Brunswick Cutting Back on Boat Operations
LAKE FOREST, Ill., April 24 - Brunswick Corporation (NYSE: BC) announced today that diluted earnings per share from continuing operations in the first quarter of 2001 totaled $0.45, in line with previously announced expectations, compared with $0.66 per diluted share for the first quarter of 2000.
Commenting on the announcement, Brunswick Chairman and Chief Executive Officer George W. Buckley said, "We are pleased with our results for the quarter, especially in light of the impact that tough economic and market conditions are having on retail demand for boating products generally. As expected, sales slowed in both our Marine Engine and Boat segments. In our Recreation segment, higher sales of fitness equipment helped offset lower bowling product sales. Costs associated with plant closures and production rate reductions also affected operating margins, which were 8.7 percent in the first quarter versus 11.8 percent a year ago."
First-Quarter Results
For the quarter ended March 31, 2001, the company reported net sales of $913.2 million, down 4 percent from $955.4 million a year earlier. Operating earnings declined to $79.0 million from $113.0 million a year ago.
For the first quarter of 2001, earnings from continuing operations totaled $39.5 million, or $0.45 per diluted share. During the quarter, the company adopted Financial Accounting Standards Board SFAS Nos. 133/138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." Including the non-cash cumulative effect of adopting the new accounting standard, net earnings totaled $36.6 million, or $0.42 per diluted share.
In the year-ago first quarter, the company had earnings from continuing operations of $60.7 million, or $0.66 per diluted share. The loss from discontinued operations in the first quarter of 2000 was $2.0 million, or $0.02 per diluted share.
Discontinued Operations
During 2000, the company announced its decision to divest its outdoor recreation businesses and has accounted for them as discontinued operations. "We're making very good progress toward selling these businesses," Buckley noted. "To date, we've completed the sale of our bicycle, sleeping bag, tent, camping apparel and hunting sports accessories businesses in five separate transactions. We're now focused on getting our fishing, cooler and marine accessories businesses sold by the third quarter of 2001. The restructuring actions we have taken over the past nine months are steadily improving these businesses, and they are well positioned for sale."
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, reported sales of $413.7 million in the first quarter of 2001, compared with $429.0 million in the year-ago quarter. Operating earnings in the quarter declined to $49.3 million versus $60.9 million a year ago. Operating margins were 11.9 percent compared with 14.2 percent.
"While our domestic outboard and sterndrive engine sales and earnings were down, Mercury posted strong sales increases in Europe and Australia driven by good demand for low-emission outboard engines. Mercury is also benefiting from the recent sale of a competitor's business out of bankruptcy by signing up new dealers and distributors and picking up market share in outboard engines, which bodes well for the long term," Buckley said.
Boat Segment
The Brunswick Boat Group comprises the Boat segment and includes the Sea Ray, Bayliner, Maxum, Boston Whaler, Trophy, Baja and Princecraft boat brands. The Boat segment reported sales for the first quarter of $380.3 million, compared with $418.5 million in the year-ago quarter. Operating earnings totaled $23.8 million, down from $37.9 million. Operating margins in the quarter were 6.3 percent versus 9.1 percent.
"Sea Ray and Boston Whaler posted increased sales and earnings reflecting the relatively stronger market for larger boats and offshore fishing boats during the quarter. These gains, however, were more than offset by a significant decline in sales of smaller boats, a market that has been soft since last summer," said Buckley.
"We have taken a number of steps that are expected to reduce plant and field inventories in response to the weak market conditions. It is important for us to get inventories in shape," Buckley noted. "As previously announced, four US Marine boat-manufacturing plants were permanently closed last month. We also suspended construction of a nearly completed Sea Ray plant in Florida. In addition, beginning this week the eight remaining US Marine plants will be temporarily shut down for between one and five weeks. We have also permanently reduced the Brunswick Boat Group workforce by approximately 15 percent since the beginning of the year. This will be a challenging marine year, but our business improvement actions will build a more competitive company that will be better positioned as we come out of the downturn."
