Brunswick’s ready to cut deeper if it has to
Big boatbuilder plans to eliminate 1,450 jobs, says it will go beyond that if sales don’t improve
By Melanie Winters / Associate Editor
The string of bad news regarding layoffs from struggling U.S. boat manufacturers has received a punctuation mark
from the industry giant.
Brunswick Corp. announced Oct. 9 it
will accelerate its previously stated efforts to resize the company and remove
$300 million in fixed costs by the end
of 2009. By the end of this year, plants
in Arlington, Wash., and Roseburg,
Ore., will be permanently closed, and
the Navassa, N.C., plant will be mothballed. The Pipestone, Minn., permanent closure is expected to be completed during the first quarter of 2009. The
moves will result in the eventual elimination of approximately 1,450 hourly
and salaried positions at these facilities.
Brunswick also says it plans to temporarily suspend production at three of
its boatbuilding facilities near Knoxville,
Tenn., beginning the week of Oct. 27
and continuing through the remainder of
the year. During this time, Brunswick will
transition boat models from the plants
that are closing into these facilities.
Brunswick chairman and CEO Dustan
McCoy said the actions are dictated by
turmoil in the markets and the continuing slump in housing and consumer
confidence.
“We have no doubt that the actions
we are announcing today are correct,”
McCoy said in an Oct. 9 conference call
with investment analysts.
No liquidity crisis
The analysts seemed most interested
in whether or not the company would
be able to meet certain loan covenants,
given the accelerated downsizing and
the restructuring charges involved.
McCoy acknowledged that one of
Brunswick’s covenants may be “under
stress” if the market slump continues.
He noted, however, that Brunswick
has already opened discussions with its
bank to set up a revolving line of credit.
He also said Brunswick has enough cash
on hand to “live out of our own pockets” through the first half of 2009 beore
having to rely on revolving credit.
“We are not in breach of any
covenants as of the third quarter,” CFO
Peter Hamilton emphasized. However,
he added, “As we go forward, there will
be stress on covenants, and we’re in discussions with the bank on a revolver.”
According to Tim Conder, managing director of leisure equity research for Wachovia, “Potential fourth-quarter technical violations of revolving debt covenants
should not be a major hurdle, considering nothing is currently drawn under this
revolver, and Brunswick should likely be
able to obtain temporary waivers.
“We do not believe Brunswick is in
any imminent danger of a liquidity crisis,” Conder said in his report.
More to come?
Analysts also asked if there would be
more downsizing to come if the economy continues to lag.
“If the market continues quarterly declines of 40 percent, we will have to do
more,” McCoy said. “We have very strong
contingency plans, and we’re prepared
to make other moves if we need to.”
McCoy noted that the measures taken
this week already assume the European
markets will weaken. A number of analysts have have said sales in Europe are
beginning to slow and may falter even
more as the credit and liquidation crisis
in the United States spreads abroad.
Brunswick stock lost nearly $2 a share
in afternoon trading Oct. 9 before closing at $8.12, down from a 52-week high
of $24.18. It opened Oct. 10 at $7.63.
Wachovia Capital Markets revised 2008
and 2009 earnings estimates for
Brunswick to a loss of $1.41 and earnings
of 22 cents per share, respectively. This
compares to Wachovia’s previous estimates of 63 cents per share loss for 2008
and 87 cents per share gain for 2009.
The revised numbers are based on
“ongoing deterioration in the
U.S./global marine markets, and accelerated core business restructuring and
resultant cost savings,” said Conder in
his report. n
