Brunswick's Q1 Revenues Dip

Brunswick Corporation reported net sales decreased 3 percent in its first quarter. Gains in its fitness segment, including Life Fitness, were offset by declines in its marine engine, boat and bowling & billiards segments.

Highlights of the quarter include:

• Net sales decreased 3 percent versus first quarter 2013.
• Gross margin was 110 basis points higher versus prior year.
• Adjusted operating earnings decreased one percent from first quarter 2013. On a GAAP basis, operating earnings were up 5 percent.
• Adjusted pretax earnings increased by 6 percent. On a GAAP basis, pretax earnings were up 14 percent.
• On a GAAP and as adjusted basis, EPS of $0.60; a $0.16 decrease compared to prior year on an as adjusted basis and a $0.01 increase on a GAAP basis. The decrease in diluted earnings per common share from continuing operations, as adjusted, reflects an increase in this year’s effective tax rate.

“Our first quarter revenues declined by 3 percent, primarily due to harsh weather conditions that have adversely affected sales activity in our Marine and Bowling & Billiards segments,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Our top line reflected growth in fitness equipment and outboard boats, which was more than offset by declines in marine engines, fiberglass sterndrive/inboard boats and in our bowling and billiards businesses.

“Our first quarter gross margin of 27.4 percent reflected an increase of 110 basis points from the prior year, with the majority of the increase coming from the Fitness and Boat segments. Operating expenses increased by 2 percent during the quarter. A slight decline in adjusted operating earnings, combined with lower net interest expense, led to a 6 percent increase in adjusted pretax earnings. This increase was more than offset by a higher effective tax rate, which resulted in our lower diluted earnings per common share, as adjusted,” McCoy said.

At the beginning of 2013, the Company announced its intention to exit its Hatteras and CABO boat businesses. On Aug. 5, 2013, the Company completed that sale. The 2013 results of these businesses are reported as discontinued operations in this release and all figures reflect continuing operations only, unless otherwise noted.

First Quarter Results

For the first quarter of 2014, the Company reported net sales of $969.2 million, down from $995.3 million a year earlier. For the quarter, the Company reported operating earnings of $94.7 million. In the first quarter of 2013, the Company had operating earnings of $89.9 million, which included $5.6 million of restructuring, exit and impairment charges.

For the first quarter of 2014, Brunswick reported net earnings from continuing operations of $57.0 million, or $0.60 per diluted share, compared with net earnings from continuing operations of $54.9 million, or $0.59 per diluted share, for the first quarter of 2013. The diluted earnings per share for the first quarter of 2013 included $0.05 per diluted share of restructuring, exit and impairment charges and a $0.12 per diluted share of unfavorable special tax items.

Review of Cash Flow and Balance Sheet

Cash and marketable securities totaled $226.8 million at the end of the first quarter, down $142.4 million from year-end 2013 levels. This decrease primarily reflects net cash used for operating activities of $108.2 million. Net cash used for operating activities was affected by changes in working capital during the quarter. These changes in working capital were largely the result of increases in accounts and notes receivable and inventory reflecting the seasonal requirements of our marine businesses, and decreases in accrued expenses, partially offset by increases in accounts payable.

Net debt (defined as total debt, less cash and marketable securities) at the end of the first quarter was $232.4 million, an increase of $141.8 million from year-end 2013 levels. The increase in net debt primarily reflects the seasonal decrease in total cash and marketable securities.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $505.1 million in the first quarter of 2014, down 3 percent from $521.8 million in the first quarter of 2013. International sales, which represented 36 percent of total segment sales in the quarter, were down 4 percent compared to the prior year. For the quarter, the Marine Engine segment reported operating earnings of $61.7 million. This compares with operating earnings of $71.5 million in the first quarter of 2013.

Sales were flat in the segment’s parts and accessories businesses, while overall engine sales declined. The absence of a prior year gain on a sale of real estate, lower revenues and increased investments for long-term growth contributed to the decrease in operating earnings in the first quarter of 2014.

