Brunswick Corporation (BC) is a leading manufacturer and distributor of recreational and fitness equipment. The company recently reported earnings which put the spotlight on how the faltering consumer economy is affecting businesses in the personal entertainment area.
Brunswick reported losses of $66 million for the fourth quarter and $788 million for the full year. The quarterly loss benefitted from the reversal of variable compensation accruals, which added $0.56 to the earnings for the period.
Brunswick losses were across the board from their primary operating divisions. Leading the red ink parade was the boat division, which generates the largest portion of revenue for the company. The dramatic reduction in boat sales resulted in a 54% decline in revenues.
The next largest operating unit, the fitness division, had a 20% revenue drop, and the bowling and billiards division saw an 8% decline.
Brunswick stock has been in a four year slide, dropping from an historic high of nearly $50 per share in 2005 to the current price of under $3.50.
The company cautioned in its release that lower sales are also expected for the full year of 2009. While expecting a revenue decline across all divisions, the fitness area appears poised to emerge ahead of the other businesses of the company, as fitness clubs continue to enjoy strong memberships.
Significant measures were taken by Brunswick in the past year to strengthen the balance sheet and reduce expenses. Salaries were cut, bonuses were reduced or eliminated, many employees were required to reduce hours, the workforce was reduced and several plants were closed. The company has announced further layoffs of 275 jobs and will idle an additional 300 employees.
Brunswick and its creditors amended the company’s line of credit facility to ease access to short term credit. While generally a positive move as it gives the company more ability to respond to changes in economic conditions, the amendments come at a price.
The most significant negative impact of the change is that the credit facility is now secured by company assets, which could reduce Brunswick’s flexibility to address long-term capital needs in the future.
The company has improved overall liquidity, with cash balances down only $15 million from the 2007 period results, in spite of the substantial operating loss for the period.
Financial ratios for the company are favorable. With current assets totaling $1.74 billion, Brunswick has a current ratio of over 1.7. The long-term debt-to-equity ratio is 0.55.
While the outlook for sales is bleak, the moves made by Brunswick to reduce costs and strengthen the balance sheet should strengthen their ability to return to profitability in the next two years.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
