Brunswick Corporation reported net sales of $1.44 billion for the 2007 fourth quarter, up 5% from $1.37 billion a year earlier. Operating earnings for the fourth quarter of 2007 totaled $14.2 million, as compared with $30.5 million in the year-ago quarter, and operating margins were 1.0% compared with 2.2% in the year-ago period. During the quarter, Brunswick reported gains in both sales and operating earnings in all of its segments, with the exception of the Boat segment, reflecting the continuing difficult state of the U.S. boat market.
Net earnings from continuing operations were $12.1 million, or 14 cents per diluted share, down from $44.2 million, or 47 cents per diluted share, for the fourth quarter of 2006. Net earnings per share for the fourth quarters of 2007 and 2006 include tax-related benefits of 5 cents and 25 cents per diluted share, respectively. Excluding tax-related benefits, earnings per diluted share totaled 9 cents and 22 cents for the fourth quarters of 2007 and 2006, respectively.
For the fourth quarter in 2007, Brunswick reported a net loss from discontinued operations of 6 cents per diluted share as a result of a tax provision adjustment. This compares with a net loss of $1.04 per diluted share for the fourth quarter of 2006, which included asset impairment charges equivalent to 92 cents per diluted share. Earnings from continuing operations came in at 14 cents per diluted share for the fourth quarter of 2007, compared with 47 cents per diluted share for the same quarter a year ago.
“Results for the quarter were driven by our Fitness equipment and Bowling & Billiards businesses, which performed well in their seasonally strong period,” explained Brunswick Chairman and CEO Dustan E. McCoy.
“Earnings from these businesses, along with contributions from our Marine Engine segment offset operating losses reported in the Boat segment. The decline in retail demand for marine products in the United States that we have been experiencing throughout the year, continued in the fourth quarter. This was offset by continuing strength of markets outside the U.S. for all of our product lines.”
For the year ended Dec. 31, 2007, the company had net sales of $5.67 billion, compared with $5.67 billion in 2006. Operating earnings from continuing operations totaled $107.2 million for the year, down from $341.2 million in 2006, and operating margins were 1.9% versus 6.0% a year ago. For 2007, operating earnings include a $66.4 million pre-tax impairment charge recorded in the third quarter to write down the trade names of certain outboard boat brands.
Net earnings from continuing operations for 2007 were $79.6 million, or 88 cents per diluted share, compared with $263.2 million, or $2.78 per diluted share, in 2006. Results for 2007 and 2006 include tax-related benefits of 11 cents and 50 cents per diluted share, respectively. In addition, results for 2007 include the asset impairment charge equivalent to 46 cents per diluted share. Also, results for 2007 and 2006 include pre-tax restructuring charges of approximately $22.2 million and $18.9 million, equivalent to 17 cents and 14 cents per diluted share, respectively.
For 2007, largely due to a gain on the sale of its Brunswick New Technologies unit, Brunswick reported net earnings from discontinued operations of 36 cents per diluted share, compared with a net loss of $1.37 per diluted share in 2006.
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment. Segment net sales in the fourth quarter of 2007 totaled $214.5 million, up 11% from $192.8 million in the year-ago quarter. Operating earnings increased 12% to $32.4 million from $28.9 million, and operating margins were 15.1%, up from 15.0% in the fourth quarter of 2006.
For 2007, the Fitness segment reported net sales of $653.7 million, up 10% from $593.1 million in 2006. Operating earnings in 2007 increased 3% to $59.7 million from $57.8 million, and operating margins were 9.1% compared with 9.7% a year ago.
“Life Fitness capped off a very successful year with solid growth in both sales and operating earnings during the fourth quarter of 2007, seasonally the unit's strongest quarter of the year,” McCoy said. “New products in both the consumer and commercial segments helped spur sales momentum during the quarter as well as the year. For 2007, operating earnings and operating margins at Life Fitness were under pressure due to higher spending for marketing and research and development to support new product introductions, the shift in our mix to lower-margin strength equipment and competitive pricing in international markets.”
