Brunswick Corp.'s sales grew 7.5 percent to $867.7 million. Earnings came in at $4.7 million, or 5 cents a share, rebounding from a loss of $7.2 million, or 8 cents a year ago. Excluding restructuring charges, loss on early extinguishment of debt and special tax items in 2011 and 2010, net earnings were 33 cents per share against a loss of 7 cents per share a year ago.
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 5 cents per diluted share, compared with a net loss of $7.2 million, or 8 cents 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 14 cents per diluted share, loss on early extinguishment of debt of 13 cents per diluted share and a 1 cent per diluted share expense from special tax items. The earnings per diluted share for the third quarter of 2010 included 14 cents per diluted share of restructuring, exit and impairment charges and a 1 cent 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 Company's 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 Company's 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 segment's 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.
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 Brunswick's 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 segment's improved quarterly results.
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 segment's 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.
“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.
Comparative Consolidated Statements of Operations
(in millions, except per share data)
|Three Months Ended|
|Cost of sales||673.9||632.1||7%|
|Selling, general and administrative expense||128.9||122.8||5%|
|Research and development expense||25.1||23.1||9%|
|Restructuring, exit and impairment charges||13.2||12.2||8%|
|Other expense, net||(0.6)||(2.2)||-73%|
|Earnings before interest, loss
on early extinguishment of debt
and income taxes
|Loss on early extinguishment of debt||(11.7)||(1.1)||NM|