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Brunswick Corporation (BC): Will a Rising Tide Lift or Sink These Boating Stocks?

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Brunswick Corporation (NYSE:BC)On Wall Street, it’s common to claim that “a rising tide lifts all boats.” Improved job numbers, a recovering housing market, and rising consumer confidence have pulled up most stocks across the market. In a previous article, I discussed how RV sales were boosted by the rising appetite for big ticket purchases in the U.S. In this article, I’ll examine another business of big ticket vehicles — boats.

Sailing smoothly through turbulent tides

According to boats.com, May was the boating industry’s best month since 2009, reporting over 3,700 boats sold. Sailboat and powerboat sales increased 5% and 4%, respectively, from the previous year. Powerboats made up 80% of the U.S. boat market during the month.

The National Marine Manufacturers Association reported that industry sales rose 10% year-on-year in 2012 to $36.5 billion, and were on track to log 5% growth in 2013. Although that would indicate a slowdown from the prior year, it is still a positive sign for the industry, which was nearly wiped out by the 2008 financial meltdown.

Let’s check in on a few major publicly traded boat companies, which focus on different segments of the industry, to see if the boating industry will present viable investments in 2013 and 2014.

Bowling, billiards…and boats?

Brunswick Corporation (NYSE:BC), based in Lake Forest, Illinois, is the 800-pound gorilla of the industry with a market cap of over $3 billion. The company has a diversified portfolio of products, including marine engines, boats, fitness equipment, bowling, and billiards equipment.

Last quarter, Brunswick Corporation (NYSE:BC)’s revenue rose 4% to $995.3 million, but diluted earnings per share dropped 46% to $0.59, or $54.9 million, due to $0.12 of special tax items and $0.05 of restructuring, exit, and impairment charges. Otherwise, net earnings from continuing operations actually rose from $0.51 to $0.59 per share. Despite producing fitness, bowling, and billiards equipment, the majority of Brunswick’s top line comes from its Marine Engine and Boat segments.

Sales at its Marine Engines business rose 7% to $521.8 million, accounting for 52.4% of Brunswick Corporation (NYSE:BC)’s total sales. Operating profit at the business also rose 49.2% to $71.5 million. Sales of its outboard, parts, and accessories were notably higher than sales of its sterndrive engine products.

Brunswick Corporation (NYSE:BC)’s Boat Segment, however, reported a 1% year-on-year sales decline to $289.7 million, which accounts for 29.1% of its top line. The company blamed this slide on a 13% decline in international sales, which make up over a third of total segment sales. Operating profit also slid from $10.5 million to $2.4 million.

Diversification is a double-edged sword

Looking at Brunswick Corporation (NYSE:BC)’s quarterly results, it’s painfully clear that its overseas exposure and a diversified portfolio have worked against it. Brunswick’s consolidated sales in the United States rose 7%, but were dragged down by a 4% decline in Europe and flat performance in the Rest of the World.

Considering how large and diversified Brunswick Corporation (NYSE:BC) is, we should also focus on a trio of smaller companies instead — West Marine, Inc. (NASDAQ:WMAR), Marine Products Corp. (NYSE:MPX), and MarineMax, Inc. (NYSE:HZO) — which concentrate on specific segments of the boating industry.

Boating supplies and apparel

West Marine, Inc. (NASDAQ:WMAR) doesn’t sell any boats. Rather, it sells recreational and commercial boating supplies and apparel. Although it would seem like a safe bet that rising boat sales would equal higher sales of accessories, it certainly didn’t look that way last quarter. The company reported a loss of $0.38 per share, which had widened from a loss of $0.27 per share in the prior year quarter.

Revenue slid 5.9% to $114.2 million as same-store sales slumped 6.6%. West Marine, Inc. (NASDAQ:WMAR) predictably blamed a colder spring, as many apparel and sporting goods retailers did last quarter. However, selling clothes and supplies for boating activities is still very different from the real business of selling boats. However, the next two quarters, which will include the summer, could help West Marine bounce back slightly as the outdoor season kicks into high gear. Nonetheless, the company only anticipates flat to 2% same-store sales growth for the full year.

Focusing on the core market

Considering that boat sales are the strongest in the U.S., and the majority of sold boats are smaller powerboats, then it stands to reason that a company like Marine Products Corp. (NYSE:MPX), which specifically focuses on that market, should be reporting healthier growth than either Brunswick Corporation (NYSE:BC) or West Marine, Inc. (NASDAQ:WMAR). Marine Products designs, manufactures, and distributes premium boats, which include Chaparral stern drive pleasure boats, Premiere sport yachts, and Robalo sports fishing boats.

Last quarter, Marine Products Corp. (NYSE:MPX)’ revenue rose 17% year-on-year, but its earnings declined 11.2%. However, the company actually sold 12% more boats during the quarter as its average selling price rose 2.9% from the previous year. The company’s earnings decline was mainly caused by a steep 14.1% rise in SG&A (sales, general, and administrative) expenses.

Although Marine Products Corp. (NYSE:MPX) is an American company, it still generates 22% of its sales overseas. International sales remained flat, with weak sales in Europe offsetting strong numbers in Australia.

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