Brunswick Corporation recorded a decrease in net earnings from continuing operations to 65 cents per diluted share for the second quarter of 2007, compared with 99 cents per diluted share for the year-ago second quarter. Net earnings from continuing operations for the second quarter of 2006 include a 6 cents per diluted share benefit from tax-related items.
Second Quarter Results
For the quarter ended June 30, 2007, overall net sales decreased slightly to $1.52 billion, down from $1.54 billion a year earlier. Operating earnings declined to $89.3 million compared with $138.2 million in the year-ago quarter, and operating margins were 5.9%, down from 9.0%. Net earnings from continuing operations totaled $58.9 million, or 65 cents per diluted share, down from $94.5 million, or 99 cents per diluted share, for the second quarter of 2006. In the second quarter of 2006, the company recorded a tax benefit of 6 cents per diluted share. Debt-to-total capital was 27.4% at quarter end as compared with 26.2% a year earlier, and cash totaled $278.8 million.
“Lower wholesale unit shipments across our marine portfolio, coupled with lower fixed-cost absorption on reduced production and additional funds for retail and dealer promotional support were the primary drivers behind the reduction in operating earnings,” McCoy said.
The company said that during the second quarter of 2007, it acquired 1.6 million shares of its common stock for $53.8 million. Including stock purchases made subsequent to quarter end, 3.0 million shares have been acquired year-to-date for $100.3 million. The company said it has approximately $266 million remaining under a $500 million repurchase authorization approved by its Board of Directors in 2006. Diluted shares outstanding averaged 91.0 million in the second quarter of 2007, down from 95.5 million for the second quarter of 2006.
Discontinued Operations
For the second quarter of 2007, the company had net earnings from discontinued operations of $0.4 million, or 0 cents per diluted share, compared with a loss of $11.3 million, or 12 cents per diluted share, for the same period in 2006. During the second quarter of 2006, the company announced its decision to sell substantially all of its Brunswick New Technologies (BNT) business unit.
Earlier this month, Brunswick announced it has essentially brought the disposition of the key BNT business units to a close with the sale of the BNT fleet management business unit to Navman Wireless Holdings L.P. Previously, Brunswick had sold the marine electronics portion of BNT to Navico International Ltd., while the personal navigation device business was purchased by MiTAC International Corporation.
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. The Boat segment reported net sales for the second quarter of 2007 of $732.8 million, down 5% from $769.7 million in the second quarter of 2006. Operating earnings decreased to $19.3 million from $53.1 million reported in the second quarter of 2006, and operating margins were 2.6%, down from 6.9%.
“Our boat parts and accessories business and boat sales outside the United States were bright spots, each posting double-digit increases in the quarter. This was more than offset by the decline in boat sales in the U.S., where we continue to contend with a number of factors that have contributed to a challenging marine market. Higher interest rates, weak housing markets and higher prices for fuel, food and other essentials have continued to erode consumers' disposable income. Further, the depressed housing situation is most pronounced in Florida and California, which are two of the nation's largest boating markets,” McCoy said. “To manage our pipeline inventories, we have reduced shipments to our dealers; however, fixed-cost absorption on lower production and higher promotional spending to spur demand have had an adverse effect on operating earnings.”
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, reported net sales of $669.6 million in the second quarter of 2007, slightly higher than the $668.5 million in the year-ago quarter. Operating earnings in the second quarter decreased to $83.3 million versus $94.7 million, and operating margins declined to 12.4% from 14.2% for the same quarter in 2006.
“Higher segment sales of products outside of the United States, where we reported double-digit sales increases in all regions, helped to offset lower domestic outboard and sterndrive sales,” McCoy said. “The adverse effect on operating earnings of fixed-cost absorption on lower production was somewhat offset by improved operating efficiencies resulting from restructuring and cost-reduction efforts.”
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment. Fitness segment sales increased 11% in the quarter to $144.0 million, up from $129.7 million in the year-ago quarter. Operating earnings for the quarter totaled $7.4 million, flat from the second quarter of 2006, and operating margins decreased 60 basis points to 5.1% from 5.7% a year ago.
“Sales of commercial equipment were up double digits in both the United States and in non-U.S. markets,” McCoy explained. “Operating earnings were affected by higher research, development and marketing spending to support a completely new line of cardiovascular products being launched in the second half of the year.”
