Caution rules in earnings reports - Trade Only Today

Caution rules in earnings reports

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Industry’s public companies see slow growth and hope it will continue in the second half of 2012

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The marine industry’s publicly held companies generally reported improved results in the January-March quarter, and most expect continued slow growth for manufacturers and their dealers.

As officials tout the improvement they are seeing in their companies’ balance sheets, most are quick to add they are cautiously optimistic that it will continue through 2012.

Following is a review of the most recent earnings reports:

Brunswick Corp.

Brunswick reported a small decline in net sales for the first quarter. However, there was a slight increase in boat sales for the period.

The first quarter represented Brunswick’s ninth consecutive quarter of year-over-year growth in earnings per share, which “demonstrates the continuing success of our business strategy,” chairman and CEO Dustan McCoy says.

The boat segment, which saw a 1 percent increase in sales, recorded its first profitable first quarter since 2007, which McCoy noted was a big hurdle to overcome.

He attributed the increase in the boat segment to an investment in 2009 in the dealer network and ongoing work to keep the network healthy, becoming better at choosing the right products to take to market and better communication with dealers, which allows the company to be more flexible and hit local markets with appropriate product.

Brunswick has fewer products and models than in the past, but those that remain are in demand, McCoy says. He adds that there is “one category” operating at a loss, but he did not name that category or boat line.

For the first quarter, the company reported net sales of $974.2 million, down from $985.9 million a year earlier. The company reported operating earnings of $67.6 million for the quarter, including $200,000 of restructuring, exit and impairment charges. In the first quarter of 2011 the company had operating earnings of $67 million that included $5.3 million of restructuring, exit and impairment charges.

The boat segment reported net sales of $306.4 million for the first quarter, an increase of 1 percent from $303.5 million in the first quarter of 2011. International sales, which represented 38 percent of total segment sales in the quarter, decreased by 7 percent during the period.

For the first quarter, the boat segment reported operating earnings of $2.8 million, including a gain of $1.5 million from restructuring activities. This compares with an operating loss of $4.8 million, including restructuring charges of $1 million, in the first quarter of 2011.

Boat segment production and wholesale shipments increased during the quarter, compared with the first quarter of 2011. The increase in wholesale unit shipments was partially offset by the effect of a higher mix of smaller-boat sales and the absence of sales from the Sealine brand, which was divested on Aug. 30, 2011. Higher sales and lower restructuring, exit and impairment charges had a positive effect on the segment’s improved quarterly results.

The marine engine segment reported net sales of $489.4 million in the first quarter, down 2 percent from $501.1 million in the first quarter of 2011. International sales, which represented 39 percent of total segment sales in the quarter, decreased by 7 percent.

For the quarter, the marine engine segment reported operating earnings of $47.9 million, including restructuring charges of $1.7 million. This compares with operating earnings of $57.7 million in the first quarter of 2011, which included $4.3 million of restructuring charges.

Sales were higher in the segment’s U.S. outboard and parts and accessories businesses. This growth was more than offset by global sales declines in the segment’s sterndrive engine product category.

During the quarter, Mercury’s manufacturing facilities, compared with the prior year, increased their production of outboard engines in response to market demand. Mercury produced fewer sterndrive units in the quarter, versus the prior-year quarter, as it experienced operating constraints resulting from sterndrive ramp-up issues after its recently completed plant consolidation.

In addition, the absence of a gain on the sale of a distribution facility and a favorable recovery against an insurance policy in 2011 contributed to the decrease in operating earnings in the first quarter of 2012. Partially offsetting these factors was the effect of lower variable compensation expense, successful cost reduction activities and lower restructuring charges.

“Although a number of the factors that negatively affected sales and earnings in the first quarter will continue into the second, we are planning for significant sales and earnings growth in the second half of this year,” McCoy says. “Each of our business segments will continue to concentrate their efforts on maintaining a favorable cost position and generating growth through market share gains and the execution of organic growth initiatives.”

McCoy expects smaller boats, with smaller margins, to continue to be more in demand than larger boats. He noted that in 2011 an estimated 139,500 units were sold in the United States — up one half of 1 percent from 2010. It’s a small increase, he said, but the first annual increase recorded since 2004.

For 2012, Brunswick expects mid-single-digit revenue growth, an increase in operating earnings and a stable and improving U.S. marine market, McCoy says. The second quarter likely will have “unfavorable comparisons” to the prior year, but Brunswick expects sales and earnings growth in the second half of the year.

