2013 Guidance: EPS from Continuing Operations, as Adjusted, Increased to $2.55 to $2.65
Brunswick Corporation (NYSE: BC) today reported results for the second quarter of 2013:
Net sales increased 4 percent versus second quarter 2012.
Gross margin was 60 basis points higher versus prior year.
Adjusted operating earnings increased 12 percent from second quarter 2012. On a GAAP basis, operating earnings up 9 percent.
Diluted earnings per common share from continuing operations, as adjusted, of $1.23; a $0.19 increase versus the same period of 2012. On a GAAP basis, $0.85 per diluted share, a $0.17 decrease from prior year.
“Our second quarter results reflected solid top-line growth combined with improvements in operating and net earnings, as adjusted,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Revenue growth in the quarter was led by outboard marine products, marine parts and accessories, fitness equipment, and U.S. retail bowling, partially offset by declines in fiberglass sterndrive/inboard boats and in our bowling products business.
“Our second quarter gross margin of 27.5 percent reflected an increase of 60 basis points from the prior year. Operating expenses increased by 2 percent, due to higher research and development expense primarily associated with company-wide investments in growth initiatives. Lower net interest expense and a reduced effective tax rate (excluding the impact of restructuring charges, losses on early extinguishment of debt and special tax items) during the quarter also contributed to our higher diluted earnings per common share, as adjusted,” McCoy said.
On Jan. 3, 2013, the Company announced its intention to exit its Hatteras and CABO boat businesses. As a result, these businesses continue to be reported as discontinued operations for all periods presented in this release and all figures reflect continuing operations only, unless otherwise noted.
A reconciliation of GAAP to non-GAAP financial measures is provided in the supplemental information sections of the consolidated financial statements accompanying this release.
Second Quarter Results
For the second quarter of 2013, the Company reported net sales of $1,098.3 million, up from $1,053.9 million a year earlier. For the quarter, the Company reported operating earnings of $136.7 million, which included $4.0 million of restructuring, exit and impairment charges. In the second quarter of 2012, the Company had operating earnings of $125.1 million, which included $0.8 million of restructuring, exit and impairment charges.
For the second quarter of 2013, Brunswick reported net earnings from continuing operations of $79.3 million, or $0.85 per diluted share, compared with net earnings from continuing operations of $94.0 million, or $1.02 per diluted share, for the second quarter of 2012. The diluted earnings per share for the second quarter of 2013 included $0.04 per diluted share of restructuring, exit and impairment charges, $0.32 of losses on early extinguishment of debt and a $0.02 per diluted share charge from special tax items. The diluted earnings per share for the second quarter of 2012 included $0.05 per diluted share of losses on early extinguishment of debt and a $0.03 per diluted share benefit from special tax items.
Review of Cash Flow and Balance Sheet
Cash and marketable securities totaled $330.2 million at the end of the second quarter, down $98.5 million from year-end 2012 levels. This decrease primarily reflects net cash used for financing activities of $124.9 million. During the second quarter of 2013, the Company redeemed approximately $250 million of its 11.25 percent Senior Secured Notes due in 2016. The retirement of these notes was funded using the combination of the proceeds from the issuance of $150 million of 4.625 percent Senior Notes due 2021 and cash and marketable securities.
Net debt (defined as total debt, less cash and marketable securities) at the end of the second quarter was $142.2 million, a decrease of $0.9 million from year-end 2012 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 $631.7 million in the second quarter of 2013, up 7 percent from $591.2 million in the second quarter of 2012. International sales, which represented 33 percent of total segment sales in the quarter, increased by 3 percent. For the quarter, the Marine Engine segment reported operating earnings of $119.4 million. This compares with operating earnings of $104.9 million in the second quarter of 2012, which included $0.9 million of restructuring charges.
Sales increases in the quarter were led by the segment’s outboard and parts and accessories businesses. Higher sales, a favorable product mix, improved cost and operating efficiencies and a decrease in restructuring charges contributed to the increase in operating earnings in the second quarter of 2013. Partially offsetting these favorable factors were the effects of increased investments for long-term growth and higher warranty expense due to a more favorable warranty adjustment in the prior year period.