Recreation Segment
The Recreation segment includes the Brunswick Bowling & Billiards and Life Fitness exercise equipment businesses. Segment sales in the first quarter of 2001 totaled $186.3 million, compared with $187.3 million in the year-ago quarter. Operating earnings declined to $19.8 million from $25.0 million, and operating margins were 10.6 percent and 13.3 percent in the first quarters of 2001 and 2000, respectively.
"Life Fitness sales were up in the quarter with strong contributions from our international division and consumer products offsetting lower sales in the U.S. health club market. But this shift in sales mix adversely affects operating margins. Uncertainty around the economy is resulting in a significant scale back of new health club openings and equipment upgrades in existing clubs," Buckley explained. "In our bowling business, sales and earnings from family bowling centers were relatively flat. The overall decline in bowling sales and earnings was primarily attributable to the bowling equipment, consumer products and supplies categories as we continue to implement plans to rationalize our product lines and distribution channels."
Looking Ahead
Commenting on the current year, Buckley said, "Given the tight economy for luxury products in the United States, our primary objective in 2001 is to report good earnings, but also to better position the company to achieve growth in the long term. In that vein, we are taking action on two fronts. First, we're aggressively addressing the impact that the weak economy is having on retail demand for our marine products by lowering production rates to reduce inventories and match lower demand, reducing head count and implementing vigorous cost reduction plans. Second, we're continuing to implement our long-range plans to improve operational effectiveness across all our divisions, including evaluating our staffing, capacity, product mix, branding strategies, supply chain management, distribution channels, manufacturing processes and inventory control. While all these actions will affect our near-term results, the benefits will make the company even more competitive and profitable over the medium and long term."
"Given current market conditions, we continue to take a very prudent approach to our plans for 2001. In the past three months, concern about the economy has increased and consumer confidence has declined significantly, which, along with the stock market volatility, have contributed to considerable weakness at retail for marine products. Even the large boat category is slowing down. This has affected the rate at which our customers are replenishing their inventories, affecting wholesale shipments of our products. While taking the actions necessary to manage the business through the downturn, however, we will not lose sight of our long-term objective of building on our market-leading brand positions in marine, fitness and bowling through investment in product innovation, technology and process improvements," Buckley added.
"For the year, Boat segment results will be affected by our inventory management efforts, including the plant shut downs and production rate reductions. The impact of these actions on our Marine Engine segment sales will be partially mitigated by contributions from international business and market share gains in outboard engines. Therefore, marine sales are expected to be down about 10 percent for the year. On the other hand, we expect year- over-year improvements in sales and earnings for the Recreation segment in the latter part of the year as we benefit from new product introductions and enter the seasonally stronger period for our exercise equipment and bowling businesses.
"To help offset the earnings impact from the sales decline, we are taking appropriate steps to reduce costs, including a hiring freeze, reduced bonus accruals, wage freezes and deferrals, travel restrictions, selling non-core assets and delaying non-essential capital projects. Nonetheless, operating margins could be down as much as 300 to 350 basis points.
"As we look ahead, there remains a lot of economic and market uncertainty, and we are just entering the height of the boating season. Consequently, we are estimating diluted EPS in 2001 in the broad range of $1.70 to $2.00, compared with $2.73 last year," said Buckley.
"The second quarter will be very difficult, especially when compared with the record quarterly earnings reported in the second quarter last year," Buckley noted. "While traditionally the strongest due to the seasonality of the marine business, the previously mentioned inventory reduction efforts will adversely affect factory overhead recovery and resultant earnings. These actions are the right thing to do, but they will cost us in the short term. Further, shifts in product mix, inventory reductions and costs associated with integration of a fitness equipment retailer acquired in the first quarter will impact Recreation segment margins. Therefore, diluted earnings per share for the second quarter of 2001 are estimated to be between $0.47 and $0.57, compared with $0.93 in the second quarter of last year."
