Surging demand for larger power boats and engines put Brunswick Corp.'s Marine segment in the black in fourth quarter.

The company reported sales reached $938.6 million, up 13.5 percent from the fourth quarter of 2013. Sales of at its Marine segment, which owns 19 boat brands including Sea Ray and Boston Whaler as well as engine maker Mercury Marine, reached $703.6 million, up 15.4 percent, while sales at its Fitness segment, which owns the Lifetime Fitness and Hammer Strength brands and BC's remaining billiards businesses, grew 8.2 percent to $235.0 million.

Operating income surged 80.2 percent to $14.6 million as the demand for larger, more expensive boats drove operating income at the Marine segment to a $27.5 million compared with a $3.8 million loss a year earlier. At the Fitness Segment, operating income grew 11.5 percent to $40.8 million.

Gross margin reached 24.5 percent, up 90 basis points (bps) from the year-earlier quarter. SG&A expenses declined 140 bps to 16.4 percent.

BC reported adjusted earnings before income taxes increased nearly six-fold to $40.4 million, but turned in a net loss of $4.3 million after paying out $27.9 million to settle pension claims and taking a $20.2 million non-cash charge to reflect a decline in the value of its investment in a European boat builder.

The company ended the year with inventory valued at $652.3 million, up 11.7 percent from a year earlier, and still scrambling to meet demand for its largest boats.

While employees are putting in heavy overtime at BC's boat factory in Palm Coast, FL, BC Chairman and CEO Dusty McCoy said it would take them a year to work through the current backlog for Sea Ray boats. To reduce the wait time, BC will reopen a plant it shuttered after the recession that will focus on boosting production of Sea Ray's 41-to-58-foot Sport Yachts and 59-to65-foot L-Class boats. It is also expanding capacity at a Boston Whaler plant.

The spending will cut into Marine margins in first half, but margins should improve significantly in back half as it reduces overtime and other inefficiencies. The higher mix of larger boats pushed up ASPs at the Marine segment 10 percent in 2014 and BC expects ASPs to rise another 4 to 5 percent in 2015.

On the acquisition front, BC is scouting engine makers and fitness brands, but not boats.

“It's not that the boat business is not a good place,” said McCoy. “We just think the synergistic opportunities and growth opportunities around acquisitions, around engines and fitness, is significantly higher. We're currently exploring and piloting certain adjacency opportunities in both the fitness equipment and health and wellness sectors, as well as evaluating acquisitions.”

BC is also boosting capacity at its Life Fitness plant in Hungary in a move that will likely lower brand margins in fiscal 2015, but position the brand for growth in out years.

BC issued guidance for fiscal 2015 that calls for revenue growth of 6-to-8 percent with a slight increase in gross and operating margins as higher unit volume, improved product mix offset the negative impact of exchange rates. Adjusted pre-tax earnings are expected to grow 15-to-20 percent and diluted EPS as in the 11-to-18 percent range.