Corporate and Financial
Brunswick Reports EPS of $1.15 in Second Quarter
LAKE FOREST, Ill., July 27 /PRNewswire-FirstCall/ -- 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.
SOURCE Brunswick Corporation
CONTACT: Kathryn Chieger, Vice President - Corporate and Investor
Relations of Brunswick Corporation, 1-847-735-4612
