Brunswick Corporation reported that net earnings increased 68.0% to $90.1 million, or 93 cents per diluted share, for the second quarter, compared with net earnings of $53.6 million, or 59 cents per diluted share, for the year-ago quarter.

“All of our operations — marine, fitness and bowling and billiards — registered double-digit sales growth for the period, contributing to the company's outstanding performance in the quarter,” said Brunswick Chairman and Chief Executive Officer George W. Buckley. “A stronger marine retail environment, popular new boats, engines and fitness equipment and recent acquisitions were the primary drivers behind the 33 percent sales gain. Excluding the effects of acquired businesses that were not part of the company a year ago, sales were up a strong 17 percent in the quarter. In addition, higher sales and production volumes, combined with effective cost management, resulted in a 60 percent increase in operating earnings to $139.5 million and a 170 basis point improvement in operating margins to 9.8 percent for the quarter. Our balance sheet remains in excellent shape, with debt-to-total capital of 31.9 percent at quarter end as compared with 34.9 percent a year earlier, and cash reached $438.2 million. The combination of sales growth, earnings growth and cash flow performance was quite remarkable this quarter.”

For the quarter ended June 30, 2004, net sales increased 33 percent to $1,422.7 million, up from $1,071.0 million a year earlier. Operating earnings rose to $139.5 million compared with $87.2 million in the year-ago quarter, and operating margins improved to 9.8 percent from 8.1 percent.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick New Technologies (BNT), reported sales of $665.2 million in the second quarter of 2004, up 27 percent from $521.9 million in the year-ago second quarter. Operating earnings in the second quarter increased 49 percent to $95.6 million versus $64.2 million, and operating margins advanced 210 basis points to 14.4 percent compared with 12.3 percent for the same quarter in 2003.

“While recent acquisitions contributed to this segment's solid results, sales for our core marine engine operations alone were up 21 percent, well outstripping industry numbers. Sales of outboard and sterndrive engines were up double digits for the quarter as were our parts and accessories and international sales,” Buckley said. “A strong retail environment and excitement generated by our new Verado outboard engine, which we started shipping in April, helped set a positive tone and build momentum for the quarter.”

“When we launched Verado in February, we promised it would be unlike anything seen in the marketplace today, and we have succeeded in doing that,” Buckley said. “Customer response has been very enthusiastic with Verado garnering critical acclaim and industry buzz. This high-horsepower, four- stroke outboard range is the only production supercharged engine on the market. Our investment has produced an engine unmatched in power, torque, near-silent running, excellent fuel economy and low-emissions.”

“During the quarter, BNT continued on plan, establishing itself as an integral, growing and increasingly valuable member of the Brunswick family,” Buckley said. “While all BNT units did well, we have been particularly pleased with the performance of Navman NZ Limited, a producer of global positioning system-based products. Indeed, during the quarter, we purchased the remaining 30 percent of Navman, which had been our intent when we made the initial investment in June 2003. We believe that the combined strengths of Navman and Brunswick will lead to continued growth and more innovative products in this increasingly important market segment.”

Boat Segment

The Brunswick Boat Group comprises the Boat segment and includes the Sea Ray, Bayliner, Maxum, Hatteras, Sealine, Meridian, Boston Whaler, Trophy, Baja, Crestliner, Lowe, Lund and Princecraft boat brands and the Land 'N' Sea and Attwood marine parts and accessories distribution and manufacturing businesses. The Boat segment reported sales for the second quarter of $629.9 million, up 50 percent compared with $418.9 million in the second quarter of 2003. Boat segment sales for the quarter benefited from the full impact of our 2003 acquisitions of Land 'N' Sea and Attwood, which serve as the foundation for a new boat parts and accessories business, as well as the Crestliner, Lowe and Lund aluminum boat brands acquired at the end of the first quarter of 2004. Excluding the sales of these businesses, Boat segment sales increased 17 percent in the quarter. Operating earnings increased to $57.0 million, 76 percent ahead of the $32.3 million reported in the second quarter of 2003, and operating margins rose 130 basis points to 9.0 percent, up from 7.7 percent.

“We are particularly gratified by the performance of our leading boat brands,” Buckley explained. “US Marine, maker of our Bayliner brand, joins our Sea Ray, Boston Whaler, Baja and Sealine brands registering double-digit sales gains for the quarter. Such performance points to our boat brands' appeal and reach, as well as our continuing focus on leading-edge products and innovation. The Bayliner 175 runabout, the Sea Ray 500 Sundancer, the Boston Whaler 305 Conquest and the Trophy 2502 Walkaround are among our best selling models. But, we also saw superb growth in all of our new models and a strong order book emerging on large boats, especially Hatteras, which is as good or better than what we saw in 1999.”

“I'm also pleased to report that US Marine continued its quite remarkable turnaround, operating profitably for a second consecutive quarter, with sales up 29 percent in the quarter,” Buckley noted. “Further, our Boat Group continues to benefit from higher volumes and effective cost management, which also contributed to the improved operating margins in the quarter.”


