Brunswick Corporation reported net earnings of $94.6 million, or 96 cents per diluted share, for the first quarter of 2005, up from net earnings of $48.0 million, or 50 cents per diluted share, for the year-ago quarter. Results for the first quarter of 2005 include a 32 cents per diluted share gain on the sale of securities. The company said operating earnings increased 26% on a 17% sales gain in the first quarter.
Commenting on the quarter, Brunswick chairman and chief executive officer George W. Buckley said, “Once again our marine operating units led the way with combined engine and boat sales up 21 percent during the period. The sales gain was driven by strong dealer response to new product introductions as well as continued strength in international markets. We are reaping the benefits of our customer-led strategy to provide the right products at the right price sold through the best dealer network in the industry.”
Buckley also noted that acquisitions played a role in Brunswick's 17% sales increase in the quarter. “Excluding sales from business units we didn't own in the first quarter last year, sales rose 10%, illustrating the strong performance delivered by our base operations. Further, we continue to look for more effective ways to leverage our top-line growth down to the bottom line,” Buckley explained. “Higher volumes combined with our focus on effective cost management resulted in an increase in operating margins to 7.1%, up from 6.5% a year ago. In addition, we continued to maintain a strong balance sheet, with debt-to-total capital at 28.9% at quarter end compared with 30.4% a year earlier. This provides us with the financial flexibility to invest in our ongoing businesses, while seeking attractive acquisitions.”
First Quarter Results
For the quarter ended March 31, 2005, the company reported that net sales increased 17% to $1,401.1 million, up from $1,199.6 million a year earlier. Operating earnings rose to $99.1 million compared with $78.5 million in the year-ago quarter, and operating margins improved to 7.1% from 6.5%. Net earnings totaled $94.6 million, or 96 cents per diluted share, up 97.1% from $48.0 million, or 50 cents per diluted share, for the first quarter of 2004.
As previously announced, during the first quarter of 2005 the company completed the sale of approximately 1.9 million shares of MarineMax, Inc. stock. The sale resulted in a pre-tax gain of $38.7 million, equivalent to 32 cents per diluted share in the quarter.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick New Technologies (BNT), reported sales of $605.6 million in the first quarter of 2005, up 15% from $527.9 million in the year-ago first quarter. Operating earnings in the first quarter advanced 22% to $52.0 million versus $42.6 million, and operating margins increased to 8.6% compared with 8.1% for the same quarter in 2004.
“We continue to see strong demand for our new products, which is driving sales growth in the segment,” Buckley said. “During the first quarter we extended our Verado family of supercharged four-stroke outboard engines with the launch of the 135-, 150- and 175- horsepower models. Like their previously introduced, larger-horsepower counterparts, these models enhance Verado's reputation for power, reduced noise and vibration, and technological sophistication, setting the performance bar ever higher in marine propulsion.”
“BNT, particularly our Navman unit, also contributed to segment sales growth in the quarter,” Buckley added. “We are beginning to see the results of Navman's accelerated research and development investments as well as its increasing presence in markets around the world.”
“In the first quarter, Mercury opened a new production facility in China. The 174,000-square-foot plant produces four-stroke outboard engines between 40 and 60 horsepower,” Buckley noted. “We also opened a new 275,000-square-foot facility in Japan with our joint venture partner Tohatsu, where we make 2.5 to 30 horsepower four-stroke outboards. Worker training and production validation have been completed, and the plants have now begun production. As the year continues, we expect the plants will ramp up volume and, in turn, increase our cost competitiveness in these market segments.”
Boat Segment
The Brunswick Boat Group comprises the Boat segment and produces fiberglass and aluminum boats as well as marine parts and accessories. The Boat segment reported sales for the first quarter of $677.5 million, up 32% compared with $512.0 million in the first quarter of 2004. Operating earnings increased 55% to $49.5 million, up from $32.0 million, and operating margins were up 100 basis points to 7.3% from 6.3%.
“The success of new products contributed to the sales gain with double- digit growth reported by Sea Ray, Boston Whaler, Sealine, Princecraft and Baja. The boat parts and accessories business also reported sales gains during the quarter,” Buckley noted. A portion of the Boat segment sales gain was due to the acquisition of the Crestliner, Lowe, Lund and Sea Pro brands, which were not included in the prior-year quarter. “Excluding incremental sales from these acquisitions, Boat segment sales were up 17%. Higher volumes and effective cost management accounted for the significant improvement in operating margins,” Buckley explained.
“We continue to execute our strategy of 'covering the waterfront' by 'filling in the white spaces' to gain or strengthen our participation in certain market segments,” Buckley said. “During the quarter, we added the Albemarle brand. This acquisition enabled us to extend our offering of offshore sportfishing boats, which, along with Hatteras, now range from 24 to 90 feet.”
“On the smaller-boat side, we continue to see strong demand for our Bayliner 175 and Bayliner 185 entry-level runabouts. During the quarter, we opened a second boat plant in Mexico, which doubled our capacity to produce these and other popular models in this family,” Buckley added.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment. Segment sales in the first quarter of 2005 totaled $127.5 million, down 2% from $130.6 million in the year-ago quarter. The sales decline is attributable to Brunswick's divestiture of the Omni Fitness retail stores, which was completed in late 2004. Excluding Omni sales in the year-ago quarter, fitness equipment sales were up 5%. Segment operating earnings for the first quarter of 2005 totaled $6.4 million compared with $9.2 million for the year-ago quarter, and operating margins were 5.0% compared with 7.0% a year ago.
