A Glimpse Into The Ultimate Discretionary Industry: Boating
Brunswick Corporation (BC), a large boat manufacturer has been hit hard by the recession. It doesn’t take a genius to figure out why. They make boats. I love boats and so do most people, but there are not many other categories of purchases that almost completely go away than boats. Simply put, good times economically are pretty much a prerequisite for a boom in boat sales. And, as we all know, good times have not be the case.
I’ve been playing this stock for several months now. I’ve shorted it and covered a few times to make some nice profits, and I still hold a part of my original short position. Over the last week, like many other stocks, BC has gone up big. Check out the chart of the recent action:
Here are some excerpts from the recent Brunswick conference call after releasing earnings this week:
The following is a comment from Brunswick’s CEO regarding the overall view of the consumer as it relates to boat sales:
But still lacks sufficient clarity at this time is a perspective of what consumer demand will look like in 2010 and beyond.
The following comment is in response to a question about volume of sales. As you can see, their planning for volume well over 50% off from 2007 levels.
Let me tell you what our planning is, which is a lot different than saying what we think the market will be. If in round numbers, Tim and we all can debate in the industry what numbers we’re looking at, so just to put a peg down, let’s say this year is 130,000 units, 135,000 units, our planning is that we’ve got to be nicely profitable at 150,000 units. And that we’ve got to be really profitable at 170, and we probably shouldn’t plan on the market being over 200. That’s compared to, Tim, 310 in the 2007 timeframe.
Honestly, if you read the entire call, I was fairly impressed with the way the management communicated their strategy dealing with what is definitely a disaster of an environment for a boat manufacturer to operate in. They are cutting production and costs assuming the worst, which is probably a good move.
So what can you take from these comments? Brunswick is probably a pretty well-run company, but at the same time they are upfront about the uncertainty with regards to the future of the consumer. I know I talk about the consumer all the time and in today’s extreme rally, the consumer doesn’t mean much, but I can’t reiterate enough how important the consumer is to this economy (too important). Our economy is fueled by consumption, whether it is houses, cars, boats, RVs, iPods, Vegas trips, etc.
Stock prices are pricing in a huge rebound in the consumer as I discussed in Place Your Bets on The Direction of America [Aug 2, 2009]. An unrealistic rebound in my opinion. By this time next year, we should definitely have a more clearer vision of where the consumer is heading. Oh yeah, and it’s going to take more than “cash for clunker” type programs to rebound the consumer.