Brunswick Corporation reported consolidated net sales in the second quarter increased 8.8 percent versus second quarter 2015 and 9.1 percent growth on a constant currency basis, excluding the impact of acquisitions and sales on a constant currency basis, an increase of 5.4 percent.
On a GAAP basis, operating earnings increased by 5 percent versus the prior year. Adjusted operating earnings increased by 7 percent from 2015. On a GAAP basis, diluted EPS of $1.17 increased by 3 percent versus the second quarter of 2015. Diluted EPS, as adjusted, of $1.19 represents a 13 percent increase compared to prior year.
Year-to-date net cash from operations was $213.1 million and free cash flow was $130.3 million; both were improved versus the prior year.
“Our reported second-quarter net sales increased by 9 percent,” said Brunswick Chairman and Chief Executive Officer Mark Schwabero. “Our top line reflected strong growth rates in our fitness segment and fiberglass outboard and aluminum boats. This growth was complemented by another solid performance in marine parts and accessories and outboard engines. The growth was also supplemented by the benefits from our acquisition strategy.
“The U.S. marine market continues to reflect solid fundamentals and growth, which are supported by stable boating participation, favorable replacement cycle dynamics and innovative products being introduced throughout the marketplace,” stated Schwabero. “Our product successes in both our engine and boat segments have enabled continued market share gains and mix benefits.”
“In addition, our fitness business continues to benefit from solid demand, particularly in the global health club and hospitality markets. This foundational core growth, combined with favorable trends in the rehabilitation and active aging category, as well as increased participation in group exercise activities, is providing a healthy marketplace in which to execute our fitness strategy. We are making outstanding progress integrating Cybex into our fitness segment and remain on plan to achieve our near-term and long-term financial objectives for this acquisition,” Schwabero said.
“Our consolidated, adjusted operating earnings increased by 7 percent compared to the prior year’s quarter. The improvement in operating earnings, combined with a lower effective tax rate, as adjusted, and fewer shares outstanding, led to a 13 percent increase in diluted earnings per common share, as adjusted,” Schwabero concluded.
Discontinued Operations
On May 22, 2015, the company completed the sale of its bowling products business. The results of this business are reported as discontinued operations. For all periods presented in this release, all figures and outlook statements incorporate this change and reflect continuing operations only, unless otherwise noted.
Second Quarter Results
For the second quarter of 2016, the company reported net sales of $1,242.2 million, up from $1,142.0 million a year earlier. For the quarter, the company reported operating earnings of $161.9 million, which included $2.6 million of restructuring and integration charges related to the Cybex acquisition. This compares with operating earnings of $154.2 million in the second quarter of 2015. For the second quarter of 2016, Brunswick reported net earnings of $108.1 million, or $1.17 per diluted share, compared with net earnings of $107.6 million, or $1.14 per diluted share, for the second quarter of 2015. Diluted EPS for the second quarter of 2016 included $0.02 per diluted share of restructuring and integration charges, compared with a $0.09 per diluted share benefit related to special tax items in the second quarter of 2015.
Review of Cash Flow and Balance Sheet
Cash and marketable securities totaled $493.3 million at the end of the second quarter, down $175.5 million from year-end 2015 levels. This decline is due primarily to cash used for acquisitions. Net cash provided by operating activities during the first six months of the year was $213.1 million, an increase of $104.3 million versus the prior year. This improvement was the result of reduced working capital usage and lower pension contributions. Investing and financing activities during the first six months lowered cash and marketable securities balances and included $215.9 million for acquisitions, $90.0 million for capital expenditures, $60.0 million of common stock repurchases and $27.2 million of dividend payments.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $719.7 million in the second quarter of 2016, up 4 percent from $689.2 million in the second quarter of 2015. International sales, which represented 29 percent of total segment sales in the quarter, were up 2 percent compared to the prior year period. On a constant currency basis, international sales were up 4 percent. For the quarter, the Marine Engine segment reported operating earnings of $139.0 million. This compares with operating earnings of $131.8 million in the second quarter of 2015.
Sales increases in the quarter were led by Mercury’s parts and accessories businesses and the segment’s outboard engine business, partially offset by declines in the sterndrive engine business. Higher revenues and cost reductions contributed to the increase in operating earnings in the second quarter of 2016. Partially offsetting these positive factors were the unfavorable impacts from foreign exchange and planned increases in growth investments.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 15 boat brands. The Boat segment reported net sales of $368.1 million for the second quarter of 2016, an increase of 5 percent compared with $349.3 million in the second quarter of 2015. International sales, which represented 27 percent of total segment sales in the quarter, decreased by 5 percent compared to the prior-year period. On a constant currency basis, international sales were down 4 percent. For the second quarter of 2016, the Boat segment reported operating earnings of $22.7 million. This compares with operating earnings of $20.9 million in the second quarter of 2015.
The Boat segment’s increased revenue reflected strong growth in fiberglass outboard and aluminum boats, partially offset by declines in sterndrive/inboard boats. Operating earnings benefited from higher sales and lower commodity costs and savings from sourcing initiatives, partially offset by the impact of lower sales volume of large sterndrive/inboard boats.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which designs, manufactures and sells strength and cardiovascular fitness equipment and active recreation products. Fitness segment sales in the second quarter of 2016 totaled $229.8 million, up 32 percent from $173.8 million in the second quarter of 2015. International sales, which represented 44 percent of total segment sales in the quarter, increased by 19 percent. On a constant currency basis, international sales were also up 19 percent. Excluding the impact of acquisitions, Fitness segment sales on a constant currency basis in the quarter increased by 12 percent compared to the prior year. For the quarter, the Fitness segment reported operating earnings of $24.1 million, including restructuring and integration charges of $2.6 million. This compares with operating earnings of $23.2 million in the second quarter of 2015.
The increase in revenue reflected the benefit of acquisitions and strong growth in the U.S. at health clubs and local and federal governments, along with growth in Europe and Asia. The increase in operating earnings included benefits from higher sales, partially offset by increased investment in growth initiatives, an unfavorable impact from sales mix and restructuring and integration costs associated with the Cybex acquisition.
2016 Outlook
“Our outlook for 2016 continues to reflect another year of outstanding earnings growth, with excellent cash flow generation,” said Schwabero. “We believe we are well-positioned to generate strong sales growth and adjusted earnings per share growth at a mid-to-high-teen percent rate throughout our three-year plan.
“We expect our businesses’ top-line performance for the year will benefit from the continuation of solid market growth in the U.S. and Europe and the success of our new products, partially offset by weakness in certain other international markets and the negative impact of a stronger U.S. dollar. As a result, our plan including acquisitions reflects revenue growth rates in 2016 to be in the range of 10 to 11 percent, absent any significant changes in our global macroeconomic assumptions. In total, acquisitions are expected to account for about 5 percent of 2016’s projected sales growth, reflecting the impact of announced transactions in 2015 and 2016.
“For the full year, we anticipate a slight improvement in both gross margins and operating margins, as we plan to continue benefiting from volume leverage, cost reductions and savings related to sourcing initiatives and a modestly positive product mix, partially offset by incremental investments to support growth as well as unfavorable foreign currency. Operating expenses are projected to increase in 2016; however, on a percentage of sales basis, are expected to be at slightly lower levels than 2015,” Schwabero said.
“We are maintaining the range for our full-year expectations of diluted EPS, as adjusted, of $3.40 to $3.50. Finally, for 2016, we expect to generate positive free cash flow in excess of $200 million,” Schwabero concluded.