“We continue to see strong demand for fitness equipment,” Buckley explained, “underscoring the power of our brands and the success of new products. Operating earnings, however, were adversely affected by higher steel costs, pricing pressures in the international marketplace, higher costs for delivery and installation as well as a shift in product mix in the quarter to lower-margin strength equipment. We are actively pursuing several avenues to improve productivity and operating results within the Fitness segment, with an immediate emphasis on manufacturing and supply chain efficiencies.”
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of the Brunswick retail bowling centers; bowling equipment and products; and billiards, Air Hockey and foosball tables. Segment sales in the first quarter of 2005 totaled $111.5 million, up 1% compared with $110.2 million in the year-ago quarter. Operating earnings totaled $11.1 million in the first quarter versus $13.5 million, and operating margins were 10.0% compared with 12.3% in 2004.
“Our bowling product and retail businesses led the sales gain in the quarter,” Buckley noted. “We are especially pleased with the success of our expanded Brunswick Zone retail bowling centers, which continue to grow at rates higher than our traditional centers. These family-friendly centers have helped us attract casual bowlers who now outnumber league bowlers. The drop in segment operating earnings and margins was primarily due to legal expenses associated with an ongoing arbitration proceeding in China.”
Looking Ahead
“We continue to be very encouraged by the trends we are seeing in the marine market, especially as we enter the spring selling season,” commented Buckley. “Our marine pipeline inventories are at 31 weeks of supply for boats and 29 weeks of supply for engines, up three weeks and five weeks, respectively from a year ago, representing a return to more normal levels. The pipeline build is due to a number of factors, including higher dealer inventories in international markets in response to strong demand and the introduction of new boat models both here and abroad. Also keep in mind that retail sales in the first quarter of 2004 were exceptionally high, resulting in a rapid draining of pipeline inventories to almost unprecedented low levels at this time last year. The current level of inventories represents our dealers' expectations for growth in retail demand this year. In addition, a healthier pipeline will help us avoid the shortage of popular new models that we experienced in some categories last year.”
“While always being cognizant of the influence of underlying economic and stock market conditions, we remain on track for another very good year,” Buckley said. “Given our performance in the first quarter, we are raising our estimate for the year by 5 cents to $3.52 to $3.67 per diluted share, which includes the 32 cent gain on the stock sale. This compares with $2.77 per diluted share for 2004. For the second quarter, we are estimating earnings in the range of $1.08 to $1.13 per diluted share, compared with 93 cents per diluted share for the year-ago second quarter.”
The company said its new estimate assumes sales growth for the year of between 12% and 13% and operating margin improvement of between 90 and 110 basis points. Versus its previous estimate, this represents a one percent increase in the rate of sales growth and 10 to 20 basis points higher operating margin expansion.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Quarter Ended March 31
2005 2004 % Change
Net sales $1,401.1 $1,199.6 17%
Cost of sales 1,059.2 902.3 17%
Selling, general and administrative
expense 208.6 186.1 12%
Research and development expense 34.2 32.7 5%
Operating earnings 99.1 78.5 26%
Interest expense (13.0) (10.1) -29%
Investment sale gain (1) 38.7 - NM
Other income 6.8 3.2 NM
Earnings before income taxes 131.6 71.6 84%
Income tax provision 37.0 23.6
Net earnings $94.6 $48.0 97%
Earnings per common share:
Basic $0.97 $0.51 90%
Diluted 0.96 0.50 92%
Average shares used for computation of:
Basic earnings per share 97.7 93.7 4%
Diluted earnings per share 99.0 95.6 4%
Effective tax rate (2) 28.1% 33.0%
(1) The Company sold its investment in MarineMax, Inc., pursuant to a
registered public offering by MarineMax.
(2) The decrease in the effective tax rate for the first quarter of
2005 was primarily due to lower tax expense associated with the
gain on sale of the investment in MarineMax, Inc. Excluding the
tax effect of this gain, the effective tax rate was 32.0 percent.
NM = Not Meaningful
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Quarter Ended March 31
Net Sales Operating Earnings Operating
% % Margin
2005 2004 Change 2005 2004 Change 2005 2004
Marine Engine $605.6 $527.9 15% $52.0 $42.6 22% 8.6% 8.1%
Boat 677.5 512.0 32% 49.5 32.0 55% 7.3% 6.3%
Marine
eliminations (119.5) (80.2) - -
Total
Marine 1,163.6 959.7 21% 101.5 74.6 36% 8.7% 7.8%
Fitness 127.5 130.6 -2% 6.4 9.2 -30% 5.0% 7.0%
Bowling &
Billiards 111.5 110.2 1% 11.1 13.5 -18% 10.0% 12.3%
Eliminations (1.5) (0.9) - -
Corp/Other - - (19.9) (18.8) -6%
Total $1,401.1 $1,199.6 17% $99.1 $78.5 26% 7.1% 6.5%
