RNS Number:3952P
Brunswick Corp
27 July 2005
Brunswick Reports EPS of $1.15 in Second Quarter
LAKE FOREST, Ill., July 27 -- Brunswick Corporation (NYSE: BC) reported today a
27 percent increase in net earnings on 12 percent sales growth and a 23 percent
improvement in operating earnings for the second quarter of 2005. Net earnings
totaled $114.1 million, or $1.15 per diluted share, for the second quarter,
compared with net earnings of $90.1 million, or $0.93 per diluted share, for the
year-ago quarter.
"It was a record quarter for Brunswick, evidence of our ability to leverage our
competitive and technological advantages to extend our leadership position in
all of our market segments," said Brunswick Chairman and Chief Executive Officer
George W. Buckley. "We saw strength in our marine operations where our
customer-led strategy of offering new products incorporating the technologies
and features that resonate with consumers continues to drive sales growth. For
the quarter, marine engine and boat sales advanced 14 percent and 18 percent,
respectively, energized by share gains by some of our most established brands.
While acquisitions contributed to the company's 12 percent overall sales
increase, our organic growth was an impressive 10 percent. We head into the
remainder of the year with good sales momentum and a positive market outlook
that will aid our efforts to grow the business, while our strong balance sheet
affords us flexibility to invest further in our business and pursue attractive
acquisition opportunities."
Second Quarter Results
For the quarter ended June 30, 2005, net sales increased 12 percent to $1,598.6
million, up from $1,422.7 million a year earlier. Excluding the effect of
acquired businesses that were not part of the company a year ago, sales were up
10 percent in the quarter. Operating earnings rose 23 percent to $171.7 million
compared with $139.5 million in the year-ago quarter, and operating margins
improved to 10.7 percent from 9.8 percent. Net earnings totaled $114.1 million,
or $1.15 per diluted share, up 27 percent from $90.1 million, or $0.93 per
diluted share, for the second quarter of 2004. Debt-to-total capital was 27.7
percent at quarter end as compared with 31.9 percent a year earlier, and cash
totaled $508.6 million.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick
New Technologies (BNT), reported net sales of $755.5 million in the second
quarter of 2005, up 14 percent from $665.2 million in the year-ago quarter.
Operating earnings in the second quarter increased 12 percent to $107.0 million
versus $95.6 million, while operating margins declined slightly to 14.2 percent
from 14.4 percent for the same quarter in 2004.
"Our Mercury Marine engine business continued to show strength, with solid sales
growth reported for outboard and sterndrive engines as well as parts and
accessories in both the domestic and international markets," Buckley explained.
"In addition, BNT sales remained robust, up 65 percent for the quarter,
primarily driven by an 80 percent increase at Navman with its growing family of
marine electronics products, as well as an expanding assortment of new GPS-based
products for land navigation."
"During the quarter we continued to invest in projects that will lead to
improved financial performance in the coming year. Our new engine plants in
China and Japan that started up in the first quarter are good examples of this
effort," Buckley noted. "While we incurred costs associated with the ramp up of
production at these facilities, we will begin to see the benefit of our improved
cost structure as we build volume over the coming year."
The China facility is making 40 to 60 horsepower four-stroke outboard engines,
while Mercury uses the Japan operation, with joint venture partner, Tohatsu, to
make four-stroke outboards from 2.5 to 30 horsepower.
"Effective the first of July, Mercury became the first major engine maker to
exit the carbureted two-stroke outboard market, fulfilling our commitment to
discontinue producing non-emission compliant two-strokes for sale in the United
States and Canada beginning with the 2006 model year," Buckley noted. "We now
have a full line of low-emission engines that includes our direct fuel injected
OptiMax two-stroke outboards as well as four-stroke engines ranging from 2.5
horsepower to our new Verado supercharged outboards with offerings up to 275
horsepower. Indeed, low-emission engines accounted for 71 percent of our
outboard sales during the quarter, up from 56 percent in the year-ago period. We
are very pleased with consumers' response to our new offerings; however, they
generally have lower margins than carbureted two-strokes due to their more
advanced technology and higher-cost components. Increased volumes as well as our
move to lower cost manufacturing areas are helping to improve that situation."
