Brunswick Corp. was able to double its operating earnings in the fourth quarter thanks to solid growth across its Mercury Engine, power boat, and fitness segments.
The company reported net sales of $901.5 million for the fourth quarter ended Dec. 31, 2013, up from $829.8 million a year earlier. Gross margin increased 90 basis points and operating earnings reached $14.0 million, which included $8.7 million of of restructuring, exit and impairment charges. That compared with $7.0 million of operating earnings and $10.5 million in charges in the fourth quarter of 2012. On an adjusted basis, operating earnings increased $5.2 million, or 30 percent from fourth quarter 2012.
The company reported net earnings of $583.6 million, or $6.18 per diluted share, compared with a net loss from continuing operations of $16.1 million, or $0.18 per diluted share, for the fourth quarter of 2012. The diluted earnings per share for the fourth quarter of 2013 included a reversal of deferred tax valuation allowance reserves of $6.35 per diluted share, $0.09 per diluted share of restructuring, exit and impairment charges, $0.01 per diluted share for losses on early extinguishment of debt and a $0.22 per diluted share charge from special tax items. The diluted earnings per share for the fourth quarter of 2012 included $0.11 per diluted share of restructuring, exit and impairment charges, $0.05 per diluted share of losses on early extinguishment of debt and a $0.04 per diluted share charge from special tax items.
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.
Marine segment
Marine segment
The Marine Engine segment
Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $423.5 million in the fourth quarter of 2013, up 5 percent from $404.4 million in the fourth quarter of 2012. International sales, which represented 40 percent of total segment sales in the quarter, decreased by 4 percent. For the quarter, the Marine Engine segment reported operating earnings of $18.1 million. This compares with operating earnings of $16.5 million in the fourth quarter of 2012, which included $1.2 million of restructuring charges.
Sales increases in the quarter were led by the segment’s outboard engines and parts and accessories businesses, partially offset by declines in sales of stern-drive engines. The improvement in operating earnings is a result of higher sales and lower restructuring charges, partially offset by an increase in investment spending to support long-term growth.
Boat segment
The Boat segment is comprised of the Brunswick Boat Group and includes 14 boat brands. The Boat segment reported net sales of $239.7 million for the fourth quarter of 2013, an increase of 16 percent compared with $206.7 million in the fourth quarter of 2012. International sales, which represented 40 percent of total segment sales in the quarter, increased by 15 percent during the period. For the fourth quarter of 2013, the Boat segment reported an operating loss of $21.9 million, including restructuring charges of $5.8 million. This compares with an operating loss of $33.4 million in the fourth quarter of 2012, including restructuring charges of $8.9 million.
The Boat segment is comprised of the Brunswick Boat Group and includes 14 boat brands. The Boat segment reported net sales of $239.7 million for the fourth quarter of 2013, an increase of 16 percent compared with $206.7 million in the fourth quarter of 2012. International sales, which represented 40 percent of total segment sales in the quarter, increased by 15 percent during the period. For the fourth quarter of 2013, the Boat segment reported an operating loss of $21.9 million, including restructuring charges of $5.8 million. This compares with an operating loss of $33.4 million in the fourth quarter of 2012, including restructuring charges of $8.9 million.
The growth in sales resulted mainly from wholesale shipment increases in the segment’s outboard boat categories and smaller fiberglass stern-drive/inboard boats, as well as growth in South America. The improvement in the segment’s operating loss was a result of higher sales, successful cost reduction activities and lower restructuring charges, partially offset by an increase in investment spending to support long-term growth.
Fitness segment
Fitness segment sales in the fourth quarter of 2013 totaled $210.6 million, up 15 percent from $183.6 million in the fourth quarter of 2012. International sales, which represented 45 percent of total segment sales in the quarter, increased by 9 percent. For the quarter, the Fitness segment reported operating earnings of $35.5 million. This compares with operating earnings of $36.4 million in the fourth quarter of 2012.