Boat Segment

The Boat segment is comprised of the Brunswick Boat Group, and includes 14 boat brands. The Boat segment reported net sales of $282.8 million for the first quarter of 2014, a decrease of 2 percent compared with $289.7 million in the first quarter of 2013. International sales, which represented 35 percent of total segment sales in the quarter, increased by one percent during the period. For the first quarter of 2014, the Boat segment reported operating earnings of $8.4 million. This compares with operating earnings of $2.4 million in the first quarter of 2013, including restructuring charges of $4.9 million.

Boat segment wholesale unit shipments decreased during the quarter, compared with the first quarter of 2013, partially offset by higher average selling prices. Operating earnings benefited from lower restructuring, exit and impairment charges, successful cost reduction activities and improved net operating efficiencies. Partially offsetting these factors were lower sales and investments for long-term growth.

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 first quarter of 2014 totaled $175.6 million, up 6 percent from $166.2 million in the first quarter of 2013.

International sales, which represented 48 percent of total segment sales in the quarter, decreased by one percent. For the quarter, the Fitness segment reported operating earnings of $29.8 million. This compares with operating earnings of $24.5 million in the first quarter of 2013.

The increase in sales reflected growth in the U.S. to health clubs, local and federal governments and hospitality customers. The improvement in operating earnings was a result of higher sales combined with favorable warranty expense comparisons, partially offset by investments in growth initiatives and the absence of a favorable insurance settlement in the first quarter of 2013.

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 first quarter of 2014 totaled $78.8 million, down 8 percent compared with $85.2 million in the year-ago quarter. International sales, which represented 14 percent of total segment sales in the quarter, decreased by 35 percent. For the quarter, the segment reported operating earnings of $12.7 million, compared with operating earnings of $14.9 million in the first quarter of 2013.

Revenue decreased in the quarter as a result of lower retail center and bowling products sales. The decrease in operating earnings in the first quarter of 2014, when compared with 2013, reflects lower sales and operating inefficiencies, including higher utility expense.

2014 Outlook

"First quarter U.S. marine retail activity was below our annual expectations as a result of harsh weather conditions in important boating markets,” McCoy said. “The abnormal weather conditions and the continuing overhang these conditions caused are masking the underlying consumer demand for our boat and engine products. However, at this very early point in the marine season, our operating plans for the full-year remain fairly consistent with the planning assumptions we communicated at the outset of the year. As a result, we are reaffirming our previously stated 2014 diluted earnings per common share, as adjusted, estimated range of $2.40 to $2.55.

“Our 2014 guidance reflects 5 percent to 6 percent sales growth. Our 2014 targets and plans are based on global economic conditions that are generally comparable to 2013, with weak market demand continuing in certain regions in Europe. As a result, we expect to benefit from the continuation of the modest recovery in the global marine market, with solid growth in outboard boat and engine products, as well as in the global parts and accessories marketplace. In the fiberglass sterndrive/inboard boat category, which also affects sterndrive/inboard engine production, we are currently planning for a modestly declining market, with stability in large boats.

“We believe that our Fitness segment should continue to benefit from favorable health and fitness trends, as well as solid growth rates in global health club and hospitality businesses. These market conditions, combined with exciting new products, have positioned our Fitness business to continue to deliver excellent results and support our increased level of investment spending. Our bowling business should perform well in a stable market and will focus its efforts on providing new and innovative concepts and products to consumers and operators,” McCoy continued.

“Against the backdrop of our revenue targets, our plan reflects solid improvement in gross margin levels. Our organic growth platform will continue to benefit from increased investments in capital projects and research and development programs, along with the SG&A to support them. As a result of these ongoing initiatives, operating expenses are estimated to increase in 2014, however, on a percentage of sales basis, are expected to be at slightly lower levels than 2013.

“For the full year, we expect to generate positive free cash flow in the range of $165 million to $190 million, in spite of increasing levels of investment spending. Also, due to our strong free cash flow, combined with the debt reduction already achieved, 2014 net interest expense should be lower than 2013 by approximately $10 million to $12 million.

“Our guidance continues to reflect another year of strong growth in adjusted operating earnings, as well as adjusted pretax earnings growth of 24 percent to 30 percent,” McCoy concluded.

By press release


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