The Brunswick Corp. announced yesterday that it has decided not to sell its Sea Ray boat division. Instead, it is going to focus on sportboats and sport cruisers between 24’ and 40’ (7.32 m to 12.19 m), according to the Brunswick CEO, Mark Schwabero. The dozen or so Sport Yachts and L-Series vessels will be phased out between now and the third quarter of 2018, he said. Indeed, it is hard for us to picture any other firm owning Sea Ray as it has been owned by Brunswick for the last 32 years – longer than the 27 years its founder, C.N. Ray, owned it before he sold it in 1986.
"Over the last several months, we have engaged in a thorough sale process for the Sea Ray business, which we believed would generate the highest value for our shareholders," said Brunswick Chairman and Chief Executive Officer Mark Schwabero. "Although there was interest in the business, the offers we received did not reflect an appropriate value for this premium brand, and did not meet our expectations.
“The lower value was largely due to the persistently weak financial performance of the yacht product category, which complicated and obscured the value of the remainder of Sea Ray, he said.
In 2017, the Sea Ray business, including the Meridian brand, recorded sales of $387.6m but suffered operating losses of $17.2m. CEO Schwabero said sales of Sea Ray products up to 40 feet would provide accretive revenue of approximately $225 million for Brunswick with improved profitability, going forward.
Schwabero said, "As the sale process neared conclusion, we started to evaluate other strategic options beyond our original plan to sell the Sea Ray business in its entirety. Based on that re-assessment, we have concluded that our best opportunity to maximize value is to retain the Sea Ray brand and refocus the business on the sport boat and cruiser product portfolio. As part of the transformation of Sea Ray, we will discontinue sport yacht and yacht models and begin an orderly wind down of yacht production.
Restructuring costs for the discontinuation of the yacht business were estimated at between $50-60 million will be reflected in 2Q results.
Schwabero said, "These combined actions will create a revitalized Sea Ray that will benefit from continuing synergy with our broader marine portfolio -- and with targeted ongoing investment - we believe will offer increasingly attractive profitability and cash flow returns, he said.
Several times during the conference call Schwabero mentioned that another Brunswick goal was to enhance the boating experience of owners of products it builds. This fits in with what Mercury Marine calls its “holistic” approach to engines, making sure that they facilitate a more rewarding experience for owners.
Since Brunswick owns both the boat and engine companies and has developed sophisticated software that can be run on major electronics suppliers’ screens, Sea Ray is in an ideal position to fully integrate the building of a boat, much as automobile manufacturers build the engine, all major components and oversee specialized electronics venders to integrate their products to the automakers design. Essentially, that seems to be where Sea Ray is headed – asking what consumers need and want, and then creating a boat, engine, and equipment package that is designed for consumers.
David Foulkes, president of Marine Consumer Solutions, said, "We will focus our resources on advancing our position in these segments, with an emphasis on the growing and evolving 24 - 40-foot categories. Moving forward, Sea Ray will continue to offer new products, features and services that leverage our technology and innovation initiatives aimed at enhancing the quality of the consumer boating experience."
In a conference call Foulkes pointed out that Sea Ray was well positioned to take advantage of the trend to outboard-powered sportboats. Indeed, in the 25’ to 40’ range, of the 21 boats there, 8 of them are outboard powered. Foulkes also pointed out that since the trend to outboard-powered sportboats is a relatively recent phenomenon, there was minimal competition from used boats.
The Brunswick press release went on to say: “Sea Ray will begin to wind down sport yacht and yacht production in the third quarter at its Sykes Creek and Palm Coast, Fla., facilities, involving the elimination of as many as 825 positions. Palm Coast is targeted for closure as soon as practical in 2018, while a portion of Sykes Creek will continue to operate for the foreseeable future to support customer service and warranty obligations, along with other operational requirements.