The Boat segment is comprised of the Brunswick Boat Group, and includes 15 boat brands. The Boat segment reported net sales of $310.9 million for the second quarter of 2013, an increase of one percent compared with $308.7 million in the second quarter of 2012. International sales, which represented 37 percent of total segment sales in the quarter, increased by 2 percent during the period. For the second quarter of 2013, the Boat segment reported operating earnings of $14.6 million, including restructuring charges of $2.5 million. This compares with operating earnings of $18.7 million in the second quarter of 2012, including restructuring charges of $0.1 million.
The slight increase in sales reflected growth in outboard boats, almost entirely offset by declines in the segment’s fiberglass sterndrive/inboard boat categories. Higher restructuring, exit and impairment charges, increased investments for long-term growth and the absence of second quarter 2012 favorable legal and insurance settlements had a negative effect on the segment’s quarterly operating earnings. Partially offsetting these factors were the benefits from successful cost reduction activities.
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 2013 totaled $150.8 million, up 5 percent from $143.3 million in the second quarter of 2012. International sales, which represented 51 percent of total segment sales in the quarter, increased by 10 percent. For the quarter, the Fitness segment reported operating earnings of $20.8 million. This compares with operating earnings of $19.9 million in the second quarter of 2012.
The increase in sales reflected gains in international markets and growth to U.S. health club and hospitality customers. The increase in operating earnings in the second quarter of 2013, when compared with 2012, reflects the benefit from higher sales, partially offset by investments in growth initiatives.
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 2013 totaled $71.0 million, down 2 percent compared with $72.6 million in the year-ago quarter. International sales, which represented 20 percent of total segment sales in the quarter, decreased by 21 percent. For the quarter, the segment reported operating earnings of $1.6 million, including restructuring charges of $1.5 million. This compares with operating earnings of $2.4 million in the second quarter of 2012.
Sales decreased in the quarter as a result of lower bowling products sales and a reduced retail center count. Partially offsetting these declines was an increase in U.S. equivalent retail center sales. The decrease in operating earnings in the second quarter of 2013, when compared with 2012, was due to higher restructuring charges and lower sales, partially offset by higher retail bowling operating margins.
“Notwithstanding the uneven marine market conditions, we are increasing our expectation for 2013 diluted earnings per share from continuing operations, as adjusted, to a range of $2.55 to $2.65 per diluted share,” McCoy said. “This reflects our solid performance in the first half of the year, a favorable outcome to the recent debt refinancing activity and a lower-than-anticipated tax rate.
“Our operating plans for the remainder of the year reflect a continuation of the uneven recovery in the U.S. powerboat market, with outboard boat and engine products and Brunswick Corporation global parts and accessories businesses, which have performed well in the first half, generating solid growth. Our assumptions continue to reflect weak market conditions, as well as further pipeline reductions in the fiberglass sterndrive/inboard boat categories, which will affect both fiberglass boat and sterndrive engine sales and production.
“Positive health and wellness trends, combined with exciting new products, have positioned our fitness business to continue its strong top-line performance and deliver excellent results again in 2013, and our bowling business should further benefit from operating enhancements and capitalizing on its competitive advantages.
“We are now targeting approximately a 4 percent growth rate in overall revenue in 2013, consistent with our first half performance. Our current plan reflects a solid improvement in gross margin levels for the year. Our organic growth platform will benefit from increased 2013 investments in capital projects and research and development programs, along with the SG&A to support them. As a result of these initiatives, full-year operating expenses, as a percentage of sales, are expected to be comparable to 2012 levels.
“For the full-year, we expect to generate positive free cash flow generally consistent with prior year performance, and due to the successful execution of our debt reduction plan, 2013 net interest expense should be lower than 2012 by approximately $23 million,” McCoy concluded.
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, William L. Metzger, 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
Security analysts and investors wishing to participate via telephone should call (866) 318-8613 (passcode: Brunswick Q2). Callers outside of North America should call (617) 399-5132 (passcode: Brunswick Q2) to be connected. These numbers can be accessed 15 minutes before the call begins, as well as during the call. A replay of the conference call will be available through midnight CDT Thursday, Aug. 1, 2013, by calling (888) 286-8010 or international dial (617) 801-6888 (passcode: 61680824). The replay will also be available at www.brunswick.com .
