Brunswick Reports Third Quarter Results
Higher Revenue and Improved Operating Earnings;
Debt Reduced to Lowest Level in More Than 7 Years;
Earnings Guidance Range of $0.65 to $0.75
LAKE FOREST, Ill., Oct. 27, 2011 -- Brunswick Corporation (NYSE: BC) today reported results for the third quarter of 2011:
Net sales of $876.7 million, up 8 percent versus third quarter 2010.
Operating earnings improved by $10.4 million from third quarter 2010.
Net earnings of $0.05 per diluted share versus net loss of $0.08 per diluted share in the prior year. Excluding restructuring charges, loss on early extinguishment of debt and special tax items in 2011 and 2010, net earnings were $0.33 per diluted share and $0.07 per diluted share, respectively.
Cash and marketable securities of $546.7 million; debt reduced by $84 million during the third quarter of 2011.
Our third quarter results reflected higher shipments of engines and boats that were supported by solid retail growth experienced at our dealers, said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. Our Life Fitness segment continued its outstanding performance during 2011 by generating significant growth in the quarter. On a consolidated basis, our year-to-date operating leverage continues to be strong and at targeted levels. Finally, our third quarter and nine-month operating earnings achieved their highest levels since 2006.
Third Quarter Results
For the third quarter of 2011, the Company reported net sales of $876.7 million, up from $815.4 million a year earlier. For the quarter, the Company reported operating earnings of $35.6 million, which included restructuring and exit charges of $13.2 million. In the third quarter of 2010, the Company had operating earnings of $25.2 million, which included $12.2 million of restructuring, exit and impairment charges.
For the third quarter of 2011, Brunswick reported net earnings of $4.7 million, or $0.05 per diluted share, compared with a net loss of $7.2 million, or $0.08 loss per diluted share, for the third quarter of 2010. The diluted earnings per share for the third quarter of 2011 included restructuring and exit charges of $0.14 per diluted share, loss on early extinguishment of debt of $0.13 per diluted share and a $0.01 per diluted share expense from special tax items. The earnings per diluted share for the third quarter of 2010 included $0.14 per diluted share of restructuring, exit and impairment charges and a $0.01 per diluted share loss on early extinguishment of debt.
The factors that positively affected our revenues and earnings in the third quarter of 2011, compared to the previous year, included higher sales levels reflecting market share gains in our continuing marine businesses, as well as in our Fitness and Bowling & Billiards segments, combined with companywide fixed-cost reductions. Partially offsetting these factors were higher variable compensation expense and losses on early extinguishment of debt, McCoy said.
Review of Cash Flow and Balance Sheet
Cash and marketable securities totaled $546.7 million at the end of the third quarter, down $110.4 million from year-end 2010 levels. This decrease primarily reflects the impact of $145.0 million of cash used towards the Companys previously stated objective of reducing debt. Partially offsetting this use of cash was net cash provided by operating activities of $81.2 million. Net cash provided by operating activities was unfavorably affected by changes in non-cash working capital during the first nine months of 2011.
Net debt (defined as total debt, less cash and marketable securities) was $156.6 million, down $16.9 million from year-end 2010 levels. The decrease in net debt reflects a $127.3 million reduction in total debt, partially offset by a $110.4 million decrease in total cash and marketable securities. The Companys total liquidity (defined as cash and marketable securities, plus amounts available under its asset-based revolving credit facility) was $790 million.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $467.2 million in the third quarter of 2011, up 9 percent from $429.2 million in the third quarter of 2010. International sales, which represented 39 percent of total segment sales in the quarter, increased by 12 percent. For the quarter, the Marine Engine segment reported operating earnings of $44.5 million, which included $4.2 million of restructuring charges. This compares with operating earnings of $49.0 million in the third quarter of 2010, which included $1.7 million of restructuring charges.
The segments outboard engine product category experienced the greatest percentage sales growth during the quarter. The decline in operating earnings reflects higher material costs, a less favorable product mix, higher variable compensation costs and restructuring charges, as well as an increase in research and development spending. Partially offsetting these factors were benefits from higher sales and cost reductions.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 15 boat brands. The Boat segment reported net sales of $209.2 million for the third quarter of 2011, equal to the $209.2 million reported in the third quarter of 2010. International sales, which represented 29 percent of total segment sales in the quarter, decreased by 16 percent during the period. For the third quarter of 2011, the Boat segment reported an operating loss of $17.9 million, including restructuring charges of $8.7 million. This compares with an operating loss of $26.3 million, including restructuring charges of $10.2 million, in the third quarter of 2010.