Boat Segment
The Brunswick Boat Group comprises the Boat segment. The group has 18 boat
brands, including Sea Ray, Bayliner, Maxum, Hatteras, Sealine, Meridian, Boston
Whaler, Trophy, Baja, Sea Pro and Triton along with the Land 'N' Sea and Attwood
marine parts and accessories distribution and manufacturing businesses.
The Boat segment reported net sales for the second quarter of $742.2 million, up
18 percent compared with $629.9 million in the second quarter of 2004. Boat
segment sales for the quarter benefited from the Albemarle, Sea Pro and Triton
acquisitions, all made since the end of 2004. Excluding the sales of these
businesses, Boat segment sales increased 13 percent in the quarter. Operating
earnings increased to $74.8 million, 31 percent ahead of the $57.0 million
reported in the second quarter of 2004, and operating margins rose 110 basis
points to 10.1 percent, up from 9.0 percent.
"Our sales growth was driven by a stellar performance from Sea Ray with a 26
percent gain in the quarter as well as from strong contributions from Bayliner
and our other fiberglass boat brands. Our customer-led strategy means getting
the product right and getting the distribution right. The strong retail demand
for our products that we saw in the second quarter is evidence of the success of
that approach."
"Additionally, our strategy of organizing and grouping our boat brands around
specific market segments is sharpening our focus and firmly establishing
Brunswick as a major player in such areas as freshwater and saltwater fishing,"
Buckley explained. "Last year, for example, we had two brands -- Boston Whaler
and Trophy -- targeting offshore fishing. Now with the formation of the
Saltwater Boat Group and the addition of the Sea Pro, Sea Boss and Palmetto
brands, Brunswick now offers our dealers and consumers more choices to meet
their saltwater boating needs and preferences."
"The same is happening in the Freshwater Boat Group, where we acquired Triton
Boats during the quarter," Buckley added. "One of the leading bass boat brands,
Triton also offers us additional pontoon and aluminum models to address the
needs of anglers and boating enthusiasts. And while we have recently seen some
regional weakness in the aluminum boat market, particularly in the Midwest and
Northeast where poor weather at the start of the boating season dampened demand,
we believe we have put together a formidable line-up of freshwater boats that
will provide our dealers with a full array of products to meet their customers'
needs. During the quarter we reduced production at two of our aluminum plants to
properly balance supply to demand and prune pipeline inventories in advance of
the start of the 2006 model year."
Buckley also pointed out that Brunswick's acquisition efforts have not been
confined to the U.S. boat market. "During the quarter, we completed the
acquisition of the portion that we previously did not own of Valiant, a leading
European maker of rigid inflatable boats. We expect to be more active on the
international front in the future as we look to 'fill in the white space' in
other world markets."
The Brunswick Boat Group's growing parts and accessories business also had a
strong quarter with Land 'N' Sea registering a double-digit sales increase. In
July, Brunswick acquired Kellogg Marine of Old Lyme, Conn., to serve as a hub
for its parts distribution efforts in the Northeast. Brunswick is nearing its
goal, set just two years ago, of offering same- or next-day service on parts and
accessories to anywhere in the continental U.S. and Canada.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which
manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness
equipment. Fitness equipment sales increased 2 percent in the quarter, excluding
sales from the Omni retail stores that were sold in late 2004. Segment sales in
the second quarter of 2005 reached $120.4 million, down from $122.3 million in
the year-ago quarter, which included Omni retail sales. Fitness segment
operating earnings for the quarter totaled $5.1 million, up 76 percent from $2.9
million in the second quarter of 2004, and operating margins advanced 180 basis
points to 4.2 percent from 2.4 percent a year ago.
"The increase in fitness equipment sales was driven by strong demand in the
domestic commercial markets. Double-digit growth in the United States was
partially offset by a decline in European sales where we continue to face
competitive pricing pressure. Our many efforts to improve productivity and
operating results within the Fitness segment are beginning to bear fruit, with
improvement in operating margins evident during the most recent quarter,"
Buckley said. "By concentrating on manufacturing and supply chain efficiencies,
as well as expense control, we have been able to improve our margins and
operating performance at Life Fitness. It is for these reasons and others we
anticipate that improvement in financial performance will continue as our
Fitness operations sharpen their focus on market segments to better leverage the
enduring power of our brands and the excitement of new products."
