Brunswick Corp.’s Q2 Revenues Expand 6 Percent

Brunswick Corp. reported consolidated net sales increased 6 percent in the second quarter, while advancing 11 percent on a currency-neutral basis.

Other highlights include

• Adjusted operating earnings increased by 9 percent. On a GAAP basis, operating earnings were up 11 percent
• Adjusted pretax earnings increased by 11 percent. On a GAAP basis, pretax earnings were up 14 percent
• Diluted EPS, as adjusted of $1.05, saw an $0.11 increase compared with the year prior. On a GAAP basis, diluted EPS of $1.14, a $0.22 increase compared with 2014
• Year-to-date free cash flow of $37 million, a $20 million increase compared with prior year

“Our reported second quarter revenues increased by 6 percent, with 11 percent on a constant-currency basis and each segment reporting double-digit growth rates,” said Brunswick Chairman and CEO Dustan E. McCoy. “Our top line reflected strong growth rates in our fiberglass sterndrive/inboard boats, the marine parts and accessories business, fiberglass outboard boats and outboard engines. This growth also included a solid performance by our fitness equipment segment.”

McCoy continued, “The successful execution of our growth plan is leading to market share gains in many of our key product categories, enabling our view of continued solid earnings growth in 2015…As stated in prior outlook comments, operating earnings comparisons were negatively affected by several factors in the first-half, including the impact of a stronger U.S. dollar, the absence of 2014 favorable warranty related adjustments in the Fitness and Boat segments, costs associated with production expansions and new product integration and ramp-ups, and continued increases in investments to support our strategic objectives.”

McCoy also said “Adjusted operating earnings in the second quarter increased by 9 percent as compared to the prior year, reflecting an adjusted operating margin increase of 30 basis points. Our full-year plan reflects more favorable earnings growth rates and margin expansion in the second-half of 2015, as the aforementioned factors negatively affecting the firsthalf comparisons are expected to be either less significant or become favorable in the third and fourth quarters…The improvement in operating earnings combined with lower net interest expense, and higher equity earnings and other income, led to a 12 percent increase in diluted earnings per common share, as adjusted.”

Discontinued Operations

On September 18, 2014, and May 22, 2015, the company completed the sale of its Retail Bowling and Bowling Products businesses. As a result, the historical and future results of these businesses are reported as discontinued operations. The historical and future results of the Billiards business, which remains part of the company, are reflected in the Fitness segment. Therefore, for all periods presented in this release, all figures and outlook statements incorporate these changes and reflect continuing operations only, unless otherwise noted.

Second Quarter Results

For the second quarter 2015, the company reported net sales of $1,142.0 million, up from $1,073.1 million a year earlier. For the quarter, the company reported operating earnings of $154.2 million, compared to $138.3 million in the prior year. Operating earnings for the second quarter of 2014 included $3.1 million of net restructuring, exit and impairment charges.

Brunswick reported net earnings of $107.6 million, or $1.14 per diluted share, compared with net earnings of $87.1 million, or $0.92 per diluted share, for the second quarter of 2014. The diluted earnings per share for the second quarter of 2015 included $0.09 per diluted share benefit from special tax items. The diluted earnings per share for the
second quarter of 2014 included $0.02 per diluted share of restructuring, exit and impairment charges.

Review of Cash Flow and Balance Sheet

Cash and marketable securities totaled $608.7 million at the end of the second quarter, down $27.2 million from year-end 2014 levels. This change, versus year-end, reflects net cash provided by operating activities of $108.8 million, as well as net proceeds received from the sale of the Bowling Products business (reported in discontinued
operations).

In addition, cash used for investing and financing activities of $101.4 million affected cash and marketable securities balances. Investing and financing activities during the first six months included $64.7 million for capital expenditures, $60.0 million of common stock repurchases and $23.1 million of dividends.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $689.2 million in the second quarter of 2015, up 6 percent from $652.4 million in the second quarter of 2014. International sales, which represented 30 percent of total segment sales in the quarter, were down 3 percent compared to the prior year period. On a constant-currency basis, international sales were up 11 percent. For the quarter, the Marine Engine segment reported operating earnings of $131.8 million. This compares with operating earnings of $122.5 million in the second quarter of 2014.

Sales increases in the quarter were led by the segment’s parts and accessories businesses, which included revenues from acquisitions completed in the second and third quarters of 2014, as well as the second quarter of 2015. Higher revenues and a more favorable product mix contributed to the increase in operating earnings in the second quarter of 2015. Partially offsetting these positive factors were the unfavorable effects of foreign exchange and increased investments for long-term growth initiatives.

Boat Segment

The Boat segment is comprised of the Brunswick Boat Group and includes 14 boat brands. The Boat segment reported net sales of $349.3 million for the second quarter of 2015, an increase of 8 percent compared with $324.1 million in the second quarter of 2014. International sales, which represented 30 percent of total segment sales in the quarter, decreased by 8 percent during the period. On a constant-currency basis, international sales were up 2 percent. For the second quarter of 2015, the Boat segment reported operating earnings of $20.9 million. This compares with operating
earnings of $19.9 million in the second quarter of 2014, including restructuring charges of $0.4 million.

The Boat segment's revenue performance reflected growth in fiberglass boats, partially offset by declines in aluminum boats. Operating earnings benefited from higher sales, partially offset by the planned cost increases associated with new product introductions, plant expansions and production ramp-up, along with an unfavorable impact from foreign exchange.

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 second quarter of 2015 totaled $173.8 million, up 5 percent from $165.2 million in the second quarter of 2014. International sales, which represented 50 percent of total segment sales in the quarter, increased by 4 percent. On a constant-currency basis, international sales were up 14 percent. For the quarter, the Fitness segment reported operating earnings of $23.2 million. This compares with operating earnings of $19.0 million in the second quarter of 2014.

The increase in revenue reflected growth in the U.S. at health clubs and hospitality customers, as well as sales gains in international markets, particularly Europe. The increase in operating earnings included benefits from higher sales, partially offset by an unfavorable impact from foreign exchange.

2015 Outlook

“Our overall operating plans and assumptions for 2015 remain consistent with our initial guidance communicated in January, in spite of greater-than-expected foreign currency headwinds,” McCoy said. “This speaks to the strong performance of our recently introduced products in all of our business segments, along with cost reduction activities.”

“We continue to target 2015 to be another year of strong earnings growth, with outstanding free cash flow generation. Our plan reflects 6 percent to 8 percent annual sales growth, which includes benefits from the success of our new products, the continuation of solid growth in the U.S., and completed acquisitions, partially offset by the negative impact of a stronger U.S. dollar and weakness in certain international markets,” added McCoy. He continued, adding “As previously stated, our earnings growth will be more heavily weighted to the second half of the year. For the full year, we continue to anticipate a slight improvement in gross margin levels and solid gains in operating margins, as we plan to continue to benefit from volume leverage, modest positive product mix factors and cost reduction activities.”

“Our guidance for 2015 continues to reflect adjusted pretax earnings growth of 15 percent to 20 percent, and we are maintaining the range for our expectations of diluted EPS, as adjusted, of $2.75 to $2.85. Finally, for the full year, we expect to generate positive free cash flow in the range of $180 million to $200 million,” McCoy concluded.