MarineMax

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MarineMax, the nation’s largest recreational boat retailer, saw an increase in revenue and same-store sales for its second quarter, which ended March 31.

Revenue was $144 million, compared with $115.8 million for the quarter last year. Same-store sales increased about 26 percent, compared with a 5 percent increase in the quarter last year.

Net income was $2.3 million, or 10 cents a diluted share, compared with a net loss of $4.5 million, or 20 cents a share, for the quarter last year.

Inventories decreased about $19 million, or 8 percent, to $206.2 million from the December quarter. Inventories were up year over year, primarily because of the addition of new brands and the timing of the receipt of product from manufacturers.

Typically, the end of the March quarter coincides with peak industry inventory levels.

“I am very proud of our team’s accomplishments. We have now put together six consecutive quarters of new-boat sales unit growth, capitalizing on the improvements we have made in our business over the past few years as we navigated the persistent challenges faced by our industry,” chairman, president and CEO William McGill Jr. says.

“The increase in gross margin also reflected our continued growth in our higher-margin businesses of service, parts, accessories, finance and insurance,” he adds. “We also demonstrated meaningful expense leverage, which will result in strong cash flow and earnings growth when our sales further recover.”

McGill also says he is “cautiously optimistic” that the initial improvement in the industry is sustainable.

“With more positive consumer sentiment, generally improved economic conditions, coupled with our team’s ability to enhance and improve our customers’ lives through boating, we are well positioned to build on the progress we are making,” he adds.

CFO Michael McLamb says that about one-fourth of the company’s same-store sales growth in the second quarter was from new brands that McGill said the company began to offer during the downturn in the economy.

“Our experience is that it takes a few years for new brands to gain momentum,” McGill says. “These brands should continue to contribute to our growth as they ramp, especially as business continues to improve.”

McLamb says the company is comfortable with its $206 million inventory “as we head into what has historically been our strongest selling season.” Inventories were up year over year, primarily because of the company adding new brands and the timing of the receipt of product from manufacturers.

For the six-month period that ended March 31, revenue increased $27.9 million, to $235.8 million, compared with $207.9 million in the comparable period last year. Same-store sales increased about 16 percent, compared with a 1 percent decrease in the comparable period last year.

The company reduced its net loss by $7.3 million for the six-month period that ended March 31, to $1.9 million, or 8 cents a share, compared with a net loss of $9.2 million, or 41 cents a share, for the period last year.

Marine Products Corp.

Marine Products Corp. reported a 39.4 percent increase in first-quarter net sales.

The builder of Chaparral and Robalo boats reported net sales of $37.85 million for the quarter that ended March 31, compared with $27.15 million in the same quarter last year.

The company said the gain was attributable to a 54.1 percent increase in the number of boats sold, partially offset by an 11.3 percent decrease in the average selling price per boat.

Gross profit for the quarter was $7 million, or 18.5 percent of net sales, compared with a gross profit of $4.46 million, or 16.4 percent of net sales, last year. Operating income for the quarter was $2.05 million, compared with $604,000 last year. Net income for the quarter was $1.63 million, or 4 cents a share, compared with $666,000, or 2 cents a share, last year.

“During the first quarter of 2012 our financial results benefited from the new Chaparral and Robalo models developed for the value-conscious and first-time boat buyer,” CEO Richard Hubbell says. “We introduced these products for the 2012 model year during the third quarter of 2011, and I am pleased to report that they have become very popular with our dealers and consumers during the 2012 retail selling season.

“These smaller, affordable models have increased our share in the smaller size range of our market, and because of their quality and style they represent a favorable introduction to our two brands for the first-time buyer,” he adds.

West Marine

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West Marine reported an increase in net revenues and comparable store sales for the first quarter of 2012.

Net revenues for the quarter were $121.5 million, up 6.7 percent from $113.8 million for the same period in 2011. Revenues in the stores segment were $108.1 million, up $7.9 million, or 7.9 percent, compared with the same period last year. Comparable-store sales grew by 4.3 percent versus the same period last year.

“[This year] is off to a strong start for West Marine, and we are encouraged by these results. The success of our growth strategies, combined with a relatively warm and dry spring, puts us in a great position as we enter our key boating season,” CEO Geoff Eisenberg says. “Our outstanding teams of associates continued to manage the business effectively and deliver improved bottom-line results.”

West Marine said it had higher sales in all core categories during the first quarter, especially maintenance-related products, a development it believes was related to the dry, warm weather and early spring experienced across most areas of the country.

