For the second quarter of 2012, the company reported net sales of $1,067.0 million, down from $1,096.3 million a year earlier. For the quarter, the company reported operating earnings of $114.8 million, which included $1.0 million of restructuring, exit and impairment charges. In the second quarter of 2011, the company had operating earnings of $107.9 million, which included a $0.3 million gain from restructuring activities.
“Despite challenging global economic conditions, we are pleased to report solid earnings growth in the quarter achieved by continuing to successfully execute our business strategy,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “We are benefiting from strong U.S. retail growth in the aluminum and fiberglass outboard marine markets, and steady fundamentals in the fitness industry. However, weak demand in global fiberglass sterndrive categories has extended into the second quarter, and the overall European marketplace has deteriorated further. Our European sales, excluding divested operations, declined by $41 million or 23 percent in the quarter.”
The earnings per diluted share for the second quarter of 2012 included 1 cent per diluted share of restructuring, exit and impairment charges, a 5 cents per share loss on early extinguishment of debt and a 3 cents per share benefit from special tax items. The earnings per diluted share for the second quarter of 2011 included a 2 cents per diluted share benefit from special tax items and a 1 cent per diluted share loss on early extinguishment of debt.
Review of Cash Flow and Balance SheetCash and marketable securities totaled $508.9 million at the end of the second quarter, up $1.1 million from year-end 2011 levels. This increase reflects the impact of net cash provided by operations and other financing activities, less net cash used for the retirement of debt and other investing activities.
Net debt (defined as total debt, less cash and marketable securities) at the end of the second quarter was $166.4 million, a decrease of $18.6 million from year-end 2011 levels. The decrease in net debt primarily reflects a $17.5 million decrease in debt levels.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $591.2 million in the second quarter of 2012, up slightly from $589.0 million in the second quarter of 2011. International sales, which represented 34 percent of total segment sales in the quarter, decreased by 9 percent. For the quarter, the Marine Engine segment reported operating earnings of $104.9 million, including restructuring charges of $0.9 million. This compares with operating earnings of $99.9 million in the second quarter of 2011, which included a $0.3 million gain from restructuring activities.
Sales were higher in the segment’s parts and accessories and outboard engine businesses in the U.S. This growth was partially offset by sales declines in its global sterndrive engine product category and non-U.S. outboard engine and parts and accessories businesses.
Lower warranty and variable compensation expense, as well as successful cost reduction activities, contributed to the increase in operating earnings in the second quarter of 2012. Partially offsetting these factors was the effect of increased investments for long-term growth and higher material costs.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 18 boat brands. The Boat segment reported net sales of $321.9 million for the second quarter of 2012, a decrease of 10 percent compared with $356.0 million in the second quarter of 2011. International sales, which represented 36 percent of total segment sales in the quarter, decreased by 26 percent during the period. For the second quarter of 2012, the Boat segment reported operating earnings of $8.4 million, including restructuring charges of $0.3 million. This compares with operating earnings of $10.1 million, which included a gain from restructuring activities of $0.1 million, in the second quarter of 2011.
Although the Company’s dealers experienced growth at retail, the Boat segment’s wholesale shipments decreased during the quarter, compared with the second quarter of 2011, as the seasonal reductions in dealer inventories were greater than the prior year. The decrease in wholesale unit shipments, including significant declines in European markets, and the absence of sales from the Sealine brand (divested on August 30, 2011) were the main factors contributing to the decline in revenues and operating earnings.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the second quarter of 2012 totaled $143.3 million, up one percent from $141.6 million in the second quarter of 2011. International sales, which represented 48 percent of total segment sales in the quarter, decreased by 7 percent. For the quarter, the Fitness segment reported operating earnings of $19.9 million. This compares with operating earnings of $19.1 million in the second quarter of 2011.
Sales increased modestly when compared with the prior year’s second quarter, as strong U.S. sales were partially offset by declines in Europe. Operating earnings increased as a result of the sales increase and lower variable compensation expense, partially offset by increased investments for long-term growth.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers, bowling equipment and products, and billiards tables and accessories. Segment sales in the second quarter of 2012 totaled $72.6 million, down 6 percent compared with $77.5 million in the prior year’s second quarter. International sales, which represented 25 percent of total segment sales in the quarter, decreased by 7 percent. For the quarter, the segment reported operating earnings of $2.4 million, compared with operating earnings of $2.5 million in the second quarter of 2011.
Revenue reductions in the quarter were a function of lower international bowling products sales, fewer retail bowling centers, and a small decline in equivalent center sales. The reduction in operating earnings in the second quarter of 2012 was the result of lower revenues, when compared with 2011, partially offset by improved operating efficiencies.
Outlook
“We anticipate continued growth in the aluminum and fiberglass outboard marine retail markets and steady fundamentals in the fitness industry,” McCoy said. “These positive trends, however, are expected to be partially offset by weak demand in fiberglass sterndrive categories. We further anticipate that sales into European markets will remain under significant pressure.
“During the second half of 2012, the successful execution of our strategic initiatives will contribute to strong operating earnings growth for the year. Additionally, we expect our net income for the year to benefit from lower net interest, depreciation and pension expenses, as well as from a lower effective tax rate and reduced restructuring charges.
“After taking all these factors into consideration, we currently expect our 2012 GAAP earnings per share to be in the range of $1.45 to $1.60 per diluted share,” McCoy concluded.
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