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 second quarter of 2007 totaled $103.2 million, down 6% compared with $110.1 million in the year-ago quarter. For the second quarter, the segment reported an operating loss of $2.7 million versus operating earnings of $0.6 million in the year-ago period.
“We continue to see higher sales from our bowling retail centers, especially at our new, larger Brunswick Zone XLs,” McCoy explained. “Difficult market conditions for bowling products contributed to the quarterly loss for this segment. Further, slower-than-anticipated ramp up of production at our bowling ball manufacturing plant in Mexico is also affecting the segment's results.”
Six-Month Results
For the six months ended June 30, 2007, the company had net sales of $2.91 billion, down 2% from $2.96 billion for the first half of 2006. Operating earnings totaled $142.3 million for the first half of 2007, down from $236.4 million for the corresponding period in 2006, and operating margins declined to 4.9% versus 8.0% a year ago. Net earnings from continuing operations for the first six months of 2007 were $93.2 million, or $1.02 per diluted share, down from $168.6 million, or $1.76 per diluted share, for the same period in 2006. Results include 2 cents per diluted share and 19 cents per diluted share of tax-related benefits in the first six months of 2007 and 2006, respectively.
Discontinued Operations
For the first half of 2007, the company reported net earnings from discontinued operations of 13 cents per diluted share, compared with a net loss of 19 cents per diluted share for the same period in 2006. The improved performance in 2007 was largely attributable to gains on the sale of BNT business units in the first half of the year.
Looking Ahead
“As we look at the second half of 2007, we continue to focus on managing our marine pipeline inventories,” McCoy said. “At the end of the 2007 model year on June 30, we had 26 weeks of supply of boats, flat from a year ago, and 26 weeks of supply of engines, up 5 weeks from a year ago, in the pipeline. We did not have sufficient sell through at retail to bring pipelines down to acceptable levels for this time of the selling season, despite reducing production and wholesale shipments in the quarter. Therefore, we will be further reducing production through the 2008 model year. As a result, we estimate that for 2007, we will report net earnings per diluted share from continuing operations in the range of $1.20 to $1.35, as we announced last week.”
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Three Months Ended
June 30, July 1,
2007 2006 % ChangeNet sales $1,522.9 $1,543.1 -1%
Cost of sales 1,190.6 1,188.3 0%
Selling, general and administrative
expense 207.3 182.6 14%
Research and development expense 35.7 34.0 5%
Operating earnings 89.3 138.2 -35%
Equity earnings 7.1 6.6 8%
Other income (expense), net 0.2 (2.6) NM
Earnings before interest and income
taxes 96.6 142.2 -32%
Interest expense (13.3) (14.2) -6%
Interest income 1.9 2.5 -24%
Earnings before income taxes 85.2 130.5 -35%
Income tax provision 26.3 36.0
Net earnings from continuing operations 58.9 94.5 -38%Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax 0.6 (11.3) NM
Gain (loss) on disposal of
discontinued operations, net of tax (0.2) –
Net earnings (loss) from
discontinued operations 0.4 (11.3) NMNet earnings $59.3 $83.2 -29%
Earnings per common share:
Basic
Net earnings from continuing
operations $0.65 $1.00 -35%
Earnings (loss) from discontinued
operations, net of tax – (0.12) NM
Gain (loss) on disposal of
discontinued operations, net of tax – –Net earnings $0.65 $0.88 -26%
Diluted
Net earnings from continuing
operations $0.65 $0.99 -34%
Earnings (loss) from discontinued
operations, net of tax – (0.12) NM
Gain (loss) on disposal of
discontinued operations, net of tax – –Net earnings $0.65 $0.87 -25%
Weighted average number of shares
used for computation of:
Basic earnings per share 90.5 94.7 -4%
Diluted earnings per share 91.0 95.5 -5%Effective tax rate (1) 30.9% 27.6%
Supplemental earnings per common
share information
Diluted net earnings from continuing
operations $0.65 $0.99 -34%
Non-recurring tax benefits (1) – (0.06) NM
Diluted net earnings from continuing
operations, as adjusted $0.65 $0.93 -30%(1) The increase in the effective tax rate for the second quarter of 2007
was primarily due to lower non-recurring tax benefits compared with
the second quarter of 2006.
