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Brunswick First Quarter Marine Results Show Strong Top-Line Growth and Margin Expansion

Brunswick Corporation reported results for their marine business for the first quarter of 2019.

First Quarter 2019 Highlights:

$ millions (except per share data) GAAP
Increase/(Decrease) As Adjusted
Increase/(Decrease)
Marine Business Net Sales $1,050.7 8.7% $ 1,050.7 10.4%
Marine Business Operating Earnings $114.1 20.7% $ 124.5 18.3%
Marine Business Operating Margin 10.9% 110 bps 11.8% 80 bps
Marine Business Operating Leverage 23% 20%
Marine Business Diluted EPS $0.87 $0.94
Consolidated Net Sales $1,275.9 5.3% $1,275.9 6.7%
Consolidated Operating Margin (2.2)% NM10.0% 10 bps
Diluted EPS $(0.42) NM $0.99 (2)%

"As anticipated, our marine business delivered strong results in the first quarter," said Brunswick CEO David Foulkes. "These results reflect the continued successful execution of our marine strategy, focusing on product and technology leadership, growth initiatives, and operational excellence. Our marine engine segment continued to post strong top-line growth, led by benefits from the Power Products acquisition and healthy demand for recently introduced higher horsepower outboard products. These sales gains, along with impressive operating leverage and margin accretion, led to robust earnings growth in this segment. The boat business reported modest sales growth led by gains in premium offerings, including Sea Ray Sport Boats and Cruisers, while earnings declined slightly. After a slower than expected start to the marine selling season, due in part to more challenging weather conditions in much of the U.S., we believe that global unit market demand for the year will reflect modest growth. As a result, we will continue to execute against our plans and our overall marine strategy and believe that 2019 will be another year of solid earnings growth further enhancing shareholder value."

For the first quarter of 2019, Brunswick reported consolidated net sales of $1,275.9 million, up from $1,211.4 million a year earlier, with $15.1 million of sales related to Sport Yacht and Yacht operations in the first quarter of 2018. As a reminder, these operations were wound down in the third quarter of 2018.

Diluted EPS for the quarter was $(0.42) on a GAAP basis versus $0.99 on an as adjusted basis. Comparative first quarter earnings results, including reconciliations of GAAP to as adjusted amounts, are shown below:
Quarter Ended
Operating Earnings (Loss)
Diluted Earnings (Loss) Per
Share
$ millions (except per share data) Q1 2019 Q1 2018 Q1 2019 Q1 2018
GAAP $ (28.6) $ 105.1 $ (0.42) $ 0.82
Restructuring, exit, integration and impairment charges 141.5 3.8 1.29 0.03
Separation costs 7.8 1.7 0.07 0.01
Purchase accounting amortization 7.2 — 0.06 —
Sport Yacht & Yacht operations — 8.1 — 0.07
Special Tax Items — — (0.01) 0.08
As Adjusted $ 127.9 $ 118.7 $ 0.99 $ 1.01
Percent Increase (Decrease) 8 % (2)%
GAAP Operating Margin (2.2)% 8.7% NM
Adjusted Operating Margin 10.0 % 9

Marine Engine Segment
The Marine Engine segment, which manufactures and distributes marine propulsion systems and related parts and accessories, reported net sales of $766.0 million in the first quarter of 2019, up 11.5 percent from $687.1 million in the first quarter of 2018.

The Power Products acquisition contributed approximately 8 percent to the growth rate in the quarter. International sales, which represented 32 percent of total segment sales in the quarter, were up 15 percent compared to the prior year period.

For the quarter, the Marine Engine segment reported operating earnings of $112.9 million, which included $7.2 million of purchase accounting amortization related to the Power Products acquisition. This compares with $95.7 million of operating earnings in the first quarter of 2018.

The addition of Power Products and strong gains in outboard engines drove sales increases in the quarter. Operating earnings growth was positively affected by these sales increases, as well as by favorable impacts from changes in sales mix.

Boat Segment
The Boat segment, which manufactures and distributes recreational boats, reported net sales of $373.3 million for the first quarter of 2019, a decrease from $376.5 million in the first quarter of 2018. Net sales in the first quarter of 2018 included $15.1 million of Sport Yacht and Yacht sales. International sales, which represented 27 percent of total segment sales in the quarter, decreased by 2 percent compared to the prior year. For the first quarter of 2019, the Boat segment reported operating earnings of $22.0 million,
which included $2.0 million of restructuring, exit, integration, and impairment charges. This compares to operating earnings of $14.4 million in the first quarter of 2018 which included $8.1 million of Sport Yacht and Yacht operating losses and $2.6 million of
restructuring, exit, integration, and impairment charges.

Sales and operating earnings comparisons were both affected by the absence of activity related to the Sport Yacht and Yacht business. Excluding this factor, sales increased, including benefits from strong gains in premium categories. Despite positive mix benefits, operating earnings declined as margins were temporarily influenced by less favorable plant efficiencies at certain of its boat facilities, due in part to new product integrations and related complexities. In addition, the boat business had elevated spending on profit improvement initiatives in the quarter.

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