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of the Brunswick retail bowling
centers; bowling equipment and products; and billiards, Air Hockey and foosball
tables. Segment sales in the second quarter of 2005 totaled $114.9 million, up 9
percent compared with $105.8 million in the year-ago quarter. Year-over-year
operating earnings advanced 24 percent to $5.2 million in the second quarter
versus $4.2 million, and operating margins improved to 4.5 percent compared with
4.0 percent in 2004.
"Every segment of Bowling & Billiards advanced its sales during the quarter,"
Buckley said. "Bowling products had a double-digit gain for the quarter and
built sales momentum with the introduction of Brunswick Premium Furniture at a
late June trade event. The new living-room styled furniture is more inviting and
comfortable than traditional configurations. Meant to be more appealing to the
casual bowler, who continues to grow in importance for center operators, this
furniture invites longer time spent in the bowling centers, more repeat business
and, subsequently, greater revenue opportunities."
"Likewise, our bowling retail operations continue to prove to be dependable
revenue generators thanks to our management expertise and our continuing efforts
to expand our Brunswick Zone concept," Buckley added. "We have been particularly
happy with the response to our larger bowling entertainment centers. They
continue to grow at rates that eclipse traditional locations."
Six-Month Results
For the six months ended June 30, 2005, the company had net sales of $2,999.7
million, up 14 percent from $2,622.3 million for the first half of 2004.
Excluding contributions from acquired businesses, sales were up 10 percent.
Operating earnings totaled $270.8 million for the first half of 2005, up 24
percent from the $218.0 million for the corresponding period in 2004, and
operating margins expanded 70 basis points, reaching 9.0 percent versus 8.3
percent a year ago. Net earnings for the first six months of 2005 increased 51
percent to $208.7 million, or $2.11 per diluted share, from $138.1 million, or
$1.43 per diluted share, for the same period in 2004. As previously announced,
during the first quarter of 2005 the company completed the sale of approximately
1.9 million shares of MarineMax, Inc. stock. Results for the first half of 2005
include a pre-tax gain of $38.7 million, equivalent to $0.32 per diluted share,
recorded on the stock sale in the first quarter.
Looking Ahead
"At the beginning of the year we based our planning on the assumption that
marine retail demand would be up in the mid-single digits. Although there have
been puts and takes in various geographical areas and market segments, results
through the first half of 2005 continue to support that assumption," Buckley
said. "We are also seeing positive trends in pipeline inventories with 23 weeks
of supply for boats and 20 weeks of supply of engines in the channel, down eight
weeks and nine weeks, respectively, from the end of March. This reflects the
strong demand at retail we saw in the second quarter and our dealers'
expectations for continued growth at retail for the remainder of the year."
"While keeping in mind the impact of underlying economic and stock market
conditions, we expect to report another record year for Brunswick," Buckley
said. "Based on our performance in the second quarter and outlook for the second
half, we are raising our estimate for the year to $3.62 to $3.72 per diluted
share, which includes the $0.32 gain on the stock sale. This compares with $2.77
per diluted share for 2004. This would imply earnings for the second half in the
range of $1.51 to $1.61 per diluted share, which we believe will be more or less
evenly divided between the third and fourth quarters. The wild card is the
timing of planned investment spending, which could result in a few pennies
shifting between the two quarters."
Forward-Looking Statements
Certain statements in this press release are forward looking as defined in the
Private Securities Litigation Reform Act of 1995. These statements involve
certain risks and uncertainties that may cause actual results to differ
materially from expectations as of the date of this filing. These risks include,
but are not limited to: the effect of a weak economy and stock market on
consumer confidence and thus the demand for marine, fitness, billiards and
bowling equipment and products; competitive pricing pressures; the success of
new product introductions; the ability to maintain market share in high-margin
products; competition from new technologies; imports from Asia and increased
competition from Asian competitors; the ability to obtain component parts from
suppliers; the ability to maintain effective distribution; the financial
strength of dealers, distributors and independent boat builders; the ability to
transition and ramp up certain manufacturing operations within time and budgets
allowed; the ability to maintain product quality and service standards expected
by our customers; the ability to successfully manage pipeline inventories; the
success of global sourcing and supply chain initiatives; the ability to
successfully integrate acquisitions; the success of marketing and cost
management programs; the ability to develop product technologies that comply
with regulatory requirements; the ability to complete environmental remediation
efforts and resolve claims and litigation at the cost estimated; the impact of
weather conditions on demand for marine products and retail bowling center
revenues; shifts in currency exchange rates; adverse foreign economic
conditions; and the impact of interest rates and fuel prices on demand for
marine products. Additional factors are included in the company's Annual Report
on Form 10-K for 2004 and Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005.
