Brunswick - "significant decrease in retail demand"

"Our second quarter results are in line with our expectations," said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. "Throughout the key second quarter selling season for 2006-model-year marine products, however, we have experienced significant declines in retail demand, which has resulted in an increase in pipeline inventories. As we now enter the off- season, we can't rely solely on retail demand to rebalance the pipeline. So, we will be reducing further our production levels, leading to a lowering of our earnings estimate for the second half of the year. This is primarily due to reduced sales and the impact of fixed cost absorption from production cuts needed to adjust pipeline inventories. Although this will result in reduced margins, we believe that managing pipeline inventories is critical in a cyclical, as well as a seasonal, industry."

Translation: "Oh oh - things ain't lookin' so good." :>)

It's the regular guy that's getting pinched. I almost fell down the last time I looked at boat prices; $50K for a 20' center console????? Unbelievable......

And what happens to the trades or old boat?

New boat sales are softer this year in some areas around the US this year due to a combination of factors that overshadow the fairly healthy appearance of our general economic climate.

First, of course, is the impact of soaring fuel costs. Most builders, including most of the lines offered by Brunswick, have been behaving as if fuel were free for the last several years. The most popular selling models have been the boats with the biggest engines. With fuel dock prices routinely at $4/gallon or more, the concept of $100- $200 an hour fuel burns in some of the medium size boats is turning off a lot of prospective newcomers to boating. When the newcomers disappear, so does a lot of the market for second hand entry level boats, and many the current boaters willing to turn a blind eye to fuel costs hesitate to move up to a larger new boat before finding a buyer for their present craft.

The second major factor is the return of real estate mortgage rates to more traditional levels from a 2-3 year period of record lows, combined with a moderation (in some cases a decrease) in housing prices. Much of the recent activity in big ticket luxury sales (which obviously includes boats) was funded by consumers using their homes like ATM's. I'm certain we all know people who "refinanced" several times during the last few years, and went on a spending spree every time. If they went for the adjustable rate deal and borrowed the max that almost anybody would lend them, watch for bargains appearing in their driveways very soon. :-)

Minor factors would include the rapidly escalating prices for new boats. One of my industry contacts reports that he is "shocked" by the preliminary pricing he has seen for 2007 models. The explanation from the factory was that "fiberglass boats are primarily a petroleum product". Today's new boat prices might seem as anachronistic as $1.95/ gallon unleaded by this time next year. Real wage growth in many traditional middle class occupations has been problematic for the last couple of decades or so, and it appears that the expanding classes are the upper class and the lower class while the middle class remains at a fairly stagnant number (therefore a slowly eroding percentage of the general population). Lower economic classes aren't good prospects for new boats, and the upper classes will buy boats with very high dollar markups but can't be relied upon to provide the unit volume required to sustain a mass producer like Brunswick.

The immediate local market in the Pacific Northwest is off a bit from last year, but not as badly hammered as markets in some other areas. We are dealing with high fuel prices, just like everybody else, but have so far escaped the slowdown in housing prices that is appearing in some other major metro areas. (Average selling price of King County properties is up 16% since the first of the year). The sense of prosperity created by rising prices for dirt as well as the refi opportunities still available to those who aren't put off by the interest rates spins off some "free money" (ha!) that people will use for high ticket luxury items- including boats.

Maybe I'll sell my house for big bucks (to me anyway) and move to North Carolina where I can be close to water, close to golf, decently close to the kids, and get a nice house for about a third of what mine will sell for. *Then* I may consider a new boat, paid for with cash. --

***** Have a Spectacular Day! *****

John

I suppose you're probably upset because we actually agree on something? Perhaps that explains the unwarranted snide remark.