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 net sales in the fourth quarter of 2007 totaled $123.3 million, up 3% compared with $120.1 million in the year-ago quarter. Operating earnings in the quarter nearly doubled to $11.1 million versus $5.6 million in the comparable quarter in 2006, and operating margins were 9.0% compared with 4.7% a year ago.
For 2007, the segment reported net sales of $446.9 million, down 2% from $458.3 million in 2006. Operating earnings for the year were $16.5 million compared with $22.1 million in 2006, and operating margins were 3.7% versus 4.8% a year earlier.
“For the quarter, the segment saw sales gains from both our retail bowling centers and bowling products,” McCoy explained. “Operating earnings were aided by cost reductions at both bowling products and billiards, as we begin to more fully realize savings from moving manufacturing of our bowling balls and coin-operated tables to Mexico. Further, we recently announced that we will have our bowling pins made by a contract manufacturer, which should further reduce our cost structure.”
“For the quarter and the year, we continued to see solid performance from both our Brunswick Zones and the Brunswick Zone XL centers,” McCoy said. “We opened three new Zone XL centers during 2007, with four more locations planned for 2008. Our plans are to accelerate the growth of the Brunswick Zone XL concept going forward.”
The Brunswick Boat Group comprises the Boat segment and includes 19 boat brands, as well as a marine parts and accessories business. The Boat segment reported net sales for the fourth quarter of 2007 of $645.2 million, down 3% compared with $664.5 million in the fourth quarter of 2006. For the fourth quarter of 2007, the Boat segment reported an operating loss of $29.9 million, compared with operating earnings of $9.3 million in the year-ago fourth quarter.
For 2007, Boat segment sales were down 6% to $2,690.9 million from $2,864.4 million in 2006. The Boat segment reported an operating loss of $81.4 million for 2007, which included the previously mentioned $66.4 million pre-tax impairment charge recorded in the third quarter to write down the trade names of certain outboard boat brands. The Boat segment had operating earnings of $135.6 million in 2006.
For the year, Boat segment sales benefited from double-digit increases in both its parts and accessories business and sales outside of the United States. These results helped to mitigate the 10% decline in U.S. boat sales in 2007. Non-U.S. sales benefited from both the weak dollar, as well as from a strong focus on improving our distribution in key international regions.
“In 2007, the U.S. boat market continued to be very soft, and preliminary numbers indicate the industry was down about 9% in units at retail for the year,” McCoy explained. “To address weak retail demand and to maintain the health of our dealer network, we focused on reducing the pipeline, especially for fiberglass boats. We produced up to 20% fewer fiberglass boats in 2007 than in 2006. Reduced unit production also meant lower fixed-cost absorption, which, along with increased promotional spending to spur retail demand, had an adverse effect on fourth quarter and full-year operating earnings.”
“We also continued to focus on establishing a smaller, more flexible manufacturing footprint in the U.S., closing four plants in 2007. While costs associated with realigning manufacturing adversely affect our operating earnings, we will continue to seek opportunities to better leverage our manufacturing capacity in the coming year,” McCoy said.
Marine Engine Segment
For the full year, Marine Engine segment net sales were up 4% to $2.36 billion from $2.27 billion, and operating earnings were $183.7 million versus $193.8 million in 2006. Operating margins were 7.8% for the year, down from 8.5% in 2006.
“For the quarter and the year, double-digit sales gains from markets outside the U.S. fueled growth in the Marine Engine segment,” McCoy said. “Mercury's international sales totaled nearly $944 million for the full year in 2007, up 15% from approximately $822 million the previous year. Meanwhile, in our U.S. markets, sterndrive engine sales totaled $526 million for 2007, down from $554 million in 2006. For 2007, U.S. outboard sales were $425 million, down from $434 million in 2006. Sales of Mercury's domestic parts and services were up slightly to $358 million in 2007 versus $353 million in 2006.”
“Mercury Marine continues to do a good job of dealing with the continuing weak marine retail market in the United States. Mercury's lower U.S. sales were offset by increasing sales outside of the U.S., which accounted for 40% of total Marine Engine segment sales in 2007,” McCoy explained. “The segment also benefited from its broad efforts to trim costs and improve productivity.”
