Strong Gross Margin Improvement with Modest Revenue Growth
LAKE FOREST, Ill., October 25, 2012 — Brunswick Corporation (NYSE: BC) today reported results for the third quarter of 2012:
Adjusted net earnings of $0.43 per diluted share, which excludes restructuring items, debt extinguishment losses and special tax items – - a $0.10 increase versus the same period of 2011. On a GAAP basis, net earnings of $0.02 per diluted share – - a $0.03 decrease from prior year.
- Net sales increased one percent from prior year.
- Gross margins increased 310 basis points versus third quarter 2011.
- Adjusted operating earnings, excluding restructuring and impairment items, increased by 35 percent from prior year. On a GAAP basis, operating earnings increased by 5 percent.
A reconciliation of GAAP to non-GAAP financial measures is provided in the supplemental information sections of the consolidated financial statements accompanying this release.
“We continue to successfully execute our business strategy despite challenging global economic conditions,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Despite a 19 percent reduction in sales from Europe, the Company
experienced slight revenue growth. Further, excluding restructuring
items, debt extinguishment losses and special tax items, our gross
profit, operating earnings and net earnings per share each increased by
double-digit percentages versus the third quarter of 2011.”
Third Quarter Results
For the third quarter of 2012, the Company reported net sales of $884.8 million, up from $876.7 million a year earlier. For the quarter, the Company reported operating earnings of $37.5 million, which included $28.2 million of restructuring, exit and impairment charges. In the third quarter of 2011, the Company had operating earnings of $35.6 million, which included $13.2 million of restructuring, exit and impairment charges.
For the third quarter of 2012, Brunswick reported net earnings of $2.0 million, or $0.02 per diluted share, compared with $4.7 million, or $0.05 per diluted share, for the third quarter of 2011. The earnings per diluted share for the third quarter of 2012 included $0.31 per diluted share of restructuring, exit and impairment charges, an $0.08 per diluted share loss on early extinguishment of debt and a $0.02 per diluted share charge from special tax items. The earnings per diluted share for the third quarter of 2011 included $0.14 per diluted share of restructuring, exit and impairment charges, a $0.13 per diluted share loss on early extinguishment of debt and a $0.01 per diluted share charge from special tax items.
Review of Cash Flow and Balance Sheet
Cash and marketable securities totaled $455.4 million at the end of the third quarter, down $52.4 million from year-end 2011 levels. This decrease primarily reflects the impact of net cash used for the retirement of debt, partially offset by approximately $60 million of positive free cash flow.
Net debt (defined as total debt, less cash and marketable securities)
at the end of the third quarter was $142.3 million, a decrease of $42.7 million from year-end 2011 levels. The decrease in net debt reflects a
$95.1 million reduction 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 $503.5 million in the third quarter of 2012, up 11 percent from $455.6 million in the third quarter of 2011. International sales, which represented 34 percent of total segment sales in the quarter, decreased by 2 percent. For the quarter, the Marine Engine segment reported operating earnings of $74.5 million, including restructuring charges of $0.4 million. This compares with operating earnings of $52.9 million in the third quarter of 2011, which included restructuring charges of $4.2 million.
Sales were higher in the segment’s outboard engine and parts and accessories businesses. This growth was partially offset by sales declines in its sterndrive engine product category.
Higher sales and engine production, a decrease in restructuring charges, as well as successful cost reduction activities contributed to the increase in operating earnings in the third quarter of 2012. Partially offsetting these factors was the effect of increased investments for long-term growth.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 18 boat brands. The Boat segment reported net sales of $205.8 million for the third quarter of 2012, a decrease of 7 percent compared with $221.1 million in the third quarter of 2011. Excluding divested brands, third quarter net sales decreased by 5 percent compared to the prior year. International sales, which represented 34 percent of total segment sales in the quarter, decreased by 2 percent during the period. Excluding divested brands, third quarter international sales increased by 6 percent compared to the prior year.
For the third quarter of 2012, the Boat segment reported an operating
loss of $43.5 million, including restructuring and impairment charges
of $27.7 million. This compares with an operating loss of $21.2 million,
which included restructuring charges of $8.7 million, in the third
quarter of 2011.
The Boat segment’s wholesale shipments were up slightly versus the prior year quarter, which was less than the 5 percent increase in retail demand. The increase in wholesale shipments reflected strong growth in demand for aluminum and outboard powered fiberglass products, which was mostly offset by continued weakness in fiberglass sterndrive boat products. The revenue effect of this shift in boat mix, along with the impact of weak 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 the segment’s sales.
