and fourth-quarter earnings will be 82 cents to 97 cents a share, well below the $1.46 a share Wall Street had been looking for.

In New York Stock Exchange trading, Brunswick shares slumped $2.28, or 7.2 percent, to $29.55, their lowest close since December 2003.

Brunswick's announcement put pressure on the shares of other boat-sector players, including dealer MarineMax and Honda Motor Co., which makes marine engines that compete with the Mercury brand made by a Brunswick subsidiary.

McCoy was head of Brunswick's boat group until December, when he moved into the chairman and CEO spot after predecessor George Buckley accepted the top job at industrial giant 3M Co.

Even then, it had become apparent the boat industry would be facing a slowdown. In fact, Brunswick shares peaked in late 2004 at just below $50.

In a bid to mitigate the extreme profit swings that have historically characterized Brunswick's earnings, McCoy has continued to press a cost-cutting strategy that includes standardizing components, shifting some production offshore, expanding sales in Asia and Europe and purchasing more parts from lower-cost foreign providers.

As consumer spending has sagged under the weight of a sluggish economy, both McCoy and his former boss have been obliged to offer discouraging earnings projections in the past week.

On Friday, 3M's shares went into a 9 percent tailspin after it disclosed that second-quarter earnings will fall short, in part because of lower-than-expected sales of product used in manufacturing high-end flat-panel TV sets.

----------

jpmiller@tribune.com



Copyright © 2006, Chicago Tribune

Been there, done that, bought the tee-shirt...

Ho, hum... another recession, esp. as regards the boat biz. My comments refer to the U.S. economy:

The recession of 1981: boat sales began their slide about a year beforehand.
But, hold the phone... by 1985, people were actually buying others' slots in the boat factories' production lines just to get one NOW.

The recession of 1990 ( the 10% luxury tax helped this one along) and 1991: I recall the fall of 1988 where all the sales people in a large boat manufacturer sat biting their collective nails over what they knew was coming.
"It'll never be the same", they moaned.

They were right; the mid-nineties were a gangbusters time to be in the boat business. We never saw such an explosion of megayachts both in size and number of new builds.

2006? It doesn't look really promising from my vantage point, but so what.

Even if it goes into the toilet, this yacht business will come roaring back twice as strong. I stand in awe of what growth we will surely see, if the past history is any indication.

Hope I'm right

Not to worry, since Canada is the largest exporter of gas to the USA, we will continue feeding your rather large appetite. But remember to do everything
THAT WE SAY.

I saw a segment on your oil sands in the Athabasca region. How is that going? How much refining to that stuff has to be done before it can be used in internal combustion engines?

Good question catmando,
The cost of extracting the oil was not cost effective for a long time, in the last while with the price of oil going up substantially and new steam technology used for separating the oil from dirt (simple version) has made the process worth pursuing and very profitable.
Currently the reserves are estimated at around 174 Billion barrels, making it the second largest reserve in the world next to Saudi Arabia.
The Province of Alberta has no sales tax, and each citizen gets an annual dividend cheque.
http://en.wikipedia.org/wiki/Athabasca_Tar_Sands

One can summarize that there is no shortage of oil, only a lack of "cheap oil" to power our Yachts