At Brunswick, Growing Demand for Powerboats, Rising Fitness Sales Fuel Solid Fourth Quarter

Sales reached $901.5 million in the quarter ended Dec. 31, 2013, up 9 percent from the year earlier quarter.

Consolidated U.S. sales increased by 6 percent, while sales to Europe were up 5 percent and sales to the rest of world sales were up 1 percent versus the prior year. Gross margin increased 90 basis points to its highest level in 13 years and operating margins doubled to 1.6 percent. On an adjusted basis, operating earnings increased $5.2 million, or 30 percent, from fourth quarter 2012.

 

The Marine Engine segment, which consists of the Mercury Marine Group reported net sales grew 11 percent in the U.S. reflecting continued strong outboard demand, especially for its 150-horsepower FourStroke, as well as for the Verado engine family and engines in the 75-, 90-, and 115-horsepower range. Outboard sales in Europe and rest of the world markets declined modestly, while higher P&A sales reflected new product, market share gains, and stable boating participation. CFO Bill Metzger said Attwood's MotorGuide trolling motor products, including a new, wireless trolling motor, which can be paired with a pinpoint GPS technology for precise operation, as a big contributor during the quarter. Sales of stern-drive engines declined. Operating margins improved 100 bps to 13.6 percent.

 

The Boat segment saw sales grow 17 percent in the United States, which accounts for about two-thirds of its business. The segment sells everything from Bayliner runabouts and Boston Whalers to Sea Ray sport boats and multimillion dollar Hatteras motor yachts. Dealers increased their inventory of aluminum and fiberglass outboard boats in response to strong demand. Shipments of smaller fiberglass stern-drive inboard boats more than offset reduced shipments of large fiberglass boats. Sales to Europe and the rest of the World rose 22 and 14 percent respectively with strong demand from South America. The segment cut its operating loss by 34 percent thanks to higher sales, cost cutting and lower restructuring charges.

 

Fitness segment sales grew 15 percent, buoyed by sales to U.S. health club and hospitality customers, partially offset by lower sales to local and federal government customers. Sales to Europe grew 18 percent, reflecting both improving economic conditions and improvements in distribution of Life Fitness products there. Overall, international sales grew 9 percent and now account for 45 percent of segment sales. Segment operating margins fell 290 bps to 16.9 percent as investments on growth initiatives and lower gross margin more than offset higher sales. Brunswick is investing more in Fitness on a percentage basis than any segment in a bid to thwart resurgent competitors and transform Life Fitness’s business model, said Brunswick Chairman and CEO Dustan E. McCoy.

At the Bowling & Billiards segment, revenues rose 1 percent after excluding results from European bowling centers divested in early 2013. In addition to operating bowling alleys, the segment makes bowling and billiards equipment and accessories.  Operating margins dropped 140 bps to 8.6 percent.

 

Brunswick ended the quarter and the year with cash and cash equivalents of $356.5 million and finished goods valued at $379.9 million, up 20.1 and 4.6 percent respectively.

 

In 2014, McCoy said Brunswick’s management team will shift their focus from controlling costs to investing for future growth. The company expects sales to grow 5 percent to 7 percent and adjusted pretax earnings growth of 24 percent to 30 percent. Engine and boat sales are expected for grow in the mid-single-digit range; Fitness sales in the mid-single to high-single-digit range; and Bowling and Billiards in the low-single-digit range. Gross margins are also expected to inch up despite higher spending on capital projects, R&D and SG&A aimed in large part at expanding boat production in anticipation of rising demand in 2015. Specifically, BC is working to expand production of small fiberglass boats for the day-trip market; increase production of outboard boats and shift to new fiberglass models for the 50-foot and up market. McCoy said the Marine segment could also acquire a P&A business if the right opportunity arises.

 

BC’s guidance assumes the modest recovery in the global marine market, strong growth in Fitness and stable conditions in the Bowling business will continue. 

 

“As a management team, we are enjoying all this because we have had to do a lot around cost cutting, reducing debt, etc.,” said McCoy, who had to shutter more than a dozen factories and lay off thousands of employees to keep the company afloat after credit markets froze up in 2008. “Now we are going to get what we are really paid to do, which is understand what the market needs and make investments so that we can meet the market.”