Brunswick sales up 6 percent for quarter

Editor's note: Read more coverage of the Brunswick earnings call here.

Brunswick Corporation (NYSE: BC) today reported results for the third quarter of 2015:

  • Consolidated net sales increased 6 percent versus third quarter 2014; 11 percent growth on a constant currency basis.
  • Adjusted operating earnings increased by 22 percent. On a GAAP basis, operating earnings were up 24 percent.
  • Adjusted pretax earnings increased by 25 percent. On a GAAP basis, pretax earnings were up 26 percent.
  • Diluted EPS of $0.77, a 22 percent increase compared with prior year, on an as adjusted basis, and a 20 percent increase on a GAAP basis.
  • Year-to-date free cash flow of $131 million, an $82 million increase compared with prior year.

“Our reported third quarter revenues increased by 6 percent; 11 percent on a constant currency basis,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “Our top line reflected strong growth rates in fiberglass outboard and sterndrive/inboard boats. This growth also included a solid performance by marine parts and accessories, outboard engines, fitness equipment and aluminum boats.

“Sales growth was driven by solid market demand, higher average marine selling prices and continued market share gains.

“Adjusted operating earnings in the third quarter increased by 22 percent as compared to the prior year, reflecting an adjusted operating margin increase of 160 basis points. Diluted earnings per common share, as adjusted, also increased by 22 percent. This strong earnings growth was also supported by a more favorable product mix, benefits from cost reductions and savings related to sourcing initiatives, partially offset by the unfavorable effects of foreign exchange,” McCoy said.

Discontinued Operations

On Sept. 18, 2014, and May 22, 2015, the Company completed the sale of its Retail Bowling and Bowling Products businesses, respectively. As a result, the historical and future results of these businesses are reported as discontinued operations and the historical and future results of the Billiards business, which remains part of the Company, are now reflected in the Fitness segment. Therefore, for all periods presented in this release, all figures and outlook statements incorporate these changes and reflect continuing operations only, unless otherwise noted.

For the third quarter of 2015, the Company reported net sales of $991.9 million, up from $932.1 million a year earlier. For the quarter, the Company reported operating earnings of $115.8 million, compared to $93.7 million in the prior year. Operating earnings for the third quarter of 2014 included $0.9 million of net restructuring, exit and impairment charges.

Brunswick reported net earnings of $72.2 million, or $0.77 per diluted share, compared with net earnings of $61.0 million, or $0.64 per diluted share, for the third quarter of 2014. The diluted earnings per share for the third quarter of 2014 included $0.01 per diluted share of restructuring, exit and impairment charges and $0.02 per diluted share benefit from special tax items.

Review of Cash Flow and Balance Sheet

Cash and marketable securities totaled $654.4 million at the end of the third quarter, up $18.5 million from year-end 2014 levels. This change versus year-end reflects net cash provided by operating activities of $240.7 million, an increase of $113.3 million versus the prior year. Net proceeds received from the sale of the Bowling Products business (reported in discontinued operations) also contributed to the increase. In addition, cash used for investing and financing activities of $194.6 million affected cash and marketable securities balances. Investing and financing activities during the first nine months included $98.5 million for capital expenditures, $100.0 million for common stock repurchases and $34.6 million for dividends.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $588.2 million in the third quarter of 2015, up 4 percent from $566.9 million in the third quarter of 2014. International sales, which represented 32 percent of total segment sales in the quarter, were down 5 percent compared to the prior year period. On a constant currency basis, international sales were up 10 percent. For the quarter, the Marine Engine segment reported operating earnings of $102.5 million. This compares with operating earnings of $93.3 million in the third quarter of 2014.

Sales increases in the quarter were led by the segment’s parts and accessories businesses, which included revenues from acquisitions completed in the second quarter of 2015 and during the third quarter of 2014. Higher revenues, a more favorable product mix, cost reductions and savings related to sourcing initiatives contributed to the increase in operating earnings in the third quarter of 2015. Partially offsetting these
positive factors were the unfavorable effects of foreign exchange.

Boat Segment

The Boat segment is comprised of the Brunswick Boat Group, and includes 14 boat brands. The Boat segment reported net sales of $271.3 million for the third quarter of 2015, an increase of 16 percent compared with $234.6 million in the third quarter of 2014. International sales, which represented 21 percent of total segment sales in the quarter, decreased by 16 percent during the period. On a constant currency basis, international sales were down 6 percent. For the third quarter of 2015, the Boat segment reported operating earnings of $6.4 million. This compares with an operating loss of $7.0 million in the third quarter of 2014, including net restructuring charges of $0.9 million.

The Boat segment's revenue growth reflected a strong increase in units shipped to dealers, as well as higher average selling prices. Operating earnings benefited from higher sales and a more favorable product mix, as well as savings related to sourcing initiatives and cost reductions.

Fitness Segment

The Fitness segment is comprised of the Life Fitness Division, which designs, manufactures and sells strength and cardiovascular fitness equipment and billiards tables. Fitness segment sales in the third quarter of 2015 totaled $197.5 million, up 4 percent from $189.0 million in the third quarter of 2014. International sales, which represented 47 percent of total segment sales in the quarter, decreased by 4 percent.

On a constant currency basis, international sales were up 4 percent. For the quarter, the Fitness segment reported operating earnings of $27.6 million. This compares with operating earnings of $25.8 million in the third quarter of 2014.

The increase in revenue reflected growth in the U.S. at health clubs and local and federal governments. Sales in the quarter included revenues from an acquisition completed in the third quarter of 2015. The increase in operating earnings included benefits from higher sales, cost reductions and savings related to sourcing initiatives, partially offset by an unfavorable impact from foreign exchange.

2015 Outlook

“We continue to target 2015 to be another year of strong earnings growth, with outstanding cash flow generation. Our plan reflects a 7 percent annual sales growth, which includes benefits from the success of our new products and the continuation of solid growth in the U.S. and Europe, partially offset by the negative impact of a stronger U.S. dollar and weakness in certain international markets.

“For the full-year, we anticipate a slight improvement in gross margin levels and solid gains in operating margins, as we plan to continue to benefit from volume leverage, modest positive product mix factors, cost reductions and savings related to sourcing initiatives, partially offset by foreign currency headwinds.

“Our guidance for 2015 reflects adjusted pretax earnings growth of 18 percent to 20 percent, and we are narrowing the range for our expectations of diluted EPS, as adjusted, to $2.80 to $2.85. Finally, for the full-year, we expect free cash flow to exceed $200 million,” McCoy concluded.

See the full earnings report here.

 

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