Brunswick Corp. Q1 Revenues Jump 17 Percent

Brunswick Corporation reported first-quarter revenues climbed 17 percent to $985.9 million, led by gains in its Marine Engine and Life Fitness segments. Net earnings reached $27.5 million, or 31 cents a share, against a loss of $13 million, or 15 cents, a year ago.

“Our first quarter results reflected higher marine wholesale shipments compared to the prior year, together with outstanding operating leverage achieved by our operating businesses,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Shipments into our dealer pipeline continue to be consistent with our strategy to closely match wholesale and retail demand units on an annual basis.  The higher quarterly wholesale shipments reflect our plan that retail demand in 2011 will be stable, compared to the declining market in 2010, as well as our plan to ensure that our dealers have the appropriate levels of inventory to meet early season demand.

“Our Marine Engine segment performed well across its entire product offering, including its parts and accessories business. In addition, our Life Fitness segment experienced strong revenue and earnings growth in the quarter.”

First Quarter Results

For the first quarter of 2011, the company reported net sales of $985.9 million, up from $844.4 million a year earlier.  For the quarter, the Company reported operating earnings of $67.0 million, which included $5.3 million of restructuring, exit and impairment charges.  In the first quarter of 2010, the company had operating earnings of $10.1 million, which included $7.4 million of restructuring and impairment charges. 

For the first quarter of 2011, Brunswick reported net earnings of $27.5 million, or 30 cents per diluted share, compared with a net loss of $13.0 million, or a 15 cents per diluted share loss, for the first quarter of 2010.  The diluted earnings per share for the first quarter of 2011 included restructuring, exit and impairment charges of 5 cents per diluted share.  The loss per diluted share for the first quarter of 2010 included $0.08 per diluted share of restructuring and impairment charges, and a $0.02 per diluted share benefit from special tax items.

“The factors that positively affected our revenues and earnings in the first quarter of 2011, compared to the previous year, included higher sales levels in our marine and fitness businesses and companywide fixed-cost reductions.  Partially offsetting these factors were a higher income tax provision and losses on early extinguishment of debt,” McCoy said.

Review of Cash Flow and Balance Sheet

Cash and marketable securities totaled $548.7 million at the end of the first quarter, down $108.4 million from year-end 2010 levels.  This decrease reflects net cash used for operating activities of $83.1 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 to support the seasonal requirements of our marine customers, and decreases in accrued expenses, partially offset by increases in accounts payable. 

Net debt (defined as total debt, less cash and marketable securities) was $263.0 million, up $89.5 million from year-end 2010 levels.  The increase in net debt reflects the $108.4 million decrease in total cash and marketable securities, partially offset by an $18.9 million decrease in total debt, largely related to debt retirement in the quarter.  The company`s total liquidity (defined as cash and marketable securities, plus amounts available under its new asset-based revolving credit facility) was $756 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 $520.5 million in the first quarter of 2011, up 17 percent from $445.7 million in the first quarter of 2010.  International sales, which represented 43 percent of total segment sales in the quarter, increased by 6 percent.  For the quarter, the Marine Engine segment reported operating earnings of $51.6 million, including restructuring charges of $4.3 million.  This compares with operating earnings of $26.5 million in the first quarter of 2010, which included $2.4 million of restructuring charges.

Sales were higher across all of the segment`s main operations.  The segment`s global sterndrive engine product category experienced the greatest percentage sales growth. 

Mercury`s manufacturing facilities continued to increase production during the quarter in response to customer requirements.  Higher sales, the combined effect of cost reductions, increased fixed-cost absorption and improved operating efficiencies, as well as a gain on the sale of a distribution facility all had a positive effect on operating earnings during the quarter.

Boat Segment 

The Boat segment is comprised of the Brunswick Boat Group, and includes 16 boat brands.  The Boat segment reported net sales of $283.6 million for the first quarter of 2011, an increase of 16 percent compared with $243.6 million in the first quarter of 2010.  International sales, which represented 37 percent of total segment sales in the quarter, increased by 18 percent during the period.  For the first quarter of 2011, the Boat segment reported an operating loss of $3.8 million, including restructuring, exit and impairment charges of $1.0 million.  This compares with an operating loss of $26.7 million, including restructuring charges of $4.1 million, in the first quarter of 2010.

Boat segment production and wholesale shipments increased during the quarter, compared with the first quarter of 2010, in response to the seasonal inventory requirements of dealers, who are not anticipating the annual declines in the retail market that were experienced in 2010.  The increase in wholesale unit shipments was partially offset by the effect of a higher mix of smaller boat sales.  Higher sales, increased fixed-cost absorption, fixed-cost reductions and lower restructuring, exit and impairment charges had a positive effect on the segment`s 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 first quarter of 2011 totaled $156.4 million, up 31 percent from $119.0 million in the first quarter of 2010.  International sales, which represented 55 percent of total segment sales in the quarter, increased by 40 percent.  For the quarter, the Fitness segment reported operating earnings of $23.4 million.  This compares with operating earnings of $9.5 million in the first quarter of 2010.

Commercial equipment sales benefited from a large order from one of its customer categories during the quarter. Improved operating earnings in the first quarter of 2011, when compared with 2010, reflect higher sales, a more favorable product mix and increased fixed-cost absorption.

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 2011 totaled $87.3 million, down 5 percent compared with $91.9 million in the year-ago quarter.  International sales, which represented 21 percent of total segment sales in the quarter, decreased by 4 percent.  For the quarter, the segment reported operating earnings of $13.2 million.  This compares with operating earnings of $14.9 million, including restructuring charges of $0.2 million, in the first quarter of 2010. 

For the quarter, equivalent-center sales for retail bowling were flat, while bowling products experienced a decline in sales.  The reduction in operating earnings in the first quarter of 2011, when compared with 2010, reflects lower sales, partially offset by cost reductions.

Outlook

“In 2011, our strategy is to remain disciplined to generate positive free cash flow, perform better than the market and demonstrate outstanding operating leverage,” McCoy said.

“The retail marine market for 2011 is unfolding as expected for the year. We continue to believe that the significant decline in overall industry marine retail demand bottomed in 2010. However, with the majority of the selling season still ahead of us, we are not yet able to determine if our 2011 retail demand will match our plan for a flat market. 

“The range of 2011 revenue and earnings growth expectations for the company`s results will continue to be governed primarily by marine retail demand, as well as by the success of the company`s efforts to improve market share in all of its business segments.  In the event of a declining retail marine market, the remainder of the year would be at risk to lower levels of marine wholesale unit shipments in order to keep dealer inventories at desired levels.  As we look at 2011 retail demand, we are continuing to watch the potential impact of higher crude oil prices and the headwind they are creating in the economy.

“We continue to believe that our 2011 net income will benefit from our previously announced marine plant consolidations, lower restructuring costs, and reductions in net interest, depreciation and pension expenses.

“After taking all these factors into consideration, we expect our 2011 earnings per share to be in the range of $0.30 per share to $0.50 per share.  As a result of the seasonality of our marine businesses, we expect to report a profitable second quarter, followed by a net loss in the second half of the year,” McCoy concluded.

Brunswick Corporation
Comparative Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)