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 release. These risks include, but are not limited to, the ability to dispose of the fishing, cooler and marine accessories businesses within the time, price and manner estimated; the ability to maintain key customers during the divestiture period; the ability of the buyers to obtain financing; weak market demand for the company's products; shifts in currency exchange rates; the effect of interest rates and fuel prices on demand for marine products; competitive pricing pressures; inventory adjustments by major dealers and retailers; the success of inventory reduction efforts; adverse domestic or foreign economic conditions; adverse weather conditions retarding sales of recreation products; the ability to complete environmental remediation efforts at the cost estimated; the success of marketing and cost-management programs; the company's ability to develop and produce new products; new and competing technologies; and imports from Asia and increased competition from Asian competitors. Additional factors are included in the company's Annual Report on Form 10-K for 2000.
Headquartered in Lake Forest, Ill., Brunswick Corporation is a marketer and manufacturer of leading consumer brands including Mercury and Mariner outboard engines; Mercury MerCruiser sterndrives and inboard engines; Sea Ray, Bayliner and Maxum pleasure boats; Baja high-performance boats; Boston Whaler and Trophy offshore fishing boats; Princecraft deck and pontoon boats; Life Fitness, Hammer Strength and ParaBody fitness equipment; Brunswick bowling centers, equipment and consumer products; and Brunswick billiards tables.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except percentages and per share data)
Quarter Ended March 31
(unaudited)
2001 2000 % Change
Net sales $913.2 $955.4 -4%
Cost of sales 687.4 681.7
Selling, general and administrative
expense 146.8 160.7 -9%
Operating earnings 79.0 113.0 -30%
Interest expense (13.6) (16.4) -17%
Other income (expense) (1.7) 1.1
Earnings before income taxes 63.7 97.7 -35%
Income tax provision 24.2 37.0
Earnings from continuing operations 39.5 60.7 -35%
Cumulative effect of change in
accounting principle, net of tax (2.9) -
Loss from discontinued operations,
net of tax - (2.0)
Net earnings $36.6 $58.7 -38%
Basic earnings per common share:
Earnings from continuing operations $0.45 $0.66 -32%
Cumulative effect of change in
accounting principle (0.03) -
Loss from discontinued operations - (0.02)
Net earnings $0.42 $0.64 -34%
Diluted earnings per common share:
Earnings from continuing operations $0.45 $0.66 -32%
Cumulative effect of change in
accounting principle (0.03) -
Loss from discontinued operations - (0.02)
Net earnings $0.42 $0.64 -34%
Average shares used for computation
of:
Basic earnings per share 87.7 91.4 -4%
Diluted earnings per share 87.8 91.5 -4%
Effective tax rate 38.0% 37.9%
Brunswick Corporation
Selected Financial Information
(in millions, except percentages)
Segment Information
Quarter Ended March 31
(unaudited)
Net Sales
%
2001 2000 Change
Marine Engine $413.7 $429.0 -4%
Boat 380.3 418.5 -9%
Marine eliminations (67.1) (79.4)
Total Marine 726.9 768.1 -5%
Recreation 186.3 187.3 -1%
Total $913.2 $955.4 -4%
Quarter Ended March 31
(unaudited)
Operating Earnings
%
2001 2000 Change
Marine Engine $49.3 $60.9 -19%
Boat 23.8 37.9 -37%
Total Marine 73.1 98.8 -26%
Recreation 19.8 25.0 -21%
Corporate/Other (13.9) (10.8)
Total $79.0 $113.0 -30%
Quarter Ended March 31
(unaudited)
Operating Margin
2001 2000
Marine Engine 11.9% 14.2%
Boat 6.3% 9.1%
Total Marine 10.1% 12.9%
Recreation 10.6% 13.3%
Total 8.7% 11.8%
Supplemental Information
March 31, March 31,
2001 2000
(unaudited)
Cash $72.3 $123.8
Debt $744.2 $918.3
Common shareholders' equity $1,100.0 $1,293.5
Debt-to-capitalization rate 40.4% 41.5%
Quarter Ended March 31
(unaudited)
2001 2000
Capital expenditures $18.7 $21.5
Depreciation and amortization 37.1 35.2
SOURCE Brunswick Corporation
CONTACT: Kathryn Chieger of Brunswick, 847-735-4612/