For marine leaders, a solid quarter

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Sales, profits rise at Brunswick, MarineMax, West Marine; Brunswick CEO foresees ‘flat’ year for industry

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Most of the marine industry’s publicly held companies reported positive results in the most recent quarter, including Brunswick, West Marine and MarineMax. Many of the companies saw profits soar, compared with the year-earlier period, with sales up at many marine businesses.

Here is a review of the latest earnings reports:

Brunswick Corp.

Brunswick chairman and CEO Dustan McCoy terms the year to date “somewhat choppy” and reiterates that he expects 2011 to be a “flat” year overall in the marine industry.

In a call with analysts, McCoy notes that retail demand was up in the second quarter in certain segments, most notably aluminum, although some areas of the fiberglass market also were showing increases. Total demand was up 1 percent in the second quarter, he says, and for the first half of the year total unit demand was down less than 1 percent from the same period last year.

Brunswick reported net sales of nearly $1.1 billion for the quarter, up 8 percent from $1.01 billion a year earlier.

The company reported operating earnings of $107.9 million for the second quarter that included a gain from restructuring activities of $300,000, primarily resulting from the sale of idled marine properties. In the second quarter of 2010, the company had operating earnings of $55.7 million that included $24.2 million of restructuring and impairment charges.

Brunswick reported net earnings of $69.3 million, or 75 cents a diluted share, for the 2011 quarter, compared with $13.7 million, or 15 cents a diluted share, for the second quarter last year.

The boat segment reported net sales of $326.7 million for the second quarter, an increase of 10 percent from $296.6 million in the second quarter of 2010. The boat segment reported operating earnings of $9.4 million in the second quarter. The segment had an operating loss of $23.6 million, including restructuring charges of $21.7 million, in the second quarter last year.

Boat segment production and wholesale shipments increased during the quarter, compared with the second quarter of 2010, in response to solid retail demand and market share gains among Brunswick boat brands. Revenue growth resulted from an increase in wholesale unit shipments, partially offset by the effect of a slightly greater mix of smaller boat sales, the company says.

The marine engine segment reported net sales of $618.5 million for the quarter, up 7 percent from $579.2 million in the second quarter of 2010.

The segment reported operating earnings of $95.5 million for the second quarter that included a gain from restructuring activities of $300,000, primarily related to the sale of idled properties. The results compare with operating earnings of $89.2 million in the second quarter of 2010 that included $2.1 million in restructuring charges.

Brunswick, McCoy says, is focused on growth through market share gain and “organic growth opportunities.” Some brands, which he didn’t name, are underperforming, he says, and the company will either fix the problems or take other action.

Shortly after releasing its quarterly earnings report, Brunswick announced plans to establish a manufacturing plant in Brazil.

Brunswick expects to have locally manufactured products available in advance of the 2012 summer boating season. When it is in full operation, the plant will have the capacity to produce more than 400 boats annually.

MarineMax

MarineMax, the nation’s largest recreational boat retailer, reported an increase in revenue, same-store sales and net income for its third quarter, and CEO William McGill Jr. says the quarter was the company’s strongest in recent years.

Revenue was $153.2 million for the quarter, compared with $115.4 million for the comparable quarter last year. Same-store sales increased about 33 percent, compared with a 17 percent decrease in the comparable quarter last year.

Third-quarter net income was $3.4 million, or 15 cents a diluted share, compared with net income of $512,000, or 2 cents a diluted share, in the comparable quarter last year.

Inventory was $200.9 million as of June 30, compared with $190.2 million as of March 31. Inventory was up 6 percent from Sept. 30, 2010, the end of the Clearwater, Fla.-based company’s previous fiscal year. The increase was largely attributable to the product lines that were added to the company’s portfolio during the past year.

Gross profit as a percentage of revenue was 25.5 percent for the quarter, a historically high number that should indicate to investors that margins are slowly improving, CFO Mike McLamb says.

MarineMax spent more than usual on marketing and reinvigorating its customer base, McGill says. The largest investment was made in Internet marketing, but local cable ads and direct mailing were included, McLamb says.

“We just got very aggressive,” McLamb says of the company spending more than an additional $1 million. “It’s not our intention to be spending that each quarter.”