Fitness Segment

The Fitness segment is comprised of the Life Fitness division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment, and operates Omni Fitness retail stores. Segment sales in the second quarter of 2004 reached $122.3 million, up 16 percent from $105.1 million in the year-ago quarter. Operating earnings for the quarter totaled $2.9 million compared with $5.3 million in the second quarter of 2003, and operating margins were 2.4 percent compared with 5.0 percent a year ago.

“We were pleased with the growth in our fitness sales for the quarter,” Buckley said. “This reflects the strength of our brands in the market as well as the steady drum beat of new products we have maintained for the past two years. Margins contracted somewhat in this off-season period, however, due to a combination of competitive pricing pressure in Europe, a shift in product mix towards hot selling but lower margin strength equipment, technology licensing costs and increases in steel pricing. We have made great progress in productivity improvements at our Ramsey, Minn., facility, which has been busily integrating products from the closure of our Paso Robles, Calif., facility, and productivity run rates are approaching pre-facility merger numbers. We expect steel pricing and technology costs to abate in the coming year, which, along with further reductions in delivery and installation costs, should help to narrow the year-over-year operating margin gap.”

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 2004 totaled $105.8 million, up 12 percent compared with $94.1 million in the year-ago quarter. Operating earnings more than doubled to $4.2 million in the second quarter versus $1.9 million, and operating margins improved to 4.0 percent compared with 2.0 percent in 2003.

“The quarter saw strong sales gains in our bowling products group, led by the success of our new Vector scoring system,” Buckley said. “Billiards sales were also up double digits, aided by the acquisition of Valley-Dynamo in June 2003. Excluding Valley-Dynamo, Bowling & Billiards segment sales increased 6 percent. Valley-Dynamo, which concentrates on the coin-operated pool table market, gives Brunswick a solid one-two punch along side its traditional billiards operations, where new tables, such as the contemporary Metro, have energized sales.”

“During the quarter, we opened two new bowling entertainment centers located in suburban Chicago and Denver, which are based on an enhanced Brunswick Zone concept,” Buckley said. “These newly built centers are about twice the size of our traditional centers and feature not only bowling, but expanded recreation options designed to attract families who come to have fun, which is what our retail centers are all about. Initial sales in these two new centers were very encouraging and were multiples of what we typically see in traditional bowling centers in the slow summer season. A new business model in bowling is clearly beginning to emerge, and we intend to capitalize on it.”

Looking Ahead

“Based on our performance in the first six months and our current outlook, 2004 is shaping up to be a record year for Brunswick, which is testimony to the soundness of our strategy and our capabilities to execute against that plan,” Buckley commented. “Likewise, we have been bolstered by the steadily improving economic climate and marine marketplace, having anticipated and reacted to market changes and opportunities. Retail demand for our marine products is tracking at our estimates, and higher volumes are resulting in improved operating margins. Inventories are in great shape with 21 weeks supply of boats and 17 weeks supply of engines in the pipeline, both down about two weeks from a year ago. This is just where we want to be as we enter the new boat model year — clean pipelines and good momentum. When we consider all these factors, along with contributions from recent acquisitions, we are again raising our estimate for 2004 to $2.60 to $2.68 per share from our previous estimate of $2.45 to $2.65 per share. For the third quarter, we're estimating earnings in the range of $0.60 to $0.65 per share. Free cash flow has also been significantly better than our estimates, and we should close the year at almost $290 million.”

    Brunswick Corporation
    Comparative Consolidated Statements of Income
    (in millions, except per share data)
    (unaudited)
                                                   Quarter Ended June 30
                                                2004         2003    % Change
    Net sales                                $1,422.7     $1,071.0      33%
    Cost of sales                             1,054.9        807.2      31%
    Selling, general and administrative
     expense                                    198.9        149.1      33%
    Research and development expense             29.4         27.5       7%
    Operating earnings                          139.5         87.2      60%
    Interest expense                            (10.4)       (10.1)      3%
    Other income                                  5.4          5.3       2%
    Earnings before income taxes                134.5         82.4      63%
    Income tax provision                         44.4         28.8      54%
    Net earnings                                $90.1        $53.6      68%

    Earnings per common share:
    Basic                                       $0.94        $0.59      59%
    Diluted                                     $0.93        $0.59      58%


    Segment Information

                                         Quarter Ended June 30

                            Net Sales            Operating          Operating
                                                 Earnings            Margin
                                        %                    %
                       2004     2003  Change  2004   2003  Change  2004   2003

    Marine Engine    $665.2   $521.9   27%   $95.6  $64.2   49%   14.4%  12.3%
    Boat              629.9    418.9   50%    57.0   32.3   76%    9.0%   7.7%
    Marine
     eliminations     (99.9)   (68.8)            -      -
      Total Marine  1,195.2    872.0   37%   152.6   96.5   58%   12.8%  11.1%

    Fitness           122.3    105.1   16%     2.9    5.3  -45%    2.4%   5.0%
    Bowling &
     Billiards        105.8     94.1   12%     4.2    1.9    NM    4.0%   2.0%
    Eliminations       (0.6)    (0.2)            -      -
    Corporate/Other       -        -         (20.2) (16.5)  22%
      Total        $1,422.7 $1,071.0   33%  $139.5  $87.2   60%    9.8%   8.1%