Brunswick Corporation had total sales of $734.7 million during the first quarter of 2009, a 45% drop versus 2008, primarily the result of marine sales that dropped by 52% from year-ago levels.
Cash on hand at quarter's end was $359.1 million, up from the 2008 year-end balance of $317.5 million. The revolving credit facility remained undrawn throughout the quarter.
Total restructuring charges for 2009 are estimated to be approximately $75 million, or 85 cents per diluted share.
The company expects to generate additional 2009 cost reductions of approximately $40 million, aggregating to savings of $240 million for the year versus the $200 million of savings previously announced.
“Our businesses continued to be under pressure from a variety of harsh economic factors that affected both domestic and international demand for our products, especially in our recreational marine markets,” said Brunswick's Chairman and CEO Dustan E. McCoy.
“The year began as expected with the continuation of unprecedented low levels of demand experienced in the second half of 2008, especially during the fourth quarter,” continued McCoy. “Retail demand for marine products was impacted in the first quarter of 2009 by declining consumer confidence and the tightening of consumer credit terms by national lenders. As our dealers work through this difficult economic climate, we continue to reduce our wholesale shipments to reduce the number of boats and engines on their showroom floors. Additionally, we experienced lower equipment orders from our fitness and bowling products customer.”
“Although these factors had a negative effect on our revenues and earnings, we are successfully managing our businesses for cash and maintained excellent levels of liquidity throughout the quarter. This was demonstrated by the $359 million of cash on our balance sheet at the end of the quarter, a $42 million increase from year-end levels,” McCoy added.
First Quarter Results
For the first quarter of 2009, the company reported net sales of $734.7 million, down from $1,346.8 million a year earlier. For the quarter, the company reported an operating loss of $127.5 million, which included $39.6 million of restructuring charges. In the first quarter of 2008, the company had operating earnings of $10.3 million, which included $22.2 million of restructuring charges.
For the first quarter of 2009, Brunswick reported a net loss of $184.2 million, or $2.08 per diluted share, as compared with net earnings of $13.3 million, or 15 cents per diluted share, for the first quarter of 2008. Diluted loss per share for the first quarter of 2009 included restructuring charges of $39.6 million, or 45 cents per diluted share, and a 40 cents per diluted share charge for special tax items, primarily related to increases in state and foreign deferred tax valuation allowances resulting from cumulative losses reported by the company. Diluted earnings per share, for the first quarter of 2008, included $22.2 million, or 16 cents per diluted share, of restructuring charges and an investment sale gain of $0.10 per diluted share.
Change in Segment Reporting
During the first quarter of 2009, the company realigned the management of its marine service, parts and accessories businesses. The Boat segment's parts and accessories businesses of Attwood, Land 'N' Sea, Benrock, Inc., Kellogg Marine, Inc. and Diversified Marine Products, L.P. are now being managed by the Marine Engine segment's service and parts business leaders. As a result, the marine service, parts and accessories operating results previously reported in the Boat segment are now being reported in the Marine Engine segment and the results for 2007 and 2008 have been restated (by quarter) to reflect this change and are attached as an appendix to this news release.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine service, parts and accessories businesses, reported net sales of $343.9 million in the first quarter of 2009, down 45% from $628.6 million in the year-ago first quarter. International sales, which represented 43% of total segment sales (net of Marine eliminations) in the quarter, declined by 45% on a year-to-year basis. For the quarter, the Marine Engine segment reported an operating loss of $50.6 million, including restructuring charges of $11.7 million. This compares with operating earnings of $33.6 million in the year-ago quarter, including $1.5 million of restructuring charges.
Sales were off across all Marine Engine operations with sterndrive engines experiencing a greater sales decline than outboard engines. However, sales from the marine service, parts and accessories businesses were down significantly less than our other marine businesses.
Mercury's manufacturing facilities continued to cut production rates and take plant furloughs during the quarter in response to lower retail demand and to reduce pipeline levels. Lower sales and reduced fixed-cost absorption on lower production had an adverse effect on operating earnings, which were partially offset by reduced expenses.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group and includes 17 boat brands. The Boat segment reported net sales for the first quarter of 2009 of $205.3 million, down 64% compared with $565.6 million in the first quarter of 2008. International sales, which represented 40% of total segment sales in the quarter, decreased by 59% during the period. For the first quarter of 2009, the Boat segment reported an operating loss of $72.3 million, including restructuring charges of $25.0 million. This compares with an operating loss of $17.4 million, including restructuring charges of $13.8 million in the first quarter of 2008.
Boat manufacturing facilities also continued to significantly cut production rates and take plant furloughs during the quarter to address inventory levels held throughout the pipeline. Lower sales and reduced fixed-cost absorption on lower production had an adverse effect on operating earnings, which were partially offset by reduced expenses.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the first quarter of 2009 totaled $118.6 million, down 21% from $149.2 million in the year-ago quarter. International sales, which represented 45 percent of total segment sales in the quarter, declined by 16% on a year-to-year basis. For the quarter, the Fitness segment reported operating earnings of $0.3 million, including $1.0 million of restructuring charges. This compares with operating earnings of $8.1 million in the year-ago quarter.
