Brunswick Corp. increased its earnings guidance and restored its quarterly dividend after reporting income before taxes increased 74 percent in the third quarter ended Sept. 29 on lower losses from its boat business and strong performance at its fitness business.
The company reported net sales of $892.4 million, up 2 percent from $874.3 million a year earlier. Operating earnings increased 12 percent to $63.6 million, which included $3.1 million of restructuring, exit and impairment charges. That compared with operating earnings of $56.7 million, which included $14.3 million of restructuring, exit and impairment charges.
Brunswick reported net earnings from continuing operations of $57.4 million, or $0.61 per diluted share, compared with net earnings from continuing operations of $22.5 million, or $0.24 per diluted share, for the third quarter of 2012. The diluted earnings per share for the third quarter of 2013 included $0.03 per diluted share of restructuring, exit and impairment charges and a $0.05 per diluted share benefit from special tax items. The diluted earnings per share for the third quarter of 2012 included $0.16 per diluted share of restructuring, exit and impairment charges, $0.08 per diluted share of losses on early extinguishment of debt and a $0.02 per diluted share charge from special tax items.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $511.1 million in the third quarter of 2013, up 2 percent from $503.5 million in the third quarter of 2012. International sales, which represented 34 percent of total segment sales in the quarter, increased by 3 percent. For the quarter, the Marine Engine segment reported operating earnings of $75.2 million. This compares with operating earnings of $74.5 million in the third quarter of 2012, which included $0.4 million of restructuring charges.
Sales increases in the quarter were led by the segment’s parts and accessories businesses, partially offset by declines in outboard engine sales, due to differences in backorder trends between years, as well as lower sales of stern-drive engines. The slight improvement in operating earnings is a result of higher sales, partially offset by an increase in investments for long-term growth.
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $511.1 million in the third quarter of 2013, up 2 percent from $503.5 million in the third quarter of 2012. International sales, which represented 34 percent of total segment sales in the quarter, increased by 3 percent. For the quarter, the Marine Engine segment reported operating earnings of $75.2 million. This compares with operating earnings of $74.5 million in the third quarter of 2012, which included $0.4 million of restructuring charges.
Sales increases in the quarter were led by the segment’s parts and accessories businesses, partially offset by declines in outboard engine sales, due to differences in backorder trends between years, as well as lower sales of stern-drive engines. The slight improvement in operating earnings is a result of higher sales, partially offset by an increase in investments for long-term growth.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 14 boat brands. The Boat segment reported net sales of $191.7 million for the third quarter of 2013, a decrease of 2 percent compared with $195.4 million in the third quarter of 2012. International sales, which represented 34 percent of total segment sales in the quarter, increased by one percent during the period. For the third quarter of 2013, the Boat segment reported an operating loss of $16.9 million, including restructuring charges of $2.6 million. This compares with an operating loss of $24.3 million in the third quarter of 2012, including restructuring charges of $13.8 million.
The Boat segment is comprised of the Brunswick Boat Group, and includes 14 boat brands. The Boat segment reported net sales of $191.7 million for the third quarter of 2013, a decrease of 2 percent compared with $195.4 million in the third quarter of 2012. International sales, which represented 34 percent of total segment sales in the quarter, increased by one percent during the period. For the third quarter of 2013, the Boat segment reported an operating loss of $16.9 million, including restructuring charges of $2.6 million. This compares with an operating loss of $24.3 million in the third quarter of 2012, including restructuring charges of $13.8 million.
The decrease in sales resulted from wholesale shipment declines in the segment’s fiberglass sterndrive/inboard boat categories, reflecting the segment’s plan to further lower pipeline levels, particularly for larger boats. This decrease was mostly offset by sales growth in outboard boats. This unfavorable shift in sales mix, along with increased product development related costs, had a negative effect on the segment’s quarterly operating earnings. Partially offsetting these factors were lower restructuring, exit and impairment charges and benefits from successful cost reduction activities.
