LifeFitness Heats Up As Q1 Freeze Ices Sales at Brunswick’s Other Segments

With many North American lakes still frozen over as of early April, BC executives warned boaters could delay purchases further into the second quarter. Still, they said healthy sales gains in southern states indicate a strong pent up demand for their products. The company lowered its revenue guidance for the full year to 5 to 6 percent from 5 to 7 percent and still expects adjusted operating and pretax earnings to grow at double digit rates.

 

Chairman and CEO Dusty McCoy said that while boat inventories are up at dealers, many of those boats have been sold but can’t be delivered because of all the ice on water in the upper Midwest.

 

“Obviously that makes us feel comfortable about underlying demand,” McCoy said.

 

The company reported total net sales reached $969.2 million in the quarter ended March 29, down from $995.3 million in the quarter ended March 30, 2013. Gross margins edged up 120 basis points to 27.4 percent; a trend that will reverse in the current quarter, as the company ramps up spending for new product launches. Operating expenses increased by 2 percent, including an 8 percent increase in R&D expenses tied to product development. Excluding a one-time gain from a real estate transaction a year ago, operating expenses were down 1 percent compared with the first quarter of 2013.
Operating earnings increased 5 percent to $94.7 million thanks in part to the absence of $5.6 million of restructuring, exit and impairment charges taken in the year earlier period. Net earnings from continuing operations increase 4 percent to $57.0 million, or 60 cents per diluted share.

 

 

Sales at the flagship Marine Engine segment declined 3 percent, to a lower than expected $505.1 million as sales of marine parts and accessories flat lined and engine sales declined. U.S. sales were down 5 percent, while International sales, which represented 36 percent of total segment sales in the quarter, declined 4 percent compared to the prior year. Operating earnings fell 13.7 percent to $61.7 million.

 

Boat segment sales, which are comprised of 14 boat brands, fell 2 percent to $282.8 million, as average selling prices partially offset a decline in unit sales. Sales declined 4 percent in the U.S. but surged 38 percent in Europe on the strength of outboard and US fiberglass brands. Operating earnings grew 3.5 times to $8.4 million due in part to the absence of $4.9 million in restructuring charges in the 2013 quarter.

 

CFO Bill Metzger noted that states that experienced average temperatures of more than five degrees colder than normal reported on average double digit declines at retail, while sales in Florida and Texas grew 9 and 4 percent respectively.

 

The Fitness segment, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment, saw sales grow 6 percent to $175.6 million. International sales, which represented 48 percent of total segment sales in the quarter, declined 1 percent due in part to unfavorable exchange rates. Operating earnings grew 22.4 percent to $29.8 million due sales growth in the United States to health clubs, local and federal governments and hospitality customers combined with favorable warranty expense comparisons, partially offset by investments in growth initiatives and the absence of a favorable insurance settlement in the first quarter of 2013.

 

At the Bowling & Billiards segment, sales fell 8 percent to $78.8 million, thanks in large part to a 35 percent decline in International sales attributable to the divestiture last year of the company’s European bowling centers. Excluding that impact, segment sales declined 3 percent as the harsh winter weather in North America cut into retail center and bowling products sales.  Operating profits declined 14.8 percent $12.7 million.

 

Assuming weather conditions in May and June are more normal, BC anticipates solid top-line growth in its marine and fitness segments in the second quarter, but expects most of its sales and profit growth to come in the second half as a host of new products hit the market and spending subsides to more normal levels.  Pending launches LifeFitness’ first step climber and first small training system for outdoor use as well as new weight systems  from both LifeFitness and Hammer Strength.