Product margins aren’t back to historical levels, he adds.

“It’s incrementally getting better,” McLamb says. “I think what’s happening still within the industry is, these scars are still so fresh on the minds of all the dealers, including ourselves. ... If we have a deal on a boat, do we walk away from it or do we take it?”

Decreasing overall revenue was the expense associated with the addition of new brands, such as Nautique, Malibu, Bayliner and Mako, to MarineMax’s lineup in certain markets, McGill says. New brands added modest increases in sales revenue — between 3 percent and 5 percent, McLamb says.

Marine Products Corp.

Marine Products Corp., builder of Chaparral and Robalo boats, reported a drop in sales and profits for the second quarter.

Marine Products generated net sales of $29.1 million during the quarter, an 8.1 percent decrease from $31.7 million last year. The decrease in net sales was attributable to a 17.9 percent decrease in the number of boats sold, partially offset by a 12.4 percent increase in the average selling price per boat, the company says.

Gross profit for the quarter was $4.9 million, or 16.9 percent of net sales, compared with gross profit of $6.6 million, or 20.8 percent of net sales, in the prior year.

The decline in gross profit resulted from lower unit sales, decreased efficiencies resulting from lower production levels and, to a lesser extent, the higher cost of materials, the company adds.

Net income for the quarter that ended June 30 was $1.23 million, compared with net income of $2.47 million in the prior year. Diluted earnings per share for the quarter were 3 cents, compared with 7 cents in the prior year.

“In response to early second-quarter economic events, especially a rise in gasoline prices, Marine Products Corp. decreased production levels, compared to both the first quarter of 2011 and the second quarter of 2010,” CEO Richard Hubbell said in a statement.

“We reduced production in order to manage our dealer inventory levels through the end of the retail selling season and in preparation for the new model year,” he added. “We are pleased to report that our domestic dealers actually achieved higher retail sales during the quarter, compared to the prior year, resulting in field inventories that were lower than at the end of the first quarter of this year.”

West Marine

West Marine reported an increase in second-quarter profits and raised its guidance for the fiscal year.

Net income for the second quarter was $44.7 million, or $1.92 a fully diluted share, compared with $35.1 million, or $1.52 a fully diluted share, a 26.3 percent increase from the same period last year. Income before taxes for the second quarter was $40 million, an increase of $4 million, or 11 percent, compared with the same period last year.

West Marine raised its previously issued 2011 full-year pretax earnings guidance to a range of $18.5 million to $20 million. Earnings per share guidance is increasing to a range of $1.05 to $1.16 a share.

“After a much later beginning to the boating season because of difficult weather in many markets, customer activity finally kicked in during the last month of the quarter,” CEO Geoff Eisenberg says. “We experienced stronger year-over-year sales after Memorial Day while continuing to manage expenses and gross margin. Based on our current outlook, combined with positive customer response to many of our sales initiatives, we have increased our full-year guidance for both revenues and earnings.”

Net revenue for the 13 weeks that ended July 2 was $236 million, compared with net revenue of $233.4 million for the 13 weeks that ended July 3, 2010.

Revenue in the stores segment was $214.8 million, up $2.2 million, or 1 percent, from the same period last year. Revenue from stores that opened in 2010 and the first two quarters of this year contributed $15.8 million to the increase. However, the effect of stores that closed during those periods effectively reduced revenue by $13.2 million.

The majority of the closings occurred in connection with West Marine’s real estate optimization program. The company is shifting to fewer, larger stores.

Comparable-store sales were flat year-to-year.

The company’s port supply segment revenue from its distribution centers for the second quarter was $8.4 million, a decrease of $800,000, or 8.8 percent, compared with the same period last year.

Net revenue in the direct sales segment for the second quarter was $12.7 million, an increase of $1.2 million, or 10.5 percent, from the same period last year.

Gross profit for the second quarter was $84.8 million, an increase of $2.3 million from the 2010 quarter. At the end of the quarter the company had no debt, compared with $2.5 million at the end of the second quarter last year.

