Brunswick marine engine sales up, boats down

LAKE FOREST, Ill. – While the majority of its business is centered around the boating business, the good news coming out of marine industry giant Brunswick Corp. (NYSE: BC) as its reported fourth quarter and year-end results this week came from its Fitness equipment and Bowling & Billiards segments.

Though boat segment sales were down only 6 percent for the year, boat unit sales declined 10 percent and the company reported an operating loss of $81.4 million for this segment, compared to operating earnings of $135.6 million in 2006. Brunswick’s marine engine business fared better with international sales driving growth in both sales and earnings.

On a company-wide basis, Brunswick’s earnings from continuing operations were $12.1 million, or $0.14 per diluted share, down from $44.2 million, or $0.47 per diluted share, for the fourth quarter of 2006, it reported in a statement.

“Results for the quarter were driven by our Fitness equipment and Bowling & Billiards businesses, which performed well in their seasonally strong period,” explained Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Earnings from these businesses, along with contributions from our Marine Engine segment offset operating losses reported in the Boat segment. The decline in retail demand for marine products in the United States that we have been experiencing throughout the year, continued in the fourth quarter. This was offset by continuing strength of markets outside the U.S. for all of our product lines.”

“Further, our balance sheet remained healthy with debt-to-total capital at 27.8 percent and cash of $331.4 million at year-end 2007,” McCoy noted. “In spite of the difficult marine market conditions, our free cash flow from continuing operations for 2007 was $172.1 million. This allowed us the financial flexibility to reinvest in our businesses as well as to return $178.4 million to our shareholders through dividends and our share repurchase program in 2007.”

For the quarter ended Dec. 31, the company reported net sales of $1,436.0 million, up 5 percent from $1,370.8 million a year earlier. During the quarter, Brunswick reported gains in both sales and operating earnings in all of its segments, with the exception of the Boat segment, reflecting the continuing difficult state of the U.S. boat market, the company stated.

For the year ended Dec. 31, the company had net sales of $5,671.2 million, compared with $5,665.0 million in 2006. Operating earnings from continuing operations totaled $107.2 million for the year, down from $341.2 million in 2006, and operating margins were 1.9 percent versus 6.0 percent a year ago. For 2007, operating earnings include a $66.4 million pre-tax impairment charge recorded in the third quarter to write down the trade names of certain outboard boat brands.

Net earnings from continuing operations for 2007 were $79.6 million, or $0.88 per diluted share, compared with $263.2 million, or $2.78 per diluted share, in 2006.

Boat Segment reports large losses

The Brunswick Boat Group, which comprises the Boat segment and includes 19 boat brands, as well as a marine parts and accessories business, reported net sales for the fourth quarter of 2007 of $645.2 million, down 3 percent compared with $664.5 million in the fourth quarter of 2006. For the fourth quarter of 2007, the Boat segment reported an operating loss of $29.9 million, compared with operating earnings of $9.3 million in the year-ago fourth quarter.

For 2007, Boat segment sales were down 6 percent to $2,690.9 million from $2,864.4 million in 2006. The Boat segment reported an operating loss of $81.4 million for 2007, which included the previously mentioned $66.4 million pre-tax impairment charge recorded in the third quarter to write down the trade names of certain outboard boat brands. The Boat segment had operating earnings of $135.6 million in 2006.

For the year, Boat segment sales benefited from double-digit increases in both its parts and accessories business and sales outside of the United States. These results helped to mitigate the 10 percent decline in U.S. boat sales in 2007. Non-U.S. sales benefited from both the weak dollar, as well as from a strong focus on improving our distribution in key international regions, according to the company.

“In 2007, the U.S. boat market continued to be very soft, and preliminary numbers indicate the industry was down about 9 percent in units at retail for the year,” McCoy explained. “To address weak retail demand and to maintain the health of our dealer network, we focused on reducing the pipeline, especially for fiberglass boats. We produced up to 20 percent fewer fiberglass boats in 2007 than in 2006. Reduced unit production also meant lower fixed-cost absorption, which, along with increased promotional spending to spur retail demand, had an adverse effect on fourth quarter and full-year operating earnings.”

“We also continued to focus on establishing a smaller, more flexible manufacturing footprint in the U.S., closing four plants in 2007. While costs associated with realigning manufacturing adversely affect our operating earnings, we will continue to seek opportunities to better leverage our manufacturing capacity in the coming year,” McCoy said.

International sales drive marine engine growth

The Marine Engine segment, consisting of the Mercury Marine Group, reported net sales of $548.6 million in the fourth quarter of 2007, up 7 percent from $511.3 million in the year-ago fourth quarter. Operating earnings in the fourth quarter of 2007 were $21.2 million versus $3.8 million, and operating margins were 3.9 percent compared with 0.7 percent for the same quarter in 2006. During the fourth quarter of 2006, approximately $9.5 million of restructuring charges were recorded in the Marine Engine segment, largely for severance costs, while the segment had no restructuring charges in the fourth quarter of 2007.

For the full year, Marine Engine segment net sales were up 4 percent to $2,357.5 million from $2,271.3 million, and operating earnings were $183.7 million versus $193.8 million in 2006. Operating margins were 7.8 percent for the year, down from 8.5 percent in 2006.

“For the quarter and the year, double-digit sales gains from markets outside the U.S. fueled growth in the Marine Engine segment,” McCoy said. “Mercury’s international sales totaled nearly $944 million for the full year in 2007, up 15 percent from approximately $822 million the previous year. Meanwhile, in our U.S. markets, sterndrive engine sales totaled $526 million for 2007, down from $554 million in 2006. For 2007, U.S. outboard sales were $425 million, down from $434 million in 2006. Sales of Mercury’s domestic parts and services were up slightly to $358 million in 2007 versus $353 million in 2006.”

“Mercury’s lower U.S. sales were offset by increasing sales outside of the U.S., which accounted for 40 percent of total Marine Engine segment sales in 2007,” McCoy explained. “The segment also benefited from its broad efforts to trim costs and improve productivity.”

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