Boat segment production and wholesale unit shipments increased during the quarter, compared with the third quarter of 2010, in response to solid retail demand for Brunswicks boat brands. Revenue growth from the increase in wholesale unit shipments was partially offset by the timing of the sale of its Sealine brand on Aug. 31, 2011, which resulted in only a partial recognition of third quarter 2011 sales for Sealine, versus a full quarter of sales included in 2010. A greater sales mix of smaller boats and lower sales to non-U.S. markets also had a negative effect on sales during the quarter. Increased fixed-cost absorption and cost reductions had a positive effect on the segments improved quarterly results.
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 2011 totaled $157.2 million, up 14 percent from $137.7 million in the third quarter of 2010. International sales, which represented 49 percent of total segment sales in the quarter, decreased by one percent. For the quarter, the Fitness segment reported operating earnings of $22.6 million. This compares with operating earnings of $17.0 million in the third quarter of 2010.
U.S. commercial sales increased during the quarter, compared with the third quarter of 2010, reflecting sales growth in all of the segments major distribution channels. Improved operating earnings in the third quarter of 2011 resulted from higher sales and a more favorable product mix, partially offset by higher freight costs.
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 2011 totaled $79.5 million, up 7 percent from $74.6 million in the year-ago quarter. International sales, which represented 25 percent of total segment sales in the quarter, increased by one percent. For the quarter, the segment reported operating earnings of $1.8 million. This compares with break-even operating results in 2010.
For the quarter, bowling products experienced a strong increase in sales, while equivalent-center sales for retail bowling were flat. The improvement in operating earnings in the third quarter of 2011, when compared with 2010, reflects the increase in sales and improved operating efficiencies.
See Brunswicks Website for Supplemental Charts:
http://www.brunswick.com/investors/investorinformation/events-presentations.php
Outlook
For the first nine months of 2011, we have successfully executed our core strategy of generating free cash flow, performing better than the market and demonstrating outstanding operating leverage, McCoy said.
The marine retail market for 2011 is unfolding generally as we expected, with the aluminum and fiberglass outboard boat markets experiencing solid growth and the fiberglass sterndrive boat markets continuing to decline, albeit at a more moderate pace.
As we enter the final quarter of 2011, we will continue to focus on this core strategy as well as pursue various operational and financial strategic initiatives that should enable us to continue to deliver future revenue and earnings growth. We will continue to position our marine products to give our dealers and distributors an opportunity to gain market share.
In addition, we believe our Fitness and Bowling & Billiards businesses can continue to benefit from their market-leading positions and overall operating strengths to deliver strong earnings and cash flow.
For the year, net income will benefit from our previously announced marine plant consolidations and asset sales, lower restructuring costs, reductions in interest, depreciation and pension expenses, as well as from lower tax expense. After taking all these factors into consideration, we currently expect our 2011 earnings per share to be in the range of $0.65 per share to $0.75 per share.
As we look forward to 2012, we continue to believe that the global economic and marine market outlook will remain challenging. As a result, our entire organization is focused on maintaining its favorable cost position and generating continued revenue and earnings growth through a focus on organic growth initiatives. We further believe that our 2012 net income will benefit from our announced marine cost reduction activities, lower restructuring costs and a reduction in interest expense, 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, 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 www.brunswick.com. To listen to the call, please go to the website at least 15 minutes before the call to register, download and install any needed audio software. Security analysts and investors wishing to participate via telephone should call (866) 277-1184 (passcode: Brunswick Q3). Callers outside of North America should call (617) 597-5360 (passcode: Brunswick Q3) 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, Nov. 3, 2011, by calling (888) 286-8010 (passcode: 70804514) or international dial (617) 801-6888 (passcode: 70804514). 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 Brunswicks business. 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 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 risk of losing a key account or a critical supplier; the ability to successfully manage pipeline inventories and respond to any excess supply of repossessed and aged boats in the market; credit and collection risks, including the potential obligation to repurchase dealer inventory; the ability of dealers and customers to secure adequate access to financing and the Companys ability to access capital and credit markets; the need to meet pension funding obligations; the ability to respond to and minimize the negative financial impact of legislative and regulatory developments, including those related to environmental restrictions, climate change, taxes and employee benefits; the strength and protection of the Companys 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; competitive pricing pressures, including the impact of inflation and increased competition from Asian competitors; competition from new technologies; 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 higher energy and logistics costs, interest rates and fuel prices on the Companys results; 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 sale of products; the ability to maintain product quality and service standards expected by customers; the ability to maintain market share, particularly in high-margin products; the ability to respond to the need for increased manufacturing levels and meet production targets within time and budgets allowed; fluctuations in the Companys stock price due to external factors; negative currency trends, including shifts in exchange rates; 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 Companys information technology systems, including the continued use of legacy systems and the risk of a failure of or attacks on the Companys information systems, which could result in data security breaches, lost or stolen assets or information, and associated remediation costs.
Additional factors are included in the Companys Annual Report on Form 10-K for 2010 and its Quarterly Report on Form 10-Q for the quarter ended July 2, 2011. 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.