Fitness Segment
The Fitness segment, comprised of the Life Fitness Division, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the third quarter totaled $165.9 million, up 9 percent from $151.9 million in the third quarter of 2012. International sales, which represented 51 percent of total segment sales in the quarter, increased by 15 percent. For the quarter, the Fitness segment reported operating earnings of $25.3 million. This compares with operating earnings of $23.1 million in the third quarter of 2012. The increase in sales reflected gains in international markets and growth to U.S. health club and hospitality customers, partially offset by the negative impact of lower sales to local and federal government customers. The increase in operating earnings in the third quarter of 2013, when compared with 2012, reflects the benefit from higher sales, partially offset by investments in growth initiatives.
The Fitness segment, comprised of the Life Fitness Division, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the third quarter totaled $165.9 million, up 9 percent from $151.9 million in the third quarter of 2012. International sales, which represented 51 percent of total segment sales in the quarter, increased by 15 percent. For the quarter, the Fitness segment reported operating earnings of $25.3 million. This compares with operating earnings of $23.1 million in the third quarter of 2012. The increase in sales reflected gains in international markets and growth to U.S. health club and hospitality customers, partially offset by the negative impact of lower sales to local and federal government customers. The increase in operating earnings in the third quarter of 2013, when compared with 2012, reflects the benefit from higher sales, partially offset by investments in growth initiatives.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers, bowling equipment and products, and billiards tables and accessories. Segment sales in the third quarter of 2013 totaled $72.8 million, down 2 percent compared with $74.5 million in the year-ago quarter. International sales, which represented 23 percent of total segment sales in the quarter, increased by 4 percent. For the quarter, the segment reported operating earnings of $1.0 million, including restructuring charges of $0.5 million. This compares with operating earnings of $3.2 million in the third quarter of 2012.
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers, bowling equipment and products, and billiards tables and accessories. Segment sales in the third quarter of 2013 totaled $72.8 million, down 2 percent compared with $74.5 million in the year-ago quarter. International sales, which represented 23 percent of total segment sales in the quarter, increased by 4 percent. For the quarter, the segment reported operating earnings of $1.0 million, including restructuring charges of $0.5 million. This compares with operating earnings of $3.2 million in the third quarter of 2012.
The reduction in revenues reflects an increase in sales in bowling products, which was more than offset by the impact of a reduced number of retail bowling centers, as well as lower U.S. equivalent retail center sales. The decrease in operating earnings in the third quarter of 2013, when compared with 2012, was due to higher restructuring charges, lower retail bowling sales and increased investments for long-term growth, partially offset by higher bowling products earnings.
2013 outlook
“As a result of the solid performance in the first nine months of the year, as well as a lower than anticipated tax rate, we are increasing our expectation for 2013 diluted earnings per share from continuing operations, as adjusted, to a range of $2.65 to $2.70 per diluted share,” McCoy said. (“Our operating plans for the remainder of the year reflect a continuation of the uneven recovery in the U.S. powerboat market, with outboard boat and engine products and global parts and accessories businesses generating solid growth. Our assumptions continue to reflect unchanged market conditions in the fiberglass sterndrive/inboard boat category.
“As a result of the solid performance in the first nine months of the year, as well as a lower than anticipated tax rate, we are increasing our expectation for 2013 diluted earnings per share from continuing operations, as adjusted, to a range of $2.65 to $2.70 per diluted share,” McCoy said. (“Our operating plans for the remainder of the year reflect a continuation of the uneven recovery in the U.S. powerboat market, with outboard boat and engine products and global parts and accessories businesses generating solid growth. Our assumptions continue to reflect unchanged market conditions in the fiberglass sterndrive/inboard boat category.
“We continue to target a 4 percent growth rate in overall revenue in 2013. Our current plan reflects a solid improvement in gross margin levels for the year. Looking forward, our organic growth platform will benefit from increased 2013 investments in capital projects and research and development programs, along with the SG&A to support them. As a result of these initiatives, full-year operating expenses, as a percentage of sales, are expected to be comparable to 2012 levels.
“For the full year, we expect to generate positive free cash flow generally consistent with prior year performance, in spite of significant increases in investment spending. Also, due to the successful execution of our debt reduction plan, 2013 net interest expense should be lower than 2012 by approximately $22 million,” McCoy concluded.
