Brunswick Corp.’s has released its financial results for the second quarter of 2018. Consolidated net sales increased 3.6 percent versus second quarter 2017, and were up 4.3 percent for the combined marine business. Operating earnings decreased by 38 percent for the quarter, and were down 32 percent for the combined marine business.
"During the first half of 2018, we launched or completed a number of substantial strategic and operational enhancements that we believe will strengthen our marine portfolio and continue to increase long-term shareholder value," said Brunswick Chairman and CEO Mark Schwabero.
Brunswick continues to have a favorable outlook on the marine business, which is benefitting from unprecedented demand for outboard engines, exciting new products, the successful execution of the company’s strategy to grow the parts and accessories businesses, and a global marine market that remains healthy, Schwabero said.
“As a result, our combined marine business had adjusted revenue growth of 8 percent in the quarter, with continued adjusted operating earnings growth versus second quarter 2017," Schwabero said.
Mercury completed its largest launch of outboard engines in the company's history in the second quarter, comprised of 19 total models of V6 and V8 engines from 175 to 300 horsepower.
Shipment of these products began in the quarter as expected; however, ramp-up to full run-rate production will continue into the third quarter, Schwabero said.
“There is substantial demand for these products that is far exceeding expectations,” he said. “Consistent with our prior plans, we anticipate significant production increases in the second half of 2018, enabled by recent investments in capacity expansions. However, we expect that demand will outpace production into 2019, and we are aggressively working on plans to further increase capacity.”
Revenue trends in the boat business reflect strong performance in many of of the company’s brands, including Boston Whaler and its pontoon business, Schwabero said.
Year-to-date market trends have slightly trailed initial expectations, but the company’s long-term favorable view of the industry has not changed and is supported by positive dealer and customer sentiment, as well as the ongoing demand for products and brands.
“Our production plans reflect the current market conditions, and as a result, our pipelines are appropriately positioned at this point in the season,” he added. “Our adjusted margins in the first half were down slightly, but we anticipate strong performance over the second half, and mid-teens operating leverage for the year in the boat segment.”
Overall, our second quarter operating performance, combined with a lower effective tax rate and fewer shares outstanding, produced a 9 percent increase in diluted earnings per common share, as adjusted, over the prior year, Schwabero concluded.
Marine Engine Segment
The Marine Engine segment, which manufactures and distributes marine propulsion systems and related parts and accessories, reported net sales of $834.3 million in the second quarter of 2018, up 9 percent from $766.2 million in the second quarter of 2017.
International sales, which represented 29 percent of total segment sales in the quarter, were up 11 percent compared to the prior year period. For the quarter, the Marine Engine segment reported operating earnings of $149.1 million, which includes $2.5 million of acquisition-related costs. This compares with operating earnings of $148.3 million in the second quarter of 2017.
Strong growth in both the outboard engine and parts and accessories businesses drove sales increases in the quarter. Operating earnings comparisons were affected by increases in sales volumes, as well as favorable impacts from changes in sales mix and foreign currency exchange rates, although smaller than anticipated. Changes in operating earnings also include higher than expected costs related to unfavorable plant efficiencies associated with production ramp-up for new products and warehouse management systems integration, as well as planned spending increases for new product promotion and development.
The Boat segment, which manufactures and distributes recreational boats, reported net sales of $394.9 million for the second quarter of 2018, a decrease from $412.1 million in the second quarter of 2017.
Net sales included $19.9 million and $53.1 million of Sea Ray sport yacht and yacht sales in the second quarter of 2018 and 2017, respectively. International sales, which represented 29 percent of total segment sales in the quarter, increased by 4 percent compared to the prior year period.
For the second quarter of 2018, the Boat segment reported operating losses of $32.2 million, which included $33.5 million of restructuring, exit, integration, and impairment charges and losses of $27.4 million related to the Sport Yacht and Yacht operations in excess of restructuring charges.
This compares with operating earnings of $24.7 million in the second quarter of 2017, which included $3.4 million of operating losses in the Sport Yacht and Yacht operations and $1.2 million of restructuring, exit, integration, and impairment charges.
The Boat segment's revenue comparisons included the significant declines in Sea Ray Sport Yacht and Yacht operations noted above, along with solid growth in the aluminum freshwater and recreational fiberglass boat businesses, as well as Boston Whaler.
The decrease in segment operating earnings was primarily the result of the items discussed in the previous paragraph. Excluding these charges, operating earnings declined slightly, reflecting less favorable plant efficiencies at certain of our boat facilities due in part to new product integrations and the benefit from higher net sales.
"Our outlook for 2018 remains generally consistent with our recently updated three-year strategic plan targets and reflects another year of outstanding revenue and earnings growth, with excellent cash flow generation," Schwabero said. "We expect our marine business' top-line performance to benefit from a steady global marine market, new products, and the successful execution of our M&A strategy, as evidenced by our announced acquisition of Power Products.
For the full-year, Brunswick continues to anticipate improvement in both gross and operating margins in our combined marine business, as the company plans for ongoing benefits from new products and volume leverage.
According to Schwabero these factors, along with certain pricing actions, should more than offset impacts related to cost inflation, as well as enacted tariffs and known trade policy changes.
Conference Call Scheduled
Brunswick will host a conference call today at 10 a.m. CDT, hosted by Schwabero, William L. Metzger, senior vice president and chief financial officer, and Ryan M. Gwillim, vice president - investor relations.
The call will be broadcast over the Internet at ir.brunswick.com. To listen to the call, go to the website at least 15 minutes before the call to register, download and install any needed audio software.
A replay of the conference call will be available through midnight EDT Thursday, Aug.2, by calling 888-843-7419 or international dial 630-652-3042 (passcode: 4676 2737#). The replay will also be available at www.brunswick.com.