Brunswick to lay off 1,450, close plants; stock hits 18-year low
Brunswick Corp. (NYSE: BC) said it would speed the closures of four boat-making plants and suspend other production amid the "extraordinary developments" in global financial markets and the approach of the marine industry's seasonal low point. The news sent the company's stock to an 18-year low.
Brunswick also owns fitness brands Life Fitness, Parabody and Hammer Strength.
The company said it no longer believes it will be profitable this year, even excluding one-time charges. Brunswick said it would record nearly $500 million in third-quarter write-downs to reflect the reduced value of some boat brands.
CEO Dustan McCoy said in a statement that the ailing economy and weak consumer sentiment have eroded demand for boats and engines at a "swifter pace" than expected.
Three plants will close by year-end while the fourth will be shuttered in the first quarter. Production is being moved to other locations and about 1,450 positions are being cut. The company had originally intended to close the facilities in early 2009.
Brunswick will also suspend production at three of its boat-manufacturing facilities in Tennessee beginning the week of Oct. 27 through the rest of 2008.
The restructuring moves will result in "significantly" lower fourth-quarter sales and contribute to what the company's expects will be an annual loss.
The company said that by the end of the year it will cut costs by more than $125 million as it moves toward its goal of lowering spending by $300 million by the end of 2009. The company has been cutting costs the past several years, but the recent market has forced it to ramp up its efforts.
BMO Capital Markets analyst Edward Williams said he was cutting his earnings and revenue forecast for Brunswick through 2009, but retained his "Market Perform" rating.
"We expect the accelerated restructuring to result in additional one-time charges, and also anticipate that the deteriorating market conditions for consumer discretionary items will continue for the foreseeable future," Williams wrote in a research note to investors.
In 2008, Williams said he expects the company to lose $5.25 per share, including charges. That compares to his previous estimate of a loss of $0.87 per share. For 2008, Williams said Brunswick would likely earn $0.31 per share, compared to his earlier estimate of $0.55. He also lowered his 12-month price target on Brunswick shares to $8, from $14.
Additionally, Standard & Poor's Ratings Services lowered Brunswick's long-term ratings, including its corporate credit rating and senior unsecured debt rating to BB- from BB+. The ratings were also placed on CreditWatch with negative implications, indicating the possibility of a further downgrade in the near term.
"The ratings downgrade and CreditWatch placement are based on unprecedented economic pressures on recreational marine demand caused by consumer sentiment, high fuel prices, shrinking credit availability, and the effect of financial market instability in reducing non-financed sales," Andy Liu, an S&P analyst, wrote in a client note. "We are also concerned about the effect of market conditions on Brunswick's dealer base," Liu added.
S&P said although it had expected demand for recreational marine products to decline for the rest of 2008, the financial market turmoil has accelerated that decline in September.
Brunswick shares fell $1.88, or 18.8 percent, to close at $8.12 on Oct. 9 after falling to $7.51 earlier in the session. On Oct. 10, it hit another low of $7.40 and closed at $7.49.
Life Time CEO forfeits $11 million worth of stock to 'margin call'
A margin loan call cost Life Time Fitness (NYSE: LTM) CEO Bahram Akradi 582,000 shares of Life Time stock, worth roughly $11 million and making up about 13 percent of his entire direct holdings in the company, according to filings with the SEC.
The company said Akradi, who this spring reported owning 4.3 million shares of Life Time, had pledged some of the stock and other assets to secure a margin loan.
Margin loans are backed by stock, but the value of that stock must maintain preset levels. When values fall below those benchmarks, the lender will issue a "margin call," forcing the borrower to either liquidate some of his or her stock or add more cash to the account.
After a margin call on Akradi, one of the financial institutions that made some of the loans sold 582,000 shares of his Life Time stock to cover his obligations under those loans.
Approximately 3.5 million shares of Akradi’s Life Time stock remain subject to pledges under margin loans, nearly the balance of his holdings in the company, according to his most recent filings. In light of current market conditions, further sales could occur to satisfy the minimum margin requirements, the company said.
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