Brunswick expects growth to continue

LAKE FOREST, Ill. – Acquisitions were part of what drove boating industry giant Brunswick Corp. (NYSE: BC) to achieve a 68-percent increase in net earnings on 33-percent sales growth and a 60-percent improvement in operating earnings for the second quarter of 2004.

However, even after excluding acquisitions that took place during the year, both Brunswick’s boat and marine engine segments saw double digit sales growth, compared to the same quarter of 2003. And Brunswick Chairman and Chief Executive Officer George W. Buckley expects that growth to continue over the next five years.

“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,” said Buckley in a statement from the company today. “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.”

Buckley added that Brunswick’s balance sheet is in fine 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.

Marine engine segment sales up 27 percent

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.”

The company plans to make about 5,000 Verado engines this year, Buckley said today in the company’s earnings conference call. The four-cylinder version of Brunswick’s new four-stroke line will be unveiled at the Miami show in early 2005.

Some of the growth in this segment may have come from the increased percentage of Lowe, Lund and Crestliner boats with Mercury Marine engines on their transoms. When Brunswick first purchased the aluminum brands earlier this year, about 25 percent or 30,000 transoms were being sold with Mercury engines per year. By the end of the year, that number will be closer to 60,000 transoms, Buckley said.

He also explained that Brunswick New Technologies is becoming more integral to the Brunswick family as it grows.

“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,” he added. “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 reports 50-percent sales growth

Brunswick’s 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.

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.

Boat segment sales for the quarter benefited from the full impact of the company’s 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, according to Brunswick. 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.

“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,” stated Buckley. “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.”

Buckley pointed out US Marine’s “remarkable turnaround” in particular, noting that it is operating profitably for a second consecutive quarter, with sales up 29 percent in the quarter.

“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,” he concluded.

Overall second quarter and six-month results

For the quarter ended June 30, net sales increased 33 percent to $1,422.7 million, up from $1,071.0 million a year earlier, Brunswick reported. 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. Net earnings totaled $90.1 million, or $0.93 per diluted share, up 68 percent from $53.6 million, or $0.59 per diluted share, for the second quarter of 2003.

For the six months ended June 30, the company reported net sales of $2,622.3 million, up 31 percent from $2,005.5 million for the first half of 2003. Excluding contributions from acquired businesses, sales were up 17 percent. Operating earnings totaled $218.0 million for the first half of 2004, more than double the $100.2 million reported for the corresponding period in 2003, and operating margins expanded 330 basis points, reaching 8.3 percent versus 5.0 percent a year ago.

Operating earnings for the first six months of 2003 include a $25.0 million litigation charge ($16.0 million after tax) recorded in the first quarter of 2003. Excluding the litigation charge, operating earnings were $125.2 million, and operating margins were 6.2 percent for the first half of 2003.

Net earnings for the first six months of 2004 reached $138.1 million, or $1.43 per diluted share, up from $57.4 million, or $0.63 per diluted share, for the same period in 2003. Excluding the previously mentioned litigation charge, net earnings for the first half of 2003 totaled $73.4 million, or $0.81 per diluted share.

Brunswick raises estimate for 2004 again

If expectations are fulfilled, Brunswick is likely to experience a record year in 2004, Buckley said.

“Likewise, we have been bolstered by the steadily improving economic climate and marine marketplace, having anticipated and reacted to market changes and opportunities,” he commented. “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.”

Buckley also stated that the company is again raising its estimate for 2004 to $2.60 to $2.68 per share from our previous estimate of $2.45 to $2.65 per share. And for the third quarter, Brunswick is 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,” he added

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