Brunswick to build more boat, engine plants

LAKE FOREST, Ill. – George W. Buckley, chairman and chief executive officer for boat and engine manufacturer Brunswick Corp. (NYSE: BC), said during an earning conference call today that the company plans to build several new manufacturing facilities in the next two years.

This includes a second boat building plant in Reynosa, Mexico, right next to the first plant. Together, Buckley expects the two plants to be able to produce 16,000 boats in the 17- to 25-foot range by the end of the year.

A third plant also may be built in Reynosa in 2005, and Buckley said Brunswick is considering constructing another boat building plant in China.

Brunswick already is going forward with a new plant in China that will come on line in 2005 to build small- to medium-sized four-stroke outboard engines, according to Buckley.

Lastly, Brunswick has extended its relationship with Tohatsu and through that joint venture will be manufacturing engines in Japan.

Company results for 4Q and 2003

Brunswick Corp. experienced net earnings of $39.9 million for the fourth quarter of 2003, nearly double net earnings of $20.5 million for the year-ago quarter, the company reported in a statement today.

Brunswick said the 95-percent increase in net earnings came on a 17-percent increase in sales and a 43-percent improvement in operating earnings.

“Each of our operating segments — Marine Engine, Boat, Fitness and Bowling & Billiards — reported double-digit sales growth for the quarter,” said Brunswick Chairman and Chief Executive Officer George W. Buckley. “These results reflect the success of our strategy to develop and introduce new products and technologies that inspire and excite our customers, as well as the benefit of acquisitions and the impact of a weaker U.S. dollar.”

For the quarter ended Dec. 31, the company reported that net sales increased to $1,086.9 million, up from $928.0 million a year earlier, due in part to higher volumes, improved performance at the company’s US Marine division, the impact of a weaker U.S. dollar and incremental sales from acquisitions that were not in the year-ago quarter.

For the year ended Dec. 31, the company had net sales of $4,128.7 million, up 11 percent from $3,711.9 million in 2002. All business segments contributed to the company’s good performance for the year, along with the benefit of acquisitions, the company reported.

Net earnings for 2003 were $135.2 million, compared to net earnings for 2002 of $78.4 million.

Marine engine segment

The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick New Technologies, reported sales of $473.4 million in the fourth quarter of 2003, up 18 percent from $402.8 million in the year-ago fourth quarter, the company reported. Operating earnings in the fourth quarter were up 60 percent to $26.7 million versus $16.7 million, and operating margins increased to 5.6 percent compared with 4.1 percent for the same quarter in 2002.

For the full year, Marine Engine segment sales rose 12 percent to $1,908.9 million, and operating earnings were $171.1 million versus $170.9 million a year ago. Operating margins for the year declined to 9.0 percent versus 10.0 percent in 2002.

“Mercury Marine’s international unit had an excellent 2003 with sales increasing 22 percent, driven by share gains as well as the impact of the weaker U.S. dollar,” Buckley said. “Higher sales in the domestic market during the latter part of the year helped offset a slow start in the first half resulting in relatively flat year-over-year domestic sales. Pipeline engine inventories continue to be in excellent shape at 22 weeks of supply at the end of 2003 as compared with 23 weeks of supply a year ago.”

He also explained that Brunswick New Technologies contributed to the sales gain for the Marine Engine segment, primarily due to the acquisition of Navman NZ Limited in the second quarter, This acquisition further enhances Brunswick’s ability to manufacture boats with integrated marine electronics.

“The Marine Engine segment posted a significant improvement in operating margins in the second half of the year, despite higher R&D spending in support of Brunswick New Technologies, increased pension and health-care expense and margin pressure from a shift in our outboard product mix to low-emission engines that have lower margins,” Buckley added.

Boat Segment

The Brunswick Boat Group, which includes the Boat segment, Land ‘N’ Sea and Attwood marine parts and accessories, reported sales for the fourth quarter of $414.9 million, up 21 percent compared with $344.2 million in the fourth quarter of 2002.

Boat segment sales benefited from incremental sales from its new P&A business, which began with the acquisition of Land ‘N’ Sea and Attwood Marine in June and September of 2003, respectively.

Excluding these acquisitions, sales increased 13 percent in the quarter. Operating earnings for the Boat segment increased to $9.3 million, more than double the $4.5 million reported in the fourth quarter of 2002, and operating margins rose to 2.2 percent, up from 1.3 percent.

For 2003, Boat segment sales were up 15 percent to $1,616.9 million from $1,405.3 million in 2002. Excluding the new P&A businesses, Boat segment sales were up 11 percent for the year.

Operating earnings for the Boat segment more than tripled to $63.9 million from $19.0 million in 2002, and operating margins improved to 4.0 percent compared with 1.4 percent in 2002.

“The improvement in retail demand that began toward the end of the second quarter has continued, leading to stronger wholesale shipments to our dealers,” reported Buckley. “Importantly, pipeline inventories are in excellent shape at 28 weeks of supply at year end, unchanged from the same time a year ago.”

He also highlighted the turnaround of Brunswick’s US Marine Division, “which we expect to return to profitability in 2004.”

Buckley said during the earnings conference call that the company’s small boat strategy has been so successful that demand for the Bayliner 175 and Bayliner 185 has been “well exceeding our capacity.”

These boats are allowing both Brunswick and its dealers to “make great sales and great margins on small boats,” which Buckley said few of its competitors can offer.

Sea Ray also contributed to the Boat segment’s strong performance for the year with double-digit sales and earnings growth driven by the success of a number of new models,” he added.

Looking ahead

“As we enter 2004, we are very encouraged that many of our strategic initiatives are starting to take hold,” Buckley noted. “With the economy showing more stability and consumer confidence on the rise, we estimate marine retail market growth in the mid-single digits for the year. When we couple these factors along with new product introductions, share gains and incremental sales from acquisitions completed in 2003, we expect to post sales growth for our marine businesses in the low-double digits, and for our fitness and bowling and billiards businesses in the high-single digits.”

Buckley said the company also expects operating margins to “benefit from higher volumes as well as our ongoing focus on effective cost management,” which should more than offset costs associated with new product introductions and new plant openings in Mexico and China, and the margin impact of the transition to low-emission outboard engines.

“Our overall operating margins improved by 70 basis points in 2003, and we would expect to do better than that in 2004. As a result, we estimate diluted earnings per share in the range of $2.10 to $2.30 for 2004,” he added.

He also cautioned that when looking at the first quarter, “keep in mind that we got off to a very slow start in the first quarter of 2003 with marine retail down 15 to 20 percent.”

“Given the easy comparison, our first quarter 2004 performance should exceed the growth rates estimated for the full year,” he explained. “We are estimating diluted earnings per share for the first quarter to be between $0.35 and $0.40, compared with $0.22 per diluted share for 2003, excluding the $0.18 per diluted share litigation charge recorded in the first quarter of 2003.”

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