Fitness segment sales in the fourth quarter of 2013 totaled $210.6 million, up 15 percent from $183.6 million in the fourth quarter of 2012. International sales, which represented 45 percent of total segment sales in the quarter, increased by 9 percent. For the quarter, the Fitness segment reported operating earnings of $35.5 million. This compares with operating earnings of $36.4 million in the fourth quarter of 2012.
The increase in revenue reflected strong growth in sales to U.S. health club and hospitality customers, partially offset by the negative impact of lower sales to local and federal government customers. The increase also includes strong gains in Europe. The decrease in operating earnings in the fourth quarter of 2013, when compared with 2012, reflects the benefit from higher sales, which was more than offset by investment spending on growth initiatives and a lower gross margin.
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 fourth quarter of 2013 totaled $81.3 million, down 5 percent compared with $85.3 million in the fourth quarter of 2012. International sales, which represented 17 percent of total segment sales in the quarter, decreased by 24 percent. For the quarter, the segment reported operating earnings of $7.0 million, including restructuring charges of $2.9 million. This compares with operating earnings of $8.5 million in the fourth quarter of 2012, which included $0.4 million of restructuring charges.
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers, bowling equipment and products, and billiards tables and accessories. Segment sales in the fourth quarter of 2013 totaled $81.3 million, down 5 percent compared with $85.3 million in the fourth quarter of 2012. International sales, which represented 17 percent of total segment sales in the quarter, decreased by 24 percent. For the quarter, the segment reported operating earnings of $7.0 million, including restructuring charges of $2.9 million. This compares with operating earnings of $8.5 million in the fourth quarter of 2012, which included $0.4 million of restructuring charges.
2014 outlook
“Our outlook and financial targets for 2014 are consistent with the three-year strategic plan outlined in November 2013 at our New York investor day event,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “In 2014, we are targeting 5 percent to 7 percent sales growth. This improvement in our top-line growth rate results from our increasing investment in growth initiatives in all our businesses and is supported by the continuation of the solid growth demonstrated in 2013.
“Our outlook and financial targets for 2014 are consistent with the three-year strategic plan outlined in November 2013 at our New York investor day event,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “In 2014, we are targeting 5 percent to 7 percent sales growth. This improvement in our top-line growth rate results from our increasing investment in growth initiatives in all our businesses and is supported by the continuation of the solid growth demonstrated in 2013.
“Our 2014 targets and plans are based on global economic conditions that are generally comparable to 2013, with weakness continuing in certain regions in Europe,” McCoy continued. “As a result, we expect to benefit from the continuation of the modest recovery in the global marine market, with solid growth in outboard boat and engine products, as well as in the global parts and accessories marketplace. In the fiberglass stern-drive/inboard boat category, which also affects stern-drive/inboard engine production, we are currently planning for a modestly declining market, with stability in large boats.
“We believe that our Fitness segment should continue to benefit from favorable health and fitness trends, as well as solid growth rates in global health club and hospitality businesses. These market conditions, combined with exciting new products, have positioned our Fitness business to continue to deliver excellent results and support our increased level of investment spending. Our bowling business should perform well in a stable market and will focus its efforts on providing new and innovative concepts and products to consumers and operators,” McCoy continued.
“Against the backdrop of our revenue targets, our plan reflects solid improvement in gross margin levels. Our organic growth platform will continue to benefit from increased investments in capital projects and research and development programs, along with the SG&A to support them. As a result of these ongoing initiatives, operating expenses are estimated to increase in 2014, however, on a percentage of sales basis, are expected to be at slightly lower levels than 2013.
“For the full year, we expect to generate positive free cash flow in the range of $150 million to $175 million, in spite of increasing levels of investment spending. Also, due to our strong free cash flow, combined with the debt reduction already achieved, 2014 net interest expense should be lower than 2013 by approximately $10 million to $12 million.
“As we have been projecting for two years, our effective book tax rate will increase to an estimated 34 percent in 2014. As a result of this significant increase in the effective book tax rate, 2014 diluted earnings per common share, as adjusted, is estimated to be in the range of $2.40 to $2.55. Our guidance continues to reflect another year of strong growth in adjusted operating earnings, as well as adjusted pretax earnings growth of 24 percent to 30 percent,” McCoy concluded.