Certain statements in this news release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about Brunswick’s business. Forward-looking statements by their nature address matters that are, to different degrees, uncertain and often contain words such as “may”, “could”, “expect”, “intend”, “plan”, “seek”, “estimate”, “believe”, “predict”, “potential” or “continue”. These statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this news release. These risks include, but are not limited to: the effect of adverse general economic conditions, including the amount of disposable income available to consumers for discretionary purchases, tight consumer credit markets, and the level of consumer confidence on the demand for marine, fitness, billiards and bowling equipment, products and services; the ability of dealers and customers to secure adequate access to financing and the Company’s ability to access capital and credit markets; the ability to maintain strong relationships with dealers, distributors and independent boat builders; the ability to maintain effective distribution and develop alternative distribution channels without disrupting incumbent distribution partners; the ability to successfully manage pipeline inventories and respond to any excess supply of repossessed and aged boats in the market; credit and collections risks, including the potential obligation to repurchase dealer inventory; the risk of losing a key account or a critical supplier; the strength and protection of the Company’s brands and other intellectual property; the ability to spread fixed costs while establishing a smaller manufacturing footprint; the ability to successfully complete restructuring efforts in accordance with projected timeframes and costs; the ability to obtain components, parts and raw materials from suppliers in a timely manner and for a reasonable price; the need to meet pension funding obligations; the effect of higher energy and logistics costs, interest rates and fuel prices on the Company’s results; competitive pricing pressures, including the impact of inflation and increased competition from Asian competitors; the ability to develop new and innovative products in response to changing retail demands and expectations that are differentiated for the global marketplace at a competitive price and in compliance with applicable laws; the effect of competition from other leisure pursuits on the level of participation in boating, fitness, bowling and billiards activities; the risk of product liability, warranty and other claims in connection with the manufacture and sale of products; the ability to respond to and minimize the negative financial impact of legislative and regulatory developments, including those related to environmental restrictions, climate change, healthcare costs, taxes and employee benefits; the ability to maintain market share, particularly in high-margin products; fluctuations in the Company’s stock price due to external factors; the ability to maintain product quality and service standards expected by customers; the ability to increase manufacturing operations and meet production targets within time and budgets allowed; negative currency trends, including shifts in exchange rates; competition from new technologies; the ability to complete environmental remediation efforts and resolve claims and litigation at the cost estimated; the uncertainty and risks of doing business in international locations, including international political instability, civil unrest and other risks associated with operations in emerging markets; the risk of having to record an impairment to the value of goodwill and other assets; the effect that catastrophic events may have on consumer demand and the ability to manufacture products, including hurricanes, floods, earthquakes, and environmental spills; the effect of weather conditions on demand for marine products and retail bowling center revenues; the risk of losing individuals who are key contributors to the organization; and risks associated with the Company’s information technology systems, including the continued use of legacy systems and the risk of a failure of or attacks on the Company’s information systems, which could result in data security breaches, lost or stolen assets or information, and associated remediation costs.
Additional risk factors are included in the Company’s Annual Report on Form 10-K for 2012. Such forward-looking statements speak only as of the date on which they are made and Brunswick does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this news release, or for changes made to this document by wire services or Internet service providers.
Headquartered in Lake Forest, Ill., Brunswick Corporation endeavors to instill "Genuine Ingenuity"(TM) in all its leading consumer brands, including Mercury and Mariner outboard engines; Mercury MerCruiser sterndrives and inboard engines; MotorGuide trolling motors; Attwood marine parts and accessories; Land 'N' Sea, Kellogg Marine, and Diversified Marine parts and accessories distributors; Bayliner, Boston Whaler, Brunswick Commercial and Government Products, Crestliner, Cypress Cay, Harris FloteBote, Lowe, Lund, Meridian, Brunswick Corporation, Princecraft, Quicksilver, Rayglass, Sea Ray, Uttern and Valiant boats; Life Fitness and Hammer Strength fitness equipment; Brunswick bowling centers, equipment and consumer products; Brunswick billiards tables and table tennis.
For more information, visit http://www.brunswick.com.