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Why Did Moody’s Downgrade Brunswick Corporation’s 2021 Notes?

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Dec. 4 2020, Updated 10:52 a.m. ET

Price movement

Brunswick Corporation (BC) has a market cap of $4.2 billion. It rose by 0.26% to close at $46.05 per share on August 30, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -2.5%, -6.8%, and -7.9%, respectively, on the same day.

BC is trading 3.6% below its 20-day moving average, 3.2% below its 50-day moving average, and 1.4% below its 200-day moving average.

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Related ETFs and peers

The Vanguard S&P Mid-Cap 400 Growth ETF (IVOG) invests 0.28% of its holdings in Brunswick. The ETF tracks a market cap–weighted index of growth companies culled from the S&P 400. The YTD price movement of IVOG was 11.3% on August 30.

The iShares Dow Jones US ETF (IYY) invests 0.02% of its holdings in Brunswick. The ETF tracks a broad, cap-weighted index of US companies covering 95% of the US market.

The market caps of Brunswick’s competitors are as follows:

  • Caterpillar (CAT) — $48.3 billion
  • Cummins (CMI) — $21.4 billion

Moody’s downgraded Brunswick’s notes

In a press release on August 30, 2016, Moody’s reported, “Moody’s Investors Service today downgraded Brunswick Corporation’s (‘Brunswick’) senior unsecured notes due 2021 to Baa3 from Baa2, and affirmed all of the company’s other senior unsecured notes at Baa3.”

The release continued, “The 2021 issue of notes was downgraded because they no longer contain a subsidiary guarantee. All of Brunswick’s notes are now unsecured, and none contain subsidiary guarantees. The outlook on all ratings is stable.”

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Performance in 2Q16

Brunswick reported 2Q16 net sales of $1.2 billion—a rise of 9.1% compared to net sales of $1.1 billion in 2Q15. Sales of the company’s Marine Engine, Boat, and Fitness segments rose by 4.4%, 5.4%, and 32.2%, respectively, in 2Q16 compared to 2Q15.

The company’s cost of sales as a percentage of net sales fell by 0.05%, and its operating earnings rose by 5.0% in 2Q16, compared to the same period last year. It reported restructuring and integration charges of $2.6 million in 2Q16.

Brunswick’s net income and EPS (earnings per share) fell to $108.1 million and $1.17, respectively, in 2Q16, compared to $117.8 million and $1.25, respectively, in 2Q15. It reported adjusted EPS of $1.19 in 2Q16, a rise of 13.3% compared to 2Q15.

Brunswick’s cash and cash equivalents fell by 25.0%, and its inventories rose by 3.2% in 2Q16 compared to 4Q15. Its current ratio and debt-to-equity ratio fell to 1.9x and 1.3x, respectively, in 2Q16, compared to 2.0x and 1.5x, respectively, in 4Q15.

Projections

The company made the following projections for 2016:

  • revenue growth rates of 10%–11%, including 5% from acquisitions announced in 2015 and 2016
  • adjusted EPS of $3.40–$3.50
  • positive free cash flow of more than $200 million

In the next article, we’ll look at Bunge (BG).

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