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.
Boat Segment
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.
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 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.
2013 Outlook
“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 .
Forward-Looking Statements
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.
About Brunswick
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.
Bypress release
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