Brunswick Corporation posted sales of $1.46 billion for the first quarter, an increase of 4.1% over sales of $1.40 billion during the year-ago quarter. Net earnings were $67.4 million, or 70 per diluted share, for the first quarter of 2006, down 28.8% from net earnings of $94.6 million, or 96 cents per diluted share, for the same period last year. Diluted earnings per share for 2005 included a 32 cents per diluted share gain on the sale of securities.

On a pro forma basis reflecting the sale of the Brunswick New Technologies business unit, the company reported pro forma diluted earnings per share of 64 cents for the first quarter of 2006 compared with 63 cents for the year-ago first quarter. Sales increased 5% to $1,413.3 million from $1,342.5 million in the quarter, and operating earnings declined slightly to $98.2 million from $98.8 million.

Commenting on the first quarter, Brunswick Chairman and Chief Executive Officer Dustan E. McCoy said, “The 5 percent sales growth from ongoing operations was driven primarily by contributions from boat companies acquired subsequent to the first quarter last year, as well as increased sales from our Bowling & Billiards and Fitness segments. Excluding the benefit of acquisitions, sales were down slightly. The decline in operating earnings was primarily due to lower production to reduce marine pipelines and the shift in product mix to low-emission outboard engines, described below.”


Boat Segment

The Brunswick Boat Group comprises the Boat segment and produces fiberglass and aluminum boats and marine parts and accessories, as well as offers dealer management systems. On a pro forma basis, the Boat segment reported sales for the first quarter of $751.0 million, up 10% compared with $680.7 million in the first quarter of 2005. Operating earnings were $48.4 million, down from $49.1 million for the quarter, and operating margins were 6.4% compared with 7.2% in the prior year.

“The sales gain for the segment was driven by acquisitions as organic sales, which excludes boat brands that were not in our portfolio in the year-ago quarter, fell by a little less than 1 percent. Marine retail was down in the first quarter when compared with very robust demand in the first quarter of 2005,” McCoy said. “As a result, we placed tremendous focus on managing the pipeline to ensure that we do not build up unnecessary inventory at our dealers. Consequently, we reduced production levels in certain of our brands to accomplish that. Pipeline inventories of boats totaled 31 weeks of supply at quarter end, unchanged from the same date a year ago. The higher mix of sales from acquired businesses, which have lower margins than our core brands, as well as the impact of fixed-cost absorption from lower production, led to the reduction in operating margins.”


Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group, reported pro forma sales of $557.2 million in the first quarter of 2006, up 3% from $543.2 million in the year-ago first quarter. Operating earnings in the first quarter declined to $44.9 million versus $52.0 million, and operating margins declined to 8.1% compared with 9.6% for the same quarter in 2005.

“During the quarter, segment sales benefited from increased sales of sterndrive engines and parts and accessories in the United States, partially offset by slightly lower outboard sales,” McCoy said. “Operating earnings, however, were affected by the outboard engine technology transition. As we have previously disclosed, we discontinued selling traditional carbureted two- stroke outboard engines in North America beginning July 1, 2005. Our current product offerings of low-emission outboards now account for practically all of our outboard product mix as we complete this technology transition. Approximately 97% of our U.S. outboard sales in the first quarter of 2006 came from low-emission engines, up from 65% in the year-ago first quarter. The lower margins on these products, along with the fixed-cost absorption impact from lower production levels to maintain pipeline inventories, are largely behind the decline in Marine Engine segment operating earnings and margins. Operating earnings are expected to increase in the second half of this year as we mark the anniversary of the transition date and as we begin to realize more savings from our lower-cost manufacturing facilities in Asia, at which we are currently ramping up production.”

“The company's pipeline management efforts are paying off. We had 28 weeks of supply of engines in the pipeline at the end of the first quarter of 2006, down one week compared with the same time a year ago,” McCoy noted. “We will continue to manage our production to keep pipelines at healthy levels as we move into the spring selling season.”


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 2006 on a pro forma basis totaled $134.5 million, up 5% from $128.1 million in the year-ago quarter. Segment operating earnings were up 39% for the first quarter of 2006, totaling $8.9 million compared with $6.4 million for the year-ago quarter, and operating margins were up 160 basis points to 6.6% as compared with 5.0% a year ago.

“Margin and earnings improvement remain the story at Life Fitness,” McCoy said. “Life Fitness has achieved this result through hard work, diligence and steadily improving productivity and operating results through 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 2006 totaled $114.7 million, up 3% compared with $111.5 million in the year-ago quarter. Operating earnings advanced 15%, totaling $12.8 million in the first quarter versus $11.1 million from the year-ago quarter. Operating margins were up 120 basis points to 11.2% as compared with 10.0% in 2005.

“We saw sales increases across the board in our Bowling & Billiards segment during the quarter,” McCoy said. “Our expanded Brunswick Zone retail bowling centers continue to perform at very high levels, growing at rates higher than our traditional centers. Operating margins benefited from lower litigation expense, which was partially offset by costs associated with the transition of bowling ball manufacturing from Michigan to Mexico.”


Looking Ahead

“While we are just entering the boat-selling season, given the continued weakness we saw at retail in the first quarter, we believe retail demand overall for the full year will be flat to down slightly,” McCoy said. “In the second quarter, we estimate our marine operating earnings will be down when compared with the strong 18% increase we reported in the second quarter of 2005. This is primarily due to our decision to make additional production cuts in the quarter in select products to continue to manage pipeline inventories. This will contribute to lower operating margins for the quarter and the full year due to the impact of lower fixed-cost absorption. Margins will also be affected by the low-emission outboard transition. When we factor in the decision to sell substantially all of our BNT business unit, total corporate sales for the year are estimated to be up in the low- to mid-single digits, compared with pro forma sales for 2005. Therefore, we are estimating that diluted earnings per share for 2006 will be in the range of $3.00 to $3.15. This is compared with pro forma EPS of $3.13 for 2005, which excludes the gain on the sale of securities mentioned earlier, as well as tax-related benefits. For the second quarter, earnings per diluted share are estimated in the range of $0.90 to $0.97, as compared with $1.12 for the year-ago second quarter.”

  Brunswick Corporation
    Comparative Consolidated Statements of Income
    (in millions, except per share data)
    (unaudited)

                                               Three Months Ended March 31
                                               2006         2005      % Change

    Net sales                                $1,458.0     $1,401.1       4%
    Cost of sales                             1,132.5      1,059.2       7%
    Selling, general and administrative
     expense                                    202.4        208.6      -3%
    Research and development expense             35.9         34.2       5%
    Operating earnings                           87.2         99.1     -12%
    Equity earnings                               5.2          5.0       4%
    Investment sale gain (1)                       -          38.7
    Other expense, net                           (0.1)        (0.9)     89%
    Earnings before interest and income taxes    92.3        141.9     -35%
    Interest expense                            (13.6)       (13.0)     -5%
    Interest income                               2.9          2.7       7%
    Earnings before income taxes                 81.6        131.6     -38%
    Income tax provision                         14.2         37.0
    Net earnings                                $67.4        $94.6     -29%

    Earnings per common share:
    Basic                                       $0.71        $0.97     -27%
    Diluted                                     $0.70        $0.96     -27%

    Weighted average number of shares used for
     computation of:
    Basic earnings per share                     95.6         97.7      -2%
    Diluted earnings per share                   96.6         99.0      -2%