About Brunswick
Headquartered in Lake Forest, Ill., Brunswick Corporation endeavors to instill
"Genuine Ingenuity"(TM) in all its leading consumer brands, including Mercury
and Mariner outboard engines; Mercury MerCruiser sterndrives and inboard
engines; MotorGuide trolling motors; Teignbridge propellers; MotoTron electronic
controls; Northstar marine electronics; Navman marine and GPS-based products;
IDS dealer management systems; Albemarle, Arvor, Baja, Bayliner, Bermuda, Boston
Whaler, Crestliner, Hatteras, Lowe, Lund, Maxum, Meridian, Ornvik, Palmetto,
Princecraft, Quicksilver, Savage, Sea Boss, Sea Pro, Sea Ray, Sealine, Triton,
Trophy, Uttern and Valiant boats; Attwood marine parts and accessories; Land 'N'
Sea and Kellogg marine parts and accessories distributor; Life Fitness, Hammer
Strength and ParaBody fitness equipment; Brunswick bowling centers, equipment
and consumer products; Brunswick billiards tables; and Valley-Dynamo pool, Air
Hockey and foosball tables. For more information, visit http://www.brunswick.com
.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Three Months Ended June 30
2005 2004 % Change
Net sales $1,598.6 $1,422.7 12%
Cost of sales 1,186.0 1,054.9 12%
Selling, general and administrative
expense 204.8 198.9 3%
Research and development expense 36.1 29.4 23%
Operating earnings 171.7 139.5 23%
Interest expense (13.1) (10.4) -26%
Other income 9.2 5.4 70%
Earnings before income taxes 167.8 134.5 25%
Income tax provision 53.7 44.4
Net earnings $114.1 $90.1 27%
Earnings per common share:
Basic $1.16 $0.94 23%
Diluted 1.15 0.93 24%
Weighted average number of shares used for
computation of:
Basic earnings per share 98.0 95.4 3%
Diluted earnings per share 99.2 97.2 2%
Effective tax rate 32.0% 33.0%
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Six Months Ended June 30
2005 2004 % Change
Net sales $2,999.7 $2,622.3 14%
Cost of sales 2,245.2 1,957.2 15%
Selling, general and administrative
expense 413.4 385.0 7%
Research and development expense 70.3 62.1 13%
Operating earnings 270.8 218.0 24%
Interest expense (26.1) (20.5) 27%
Investment sale gain (1) 38.7 -
Other income 16.0 8.6 86%
Earnings before income taxes 299.4 206.1 45%
Income tax provision 90.7 68.0
Net earnings $208.7 $138.1 51%
Earnings per common share:
Basic $2.13 $1.46 46%
Diluted $2.11 $1.43 48%
Weighted average number of shares used for
computation of:
Basic earnings per share 97.8 94.5 3%
Diluted earnings per share 99.1 96.4 3%
Effective tax rate (2) 30.3% 33.0%
(1) The company sold its investment in MarineMax, Inc. pursuant to a
registered public offering by MarineMax.