Revenues from stores opened or expanded in 2011 and the first three months of 2012 contributed $13.8 million to the stores segment. The impact of stores closed during those periods effectively reduced revenues by $9.2 million. The majority of the closings were a result of the company’s ongoing real estate optimization strategy to evolve into having fewer, larger stores.

West Marine’s Port Supply segment revenues, representing sales to wholesale customers through its distribution centers, for the first quarter of 2012 were $6.3 million, a decrease of $200,000, or 3.6 percent, compared with the same period last year. Net revenues in its direct-to-customer segment for the quarter were $7.1 million, a decrease of $100,000, or 0.7 percent, compared with the same period last year.

Gross profit for the first quarter was $29.5 million, an increase of $4.8 million, compared with 2011.

Other companies

Caterpillar: Growth in mining, strong replacement demand for products in the United States and a continued focus on cost management helped Caterpillar Inc. deliver a record quarterly profit per share of $2.37 in the first quarter of 2012. This represents an increase of 29 percent from the first-quarter 2011 profit per share of $1.84. First-quarter 2012 sales and revenues of $15.98 billion were up 23 percent from $12.95 billion in the first quarter of 2011. Profit was a record $1.59 billion in the quarter that ended March 31, an increase of 29 percent from $1.23 billion in the first quarter of 2011. Caterpillar increased its profit outlook for 2012 while maintaining the sales and revenues outlook in the range of $68 billion to $72 billion.

Cobra Electronics Corp.: The designer and marketer of marine VHF radios and other mobile communications products reported net income of $339,000, or 5 cents a share, for the first quarter of 2012, compared with a net loss of $819,000, or 13 cents a share, for the first quarter of 2011. In addition, operating income for the current quarter was $161,000, compared with an operating loss of $822,000 in the same quarter last year. This improvement reflected an increase in net sales to $26.4 million from $22.4 million in the first quarter of 2011 and an increase in gross margin to 28.7 percent from 26 percent in the prior year’s first quarter, the company said.

FLIR Systems: The parent company of Raymarine announced a small decrease in revenue and net income for the first quarter. Revenue was $348.5 million, down 7 percent from first-quarter 2011 revenue of $376 million. Operating income in the first quarter was $68.3 million, compared with $76.3 million in the first quarter of 2011. First-quarter 2012 net income was $48.1 million, or 31 cents a diluted share, compared with net income of $51.3 million, or 32 cents a diluted share, in the first quarter a year earlier. The company’s Commercial Systems’ Raymarine segment contributed $46.6 million of revenue during the first quarter, down 8 percent from the prior year.

Garmin Ltd.: The company announced improved results for the first quarter, including an increase in marine segment revenue. Total revenue for the period that ended March 31 was $557 million, up 10 percent from $508 million in the first quarter of 2011. The marine segment saw a revenue increase of 9 percent, to $56 million. Diluted earnings per share decreased to 44 cents from 49 cents in the first quarter last year because of an increased effective tax rate; pro-forma diluted earnings per share increased 5 percent, to 45 cents, from 43 cents in the same quarter in 2011. Net income for the first quarter was $86.9 million, compared with $95.5 million for the quarter a year earlier. On a pro-forma basis, earnings were $88.6 million for the current year’s quarter, up from $83.5 million for the prior year’s quarter.

Johnson Outdoors: Revenue during the second fiscal quarter, which ended March 30, matched record second-quarter sales reported in the prior year, the company reported. Although operating profits benefited from a $3.5 million settlement with the company’s insurance carriers, net income decreased because of a substantially higher effective tax rate. Net sales for the quarter were $128.7 million, essentially flat with record net sales of $128.9 million in the prior-year quarter. Excluding the unfavorable $600,000 impact of currency in the current quarter, revenue would have exceeded the record second-quarter sales in the previous year. Marine electronics revenue edged up 1.7 percent ahead of last year because of continued strong new-product performance in Minn Kota and Humminbird to set a new record for second-quarter sales. Watercraft sales slipped 5.8 percent because of lower volume across all channels.

• Twin Disc: Sales for the third quarter improved to $95.5 million from $76.5 million for the same period last year. For the fiscal year to date, sales were $259.8 million, compared with $213 million for the first nine months of fiscal 2011. The improvement in sales was the result of strong demand from customers in the oil and gas markets. Stable to slightly increased sales continued in a majority of the company’s other markets, including aftermarket, industrial, airport rescue and firefighting, land- and marine-based military and commercial marine. Pleasure craft markets continue at depressed levels, largely affecting the company’s European operations.

This article originally appeared in the June 2012 issue.

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