Commercial equipment sales, which account for the largest percentage of Fitness segment sales, declined in the quarter as gym and fitness club operators remained cautious about ordering equipment. Sales of consumer exercise equipment were down even more year-over-year, reflecting the effects of the weak economy. Operating earnings reflected the unfavorable effect of the reduced sales, which was partially mitigated by reduced expenses.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers; bowling equipment and products; and billiards, Air Hockey and foosball tables. Segment sales in the first quarter of 2009 totaled $99.9 million, down 12% compared with $113.6 million in the year-ago quarter. For the quarter, the segment reported operating earnings of $10.6 million, including restructuring charges of $0.8 million. This compares with operating earnings of $0.9 million, including restructuring charges of $5.6 million in the first quarter of 2008.
Retail bowling revenues declined by mid-single digits during the quarter. The bowling products and billiards businesses experienced greater sales declines, as bowling center operators and billiards retail customers remained cautious about purchases. Operating earnings benefited from cost reductions and lower restructuring charges in the segment, partially offset by lower revenue levels.
Outlook
“We are not planning for any meaningful economic recovery in 2009 and our near-term focus remains clear, which is to: maintain strong liquidity without additional borrowings, take all appropriate actions to maintain dealer health and position ourselves to exit this global downturn as a stronger company,” McCoy said.
“Our plan requires that we continue to: manage our businesses for cash, with a focus on inventory reductions, produce and sell at wholesale below retail sales levels, evaluate our cost structure and take the appropriate actions necessary to match the overall demand in the marketplace and execute against our core strategic platforms, which will enable us to advance in our industries and maintain our leading brands and market position.
“Our full-year 2009 results will be negatively affected by lower sales levels, reduced fixed-cost absorption, and higher pension-related expenses when compared with 2008, as well as by continuing restructuring charges. Partially offsetting these factors will be approximately $240 million of 2009 cost reductions resulting from the full-year effect of actions taken in 2008, as well as further cost reduction activities initiated or planned in 2009. And although our 2009 earnings will be down significantly compared with 2008 earnings before restructuring charges, impairments, and special tax items, it remains our goal to exit 2009 with cash at or above the amount that we reported on our balance sheet at year-end 2008, without increased borrowings.
“As each day passes and we successfully execute against these actions, we become increasingly confident that we are well positioned to benefit from an economic recovery,” McCoy said.
Brunswick Corporation
Comparative Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Ended
——————
April 4, March 29,
2009 2008 % Change
—- —- ——–
Net sales $734.7 $1,346.8 -45%
Cost of sales 643.5 1,077.3 -40%
Selling,
general and
administrative
expense 155.2 203.1 -24%
Research and
development
expense 23.9 33.9 -29%
Restructuring,
exit and
impairment
charges 39.6 22.2 78%
—- —-
Operating
earnings
(loss) (127.5) 10.3 NM
Equity
earnings
(loss) (3.2) 4.8 NM
Investment
sale gain – 19.7 NM
Other income
(expense), net (1.4) 1.1 NM
—- —
Earnings
(loss) before
interest and
income taxes (132.1) 35.9 NM
Interest
expense (18.2) (11.5) -58%
Interest income 0.5 1.4 -64%
— —
Earnings
(loss) before
income taxes (149.8) 25.8 NM
Income tax
provision 34.4 12.5
—- —-
Net earnings
(loss) $(184.2) $13.3 NM
======= =====
Earnings (loss)
per common share:
Basic $(2.08) $0.15
Diluted $(2.08) $0.15
Weighted average
shares used for
computation of:
Basic earnings
(loss) per
common share 88.4 88.2
Diluted
earnings
(loss) per
common share 88.4 88.3
Effective tax
rate (1) -23.0% 48.4%
Supplemental Information
————————
Diluted net
earnings
(loss) $(2.08) $0.15
Restructuring,
exit and
impairment
charges (2) 0.45 0.16
Investment
sale gain, net
of tax – (0.10)
Special tax
items 0.40 –
—- —
Diluted net
earnings
(loss), as
adjusted $(1.23) $0.21
====== =====
(1) The change in the effective tax rate in the first quarter of 2009
was primarily due to increases in state and foreign deferred tax
valuation allowances resulting from cumulative losses reported
by the company.
(2) The 2009 Restructuring, exit and impairment charges assume no
tax benefit, while the 2008 Restructuring, exit and impairment
charges include a tax benefit.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information (1)
Three Months Ended
——————
Net Operating Operating
Sales Earnings (2) Margin
—– ———— ———-
April 4, March 29, % April 4, March 29, % April 4, March 29,
2009 2008 Change 2009 2008 Change 2009 2008
—- —- —— —- —- —— —- —-
Marine
Engine $343.9 $628.6 -45% $(50.6) $33.6 NM -14.7% 5.3%
Boat 205.3 565.6 -64% (72.3) (17.4) NM -35.2% -3.1%
Marine
Elimi-
nations (33.0) (110.2) – –
—– —— — —
Total
Marine 516.2 1,084.0 -52% (122.9) 16.2 NM -23.8% 1.5%
Fitness 118.6 149.2 -21% 0.3 8.1 -96% 0.3% 5.4%
Bowling &
Billiards 99.9 113.6 -12% 10.6 0.9 NM 10.6% 0.8%
Corp/Other – – (15.5) (14.9) -4%
— — —– —–
Total $734.7 $1,346.8 -45% $(127.5) $10.3 NM -17.4% 0.8%
====== ======== ======= =====