Lower sales, combined with higher restructuring from consolidation actions and impairment charges primarily associated with certain fiberglass brands, contributed to the higher operating losses reported in the quarter versus prior year.
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 third quarter of 2012 totaled $151.9 million, down 3 percent from $157.2 million in the third quarter of 2011. International sales, which represented 48 percent of total segment sales in the quarter, decreased by 4 percent. For the quarter, the Fitness segment reported operating earnings of $23.1 million. This compares with operating earnings of $22.6 million in the third quarter of 2011.
Sales decreased modestly when compared with the prior year’s third quarter. Higher sales to North American health club customers and stronger U.S. consumer sales were more than offset by declines in other U.S. distribution channels and in markets outside of North America. Operating earnings were up modestly as a result of improved operating efficiencies, partially offset by lower sales.
The Boat segment’s wholesale shipments were up slightly versus the prior year quarter, which was less than the 5 percent increase in retail demand. The increase in wholesale shipments reflected strong growth in demand for aluminum and outboard powered fiberglass products, which was mostly offset by continued weakness in fiberglass sterndrive boat products. The revenue effect of this shift in boat mix, along with the impact of weak 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 the segment’s sales.
Lower sales, combined with higher restructuring from consolidation actions and impairment charges primarily associated with certain fiberglass brands, contributed to the higher operating losses reported in the quarter versus prior year.
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 third quarter of 2012 totaled $151.9 million, down 3 percent from $157.2 million in the third quarter of 2011. International sales, which represented 48 percent of total segment sales in the quarter, decreased by 4 percent. For the quarter, the Fitness segment reported operating earnings of $23.1 million. This compares with operating earnings of $22.6 million in the third quarter of 2011.
Sales decreased modestly when compared with the prior year’s third quarter. Higher sales to North American health club customers and stronger U.S. consumer sales were more than offset by declines in other U.S. distribution channels and in markets outside of North America. Operating earnings were up modestly as a result of improved operating efficiencies, partially offset by lower sales.
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 third quarter of 2012 totaled $74.5 million, down 6 percent compared with $79.5 million in the prior year’s third quarter. International sales, which represented 21 percent of total segment sales in the quarter, decreased by 19 percent. For the quarter, the segment reported operating earnings of $3.2 million, compared with operating earnings of $2.8 million in the third quarter of 2011.
Revenue reductions in the quarter were a function of lower sales in international bowling products and European retail bowling centers, as well as operating fewer U.S. retail bowling centers. These factors were partially offset by an increase in U.S. equivalent retail center sales. The increase in operating earnings in the third quarter of 2012 was the result of improved operating efficiencies, partially offset by lower revenues, when compared with 2011.
Outlook
“In the fourth quarter, we anticipate that our end-markets will reflect mixed demand trends comparable to those experienced thus far in 2012, both from a product line and geographical perspective,” McCoy said. “As we continue to execute our strategic growth initiatives, as well as focus on cost reductions and operating efficiencies throughout our organization, we expect to be able to demonstrate improved sales and operating earnings during the final quarter of the year as compared to 2011, resulting in strong full-year earnings growth.
“After taking all these factors into consideration, we currently
expect our 2012 diluted earnings per common share, as adjusted, to be in
the range of $1.65 to $1.75, which is equivalent to $1.08 to $1.18 on a
GAAP basis,” concluded McCoy. The diluted earnings per common share
estimate, on a GAAP basis, includes $0.57 of restructuring items, debt
extinguishment losses and special tax items. The Company’s previous
estimate of full-year diluted earnings per common share on a GAAP basis
was $1.45 to $1.60, which is equivalent to $1.60 to $1.75, as adjusted.
Conference Call Scheduled
Brunswick will host a conference call today at 10 a.m. CDT, hosted by Dustan E. McCoy, chairman and chief executive officer, Peter B. Hamilton, senior vice president and chief financial officer, and Bruce J. Byots, vice president – corporate and investor relations.
The call will be broadcast over the Internet at Hwww.brunswick.comH. To listen to the call, go to the website at least 15 minutes before the call to register, download and install any needed audio software.
See Brunswick’s website for slides used to supplement conference call remarks at www.brunswick.com/investors/investorinformation/events-presentations.php
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