Additional reports

• Actuant Corp., the parent company of Marinco Electrical Group and Mastervolt, reported a 27 percent increase in sales for its third quarter, which ended May 31. The company reported core sales growth in all four segments, resulting in a consolidated 14 percent year-over-year increase in core revenue — total sales, less the effect of acquisitions, divestitures and foreign currency rate changes. Consolidated sales for the third quarter were $393 million, 27 percent higher than during the comparable prior-year quarter. Core sales increased 14 percent, with acquisitions contributing an additional 9 percent and the weaker U.S. dollar 4 percent.

• Caterpillar Inc. reported a second-quarter 2011 profit per share of $1.72 — excluding $204 million in expenses related to the acquisition of Bucyrus — a 58 percent improvement from $1.09 a share in the second quarter last year. Profit was $1.02 billion in the second quarter this year, an increase of 44 percent from $707 million last year. Sales and revenue of $14.23 billion were up 37 percent from $10.41 billion a year earlier.

• Cobra Electronics Corp. reported net income of $517,000, or 8 cents a share, for the second quarter, compared with a net loss of $364,000, or 6 cents a share, for the second quarter of 2010. Operating income increased to $951,000 for the current quarter from $252,000 in the same quarter last year. The improvement reflected an increase in net sales from $25.7 million to $28.9 million. Consolidated sales increased by nearly $3.2 million, or 12.3 percent, with the Cobra segment reporting an increase in net sales of $2.6 million, or 11.7 percent. The performance products limited segment reported an increase of $550,000, or more than 15.7 percent.

• Cummins Inc. reported record sales and earnings for the second quarter on strong growth in nearly every global market. The company’s engine, components and distribution segments delivered record sales and earnings. Second-quarter sales were $4.6 billion, up 45 percent from the same period last year. Earnings before interest and taxes were $775 million and included a $68 million gain on the sale of the exhaust business from the components segment. Net income attributable to Cummins in the second quarter was $505 million, or $2.60 a diluted share. Excluding the $68 million gain ($37 million after tax, or 19 cents a share), the company reported earnings of $2.41 a share, compared with $1.25 a share in the second quarter of 2010.

• FLIR Systems, the parent company of Raymarine, reported an 18 percent increase in second-quarter revenue, but a drop in net income. Revenue was $390 million for the quarter that ended June 30, compared with $331.1 million in the second quarter a year earlier. Net income for the second quarter this year was $29.3 million, or 18 cents a diluted share, compared with net income of $59.5 million, or 37 cents a diluted share, in last year’s second quarter. Revenue from the company’s commercial systems division increased 32 percent from the second quarter of 2010, to $215 million. Commercial systems’ Raymarine segment contributed $50.2 million.

• Garmin reported a drop in revenue for the second quarter, although marine segment revenue increased 6 percent. The company reported total revenue of $674 million, down 8 percent from $729 million in the second quarter last year. Profits fell 19 percent for the quarter, which ended June 25. Garmin reported earning $109.5 million, or 56 cents a share, compared with $134.8 million, or 67 cents a share, a year earlier. Although automotive/mobile segment revenue dropped 19 percent, the company’s other segments saw revenue growth. Revenue in the marine segment was $79 million, the company reported.

• KVH Industries reported an increase in revenue for the second quarter, which ended June 30, but a drop in revenue for the first six months of the year. Revenue for the second quarter was $30.6 million, up 4 percent from last year’s quarter. Diluted earnings per share for the quarter totaled 1 cent on net income of $200,000. During the same period last year, the company reported net income of $5.3 million, or 36 cents a diluted share, on revenue of $29.5 million.

• Twin Disc reported an increase in sales for its fourth quarter and the full fiscal year. Sales for the quarter that ended June 30 were $97.4 million, compared with $64.3 million in the fourth quarter of fiscal 2010. Sales totaled $310.4 million in fiscal 2011, compared with $227.5 million in fiscal 2010. The improvement in sales for the quarter and the year was primarily the result of growing demand from customers in the oil and gas market, the company said. The company also saw modest growth in the aftermarket and industrial products markets. Stable demand continued from the land- and marine-based military, airport rescue and firefighting, pleasure craft and commercial marine markets. n

Reagan Haynes contributed to this report.

This article originally appeared in the September 2011 issue.

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