Brunswick Corp.’s Q2 Revenues Climb 8.8 Percent

“Our second quarter revenues increased by 8.8 percent,” said Brunswick Chairman and Chief Executive Officer Mark Schwabero. “Our top line reflected strong growth rates in all three of our primary boat categories, and the outboard engine and fitness businesses. Additionally, our parts and accessories businesses contributed solid growth in the quarter.

“Our performance in the second quarter reflected continued successful execution of our growth strategy, including our focus on product leadership,” Schwabero continued.

“Marine market data indicates a healthy U.S. marketplace, which is consistent with our assumptions entering the year. Overall demand in non-U.S. marine markets was also strong, led by gains in Europe and Canada as well as improving conditions in other regions.

“Our Fitness business continues to successfully execute against its integration and transformation plans, which in 2017 include new product introductions, changes to the manufacturing footprint and further cost realignment actions. The benefits from these activities will begin to favorably impact the segment’s growth rates and margin performance in the second half of 2017 and beyond.

“Our consolidated top-line growth remained strong, while gross margin in the second quarter declined. A majority of the decline resulted from a number of factors in the Fitness segment, including unfavorable changes in sales mix, as well as the impacts from warranty adjustments and legal costs in the fiberglass sterndrive / inboard boat business. Margin performance in the engine segment remained strong. We also continued to exercise strong discipline over operating expenses.

“Adjusted operating earnings increased by 6 percent compared to the prior year quarter. The improvement in operating earnings, combined with a lower effective tax rate and fewer shares outstanding, led to a 13 percent increase in diluted earnings per common share, as adjusted,” Schwabero concluded.

For the second quarter of 2017, the Company reported net sales of $1,352.0 million, up from $1,242.2 million a year earlier. For the quarter, the Company reported operating earnings of $168.6 million, which included $5.7 million of restructuring, exit and integration charges. In the second quarter of 2016, the Company had operating earnings of $161.9 million, which included $2.6 million of restructuring, exit and integration charges.

For the second quarter of 2017, Brunswick reported net earnings of $119.4 million, or $1.32 per diluted share, compared with net earnings of $108.1 million, or $1.17 per diluted share, for the second quarter of 2016. Diluted EPS for the second quarter of 2017 included $0.03 per diluted share of restructuring, exit and integration charges.

Diluted EPS on a GAAP and as adjusted basis in the second quarter of 2017 reflects a $0.02 per diluted share net income tax benefit from share based compensation activity. The diluted EPS for the second quarter of 2016 included $0.02 per diluted share of restructuring, exit and integration charges.

Review of Cash Flow and Balance Sheet

Cash and marketable securities totaled $448.7 million at the end of the second quarter, down $20.7 million from year-end 2016 levels. The reduction reflects net cash provided by operating activities during the first six months of the year of $171.8 million, a decrease of $49.5 million versus the prior year. The decline was the result of an increase in seasonal working capital usage during the year-to-date period. In addition, net cash used for investing and financing activities of $161.7 million reduced cash and marketable securities balances. Investing and financing activities during the year-to-date period included $107.9 million of capital expenditures, $60.0 million of common stock repurchases and $29.4 million of dividend payments, partially offset by $35.0 million of proceeds from the maturities of marketable securities.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $766.2 million in the second quarter of 2017, up 6 percent from $719.7 million in the second quarter of 2016.

International sales, which represented 28 percent of total segment sales in the quarter, were up 11 percent compared to the prior year period. For the quarter, the Marine Engine segment reported operating earnings of $148.2 million. This compares with operating earnings of $139.0 million in the second quarter of 2016.

Sales increases in the quarter were led by the outboard engine business as well as solid growth from the parts and accessories businesses, which included revenue from an acquisition completed in the fourth quarter of 2016, partially offset by declines in the sterndrive engine business. Higher revenues and improved cost efficiencies contributed to the increase in operating earnings in the second quarter of 2017.

Partially offsetting these factors were the unfavorable impact from foreign exchange and planned increases in growth investments.

Boat Segment

The Boat segment, comprised of 15 boat brands, reported net sales of $412.1 million for the second quarter of 2017, an increase of 12 percent compared with $368.1 million in the second quarter of 2016. International sales, which represented 27 percent of total segment sales in the quarter, increased by 11 percent compared to the prior year period. For the second quarter of 2017, the Boat segment reported operating earnings of $24.7 million, which included $1.2 million of restructuring, exit and integration charges. This compares with operating earnings of $22.7 million in the second quarter of 2016.

The Boat segment’s revenue reflected strong growth in all three of our primary boat categories. The increase in operating earnings benefited from higher sales, which was partially offset by increased warranty and legal expenses in the fiberglass sterndrive/inboard boat business.

 Fitness Segment

The Fitness segment designs, manufactures and sells strength and cardiovascular fitness equipment and active recreation products. Fitness segment sales in the second quarter of 2017 totaled $250.5 million, up 9 percent from $229.8 million in the second quarter of 2016. International sales, which represented 48 percent of total segment sales in the quarter, increased by 17 percent.

Excluding the impact of acquisitions, Fitness segment sales on a constant currency basis increased by 6 percent in the quarter compared to the prior year. For the quarter, the Fitness segment reported operating earnings of $18.5 million, including restructuring, exit and integration charges of $4.5 million. This compares with operating earnings of $24.1 million in the second quarter of 2016 which included $2.6 million of restructuring, exit and integration charges.

The increase in revenue reflected growth in international sales and benefits from the ICG acquisition. The decline in operating earnings resulted from the unfavorable margin impacts from changes in sales mix; planned costs associated with capacity expansions, new product introductions and manufacturing facility transitions; the net unfavorable impacts of non-recurring adjustments between periods and foreign exchange. These factors more than offset contributions from higher sales, acquisition benefits and cost reductions.

2017 Outlook

“Our outlook for 2017 continues to be generally consistent with our three-year strategic plan and reflects another year of outstanding earnings growth, with excellent cash flow generation,” said Schwabero. “We believe we are well-positioned to generate strong sales and adjusted earnings per share growth in 2017 and beyond.

“We expect our marine businesses’ top-line performance will benefit from the continuation of solid growth in the U.S. and international markets and the success of our new products. The Fitness segment is expected to benefit from overall growth in global commercial Fitness markets, as well as contributions from new products, particularly in the second half of 2017. As a result, our consolidated plan reflects revenue growth rates in 2017 in the range of 7 to 8 percent. In total, acquisitions are expected to account for about one percent of 2017’s projected growth, reflecting the impact of completed transactions.

“For the full-year, we anticipate a slight improvement in operating margins as we plan to continue benefiting from volume leverage and cost reductions related to efficiency initiatives. Gross margin trends over the second half are expected to improve, but will be down for the year. Operating expenses are estimated to increase in 2017 as we continue to fund incremental investments to support growth, with second half increases slightly below the first half. However, on a percentage of sales basis, they are expected to be at lower levels than 2016,” Schwabero said.

“We are narrowing the range for our full-year expectations of diluted EPS, as adjusted, to $4.00 to $4.10. Finally, for 2017, our expectation remains that we will generate positive free cash flow in excess of $250 million,” Schwabero concluded.