(2) The decrease in the effective tax rate for the six months ended June
30, 2005, was primarily due to lower tax expense associated with the
gain on sale of the investment in MarineMax. Excluding the tax effect
of this gain, the effective tax rate was 32.0 percent.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Three Months Ended June 30
Net Sales Operating Earnings Operating
% % Margin
2005 2004 Change 2005 2004 Change 2005 2004
Marine Engine $755.5 $665.2 14% $107.0 $95.6 12% 14.2% 14.4%
Boat 742.2 629.9 18% 74.8 57.0 31% 10.1% 9.0%
Marine
eliminations (133.4) (99.9) - -
Total
Marine 1,364.3 1,195.2 14% 181.8 152.6 19% 13.3% 12.8%
Fitness 120.4 122.3 -2% 5.1 2.9 76% 4.2% 2.4%
Bowling &
Billiards 114.9 105.8 9% 5.2 4.2 24% 4.5% 4.0%
Eliminations (1.0) (0.6) - -
Corp/Other - - (20.4) (20.2) -1%
Total $1,598.6 $1,422.7 12% $171.7 $139.5 23% 10.7% 9.8%
Six Months Ended June 30
Net Sales Operating Earnings Operating
% % Margin
2005 2004 Change 2005 2004 Change 2005 2004
Marine
Engine $1,361.1 $1,193.1 14% $159.0 $138.2 15% 11.7% 11.6%
Boat 1,419.7 1,141.9 24% 124.3 89.0 40% 8.8% 7.8%
Marine
eliminations (252.9) (180.1) - -
Total
Marine 2,527.9 2,154.9 17% 283.3 227.2 25% 11.2% 10.5%
Fitness 247.9 252.9 -2% 11.5 12.1 -5% 4.6% 4.8%
Bowling &
Billiards 226.4 216.0 5% 16.3 17.7 -8% 7.2% 8.2%
Eliminations (2.5) (1.5) - -
Corp/Other - - (40.3) (39.0) -3%
Total $2,999.7 $2,622.3 14% $270.8 $218.0 24% 9.0% 8.3%
Brunswick Corporation
Comparative Consolidated Balance Sheets
(in millions)
June 30, December 31, June 30,
2005 2004 2004
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $508.6 $499.8 $438.2
Accounts and notes receivables, net 514.5 463.2 459.5
Inventories
Finished goods 420.2 389.9 363.5
Work-in-process 306.8 260.5 240.7
Raw materials 158.9 136.4 109.0
Net inventories 885.9 786.8 713.2
Deferred income taxes 298.3 292.7 311.5
Prepaid expenses and other 59.6 56.2 53.5
Current assets 2,266.9 2,098.7 1,975.9
Net property 892.9 876.4 846.8
Other assets
Goodwill and other intangibles 1,005.5 952.8 892.2
Investments and other long-term
assets 371.5 418.5 380.0
Total assets $4,536.8 $4,346.4 $4,094.9
Liabilities and shareholders' equity
Current liabilities
Short-term debt $3.1 $10.7 $13.4
Accounts payable 432.8 387.9 351.0
Accrued expenses and accrued income
taxes 813.4 855.2 811.1
Current liabilities 1,249.3 1,253.8 1,175.5
Long-term debt 729.4 728.4 726.5
Other long-term liabilities 647.3 651.9 610.4
Shareholders' equity 1,910.8 1,712.3 1,582.5
Total liabilities and shareholders'
equity $4,536.8 $4,346.4 $4,094.9
Supplemental Information
Debt-to-capitalization rate 27.7% 30.2% 31.9%
Brunswick Corporation
Comparative Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Six Months Ended June 30
2005 2004
Cash flows from operating activities
Net earnings $208.7 $138.1
Depreciation and amortization 78.4 76.9
Changes in noncash current assets and current
liabilities (156.5) (91.7)
Income taxes and other, net (19.2) 46.7
Net cash provided by operating activities 111.4 170.0
Cash flows from investing activities
Capital expenditures (84.5) (72.7)
Acquisitions of businesses, net of cash and
debt acquired (89.6) (214.0)
Investments (6.8) (2.3)
Proceeds from investment sale 57.9 -
Other, net 11.8 3.9
Net cash used for investing activities (111.2) (285.1)
Cash flows from financing activities
Net issuances (repayments) of commercial paper
and other short-term debt 1.1 (5.5)
Net proceeds from issuances of long-term debt - 149.1
Payments of long-term debt including current
maturities (1.9) (5.6)
Stock options exercised 9.4 69.4
Net cash provided by financing activities 8.6 207.4
Net increase in cash and cash equivalents 8.8 92.3
Cash and cash equivalents at January 1 499.8 345.9
Cash and cash equivalents at June 30 $508.6 $438.2
Free Cash Flow
Net cash provided by operating activities $111.4 $170.0
Net cash provided by (used for):
Capital expenditures (84.5) (72.7)
Proceeds from investment sale (1) 57.9 -
Other, net 11.8 3.9
Total Free Cash Flow $96.6 $101.2
(1) Pre-tax proceeds from the sale of the company's investment in
MarineMax, Inc., net of selling costs.
CONTACT: Kathryn Chieger, Vice President - Corporate and Investor
Relations of Brunswick Corporation, 1-847-735-4612
This information is provided by RNS
The company news service from the London Stock Exchange
END
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