Results improve, with an eye to 2011

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Brunswick, MarineMax swing from loss a year earlier to profit for the quarter

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A number of marine businesses reported positive results in the latest quarter, including better-than-expected earnings at Brunswick, a profit at MarineMax and West Marine's seventh consecutive quarter of improved operating results, compared with the corresponding quarter of the prior year.

Although results are improved from the year-earlier quarter, company officials, on calls with analysts, were quick to point out that challenges lie ahead. Brunswick officials say they are focused on returning to profitability in 2011. MarineMax officials say more dealer failures are expected this fall and winter, which could lead to more market share for the boating retailer.

Following is a roundup of the latest industry earnings reports:

Brunswick Corp.

Brunswick reported a 41 percent gain in total net sales for the second quarter of 2010, with both the boat and engine segments reporting large increases.

The company reported total net sales of $1.01 billion, up from $718.3 million in the same period last year. Net earnings of $13.7 million, or 15 cents a diluted share, contrasted with a net loss of $163.7 million, or $1.85 a diluted share, for the second quarter of 2009.

The results mark the Lake Forest, Ill.-based company's first net profit since the first quarter of 2008, according to chairman and CEO Dustan McCoy. Operating earnings of $55.7 million, a $201.1 million improvement from the prior year, were also reported.

"The continued successful execution of our strategic initiatives over the past several quarters was a key factor in our improved second-quarter results," McCoy says. "Historically low marine dealer inventories as we entered the year led to improved wholesale shipments. This, combined with significant fixed-cost reductions achieved over the past two years, enabled us to report our second consecutive quarterly operating profit. In addition, during the first half of 2010, our cash balances increased by $93 million and net debt declined by $120 million."

The boat segment, which includes 15 boat brands, reported net sales of $296.6 million for the second quarter, an increase of 114 percent from $138.8 million in the second quarter of 2009.

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For the second quarter, the boat segment reported an operating loss of $23.6 million, including restructuring, exit and impairment charges of $21.7 million. This compares with an operating loss of $107.9 million, including restructuring, exit and impairment charges of $17.9 million, in the second quarter of 2009.

The marine engine segment reported net sales of $579.2 million in the second quarter, up 39 percent from $415.2 million in the year-earlier period.

For the quarter, the marine engine segment reported operating earnings of $89.2 million, including restructuring charges of $2.1 million. This compares with an operating loss of $7.8 million in the year-earlier quarter, which included $9.6 million in restructuring, exit and impairment charges.

"Conditions in 2010 have indeed been difficult, with end-market results being mixed, not only throughout the U.S., but also globally. Retail demand for our marine market products continues to be at historically record low levels, but the overall market rate of decline has eased," McCoy says.

"During the second half of 2010, we will continue to focus on liquidity and closely manage our overall cost structure," he adds. "In addition, we plan to keep our production and wholesale shipment levels closely matched with retail demand and dealer stocking requirements, which will ensure the continuing health of our dealer pipeline inventories."

MarineMax

MarineMax reported a decline in revenue for its third fiscal quarter, but the retailer swung from a net loss a year earlier to a profit in this year's quarter.

Revenue was $115.4 million for the quarter that ended June 30, compared with $151.5 million for the comparable quarter last year. Same-store sales declined approximately 17 percent, compared with a 39 percent decline in the quarter last year.

Revenue from stores recently closed that were ineligible for inclusion in the same-store sales base was $12.3 million.

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Net income for the third quarter of fiscal 2010 was $512,000, or 2 cents a diluted share, compared with a net loss of $9.2 million, or 49 cents a share, for the comparable quarter last year.

Inventory declined $158.4 million, or 47 percent, to $181.4 million, compared with $339.8 million on June 30, 2009.

Revenue was $325.9 million for the nine months that ended June 30, compared with $381.3 million for the comparable period last year. Same-store sales declined approximately 5 percent, compared with a 44 percent decline in the comparable period last year.

Net income for the nine-month period was $4.3 million, or 19 cents a diluted share, compared with a net loss of $43.8 million, or $2.37 a share, for the comparable period last year.

During the third quarter, Clearwater, Fla.-based MarineMax operated with 56 stores, nine fewer than it operated on June 30, 2009.

"We have demonstrated this quarter that we can achieve profitability from lower levels of revenue than we ever have in the past," MarineMax chairman, president and CEO William McGill Jr. says. "We attribute this improvement to the substantial progress we have made in our key initiatives. These include lowering our inventories to better align supply and demand, resulting in higher boat margins, as well as growing our higher-margin service businesses and reducing our cost structure over the past 18 months."

McGill adds: "These efforts allowed us to generate a slight profit in the quarter despite the ongoing economic pressure on our industry and the impact of the BP oil spill in the Gulf of Mexico on customers' purchasing decisions."

McGill notes that industry sources say about 1,400 marine dealers have gone out of business and that more dealer failures are expected this winter.

This, he says, provides an opportunity for MarineMax and leaves the company "well positioned to benefit as pent-up demand continues to grow." However, additional dealer failures also could lead to more lower-priced repos on the market, which could create a challenge.

Marine Products Corp.

Marine Products Corp., the builder of Chaparral and Robalo boats, announced a more than $20 million increase in second-quarter net sales.

For the quarter ending June 30, Atlanta-based Marine Products had net sales of $31.68 million, compared with $8.19 million a year earlier. The increase in net sales was attributable to a significant increase in the number of boats sold and lower retail incentive costs, compared with the prior year, partially offset by a 14.3 percent decrease in the average selling price per boat.

Gross profit for the quarter was $6.6 million, or 20.8 percent of net sales, compared with a gross loss of $3.97 million in the prior year. The gross profit resulted from higher sales, lower retail incentive costs and increased efficiencies attributable to higher production levels.

"We operated at significantly higher production levels, compared to the prior year, in response to retail demand for new models and lower dealer inventories," the company says.

Net income for the quarter was $2.47 million, compared with a net loss of $3.84 million in the prior year. The company moved from a loss to a profit because of higher operating profits, partially offset by an increase in the income tax provision and slightly lower interest income.

Earnings per share for the quarter were 7 cents, compared with a loss of 11 cents a share in the prior year.

"Lean dealer inventories benefited Marine Products Corp. during the second quarter," CEO Richard Hubbell says. "Sales to dealers of all of our models increased in the second quarter of 2010, as compared to the prior quarter and the prior year. Our higher production and resulting production efficiencies, as well as substantially lower dealer incentives and our continued cost-containment efforts, have allowed us to achieve profitability during the second quarter of 2010."

Hubbell continues: "Although unit sales to our dealers during the quarter increased significantly year over year and increased by more than 25 percent sequentially, our field inventories have continued to decrease, compared to the end of the first quarter of 2010, as well as at the same time last year."

West Marine

West Marine reported an 11.5 percent increase in income before taxes for the second quarter of 2010, marking the company's seventh consecutive quarter of improved operating results, compared with the corresponding quarter of the prior year.

The company's income before taxes for the 13 weeks that ended July 3 was $36 million, an increase of $3.7 million from $32.3 million for the second quarter last year.

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Earnings per share for the second quarter were $1.52, compared with $1.46 for the same period last year at the Watsonville, Calif.-based retailer. Earnings per share for the year to date were $1.12, compared with 75 cents for the same period last year.

Net revenues for the quarter were $233.4 million, an increase of $18 million, or 8.4 percent, from $215.4 million for the corresponding period last year, with comparable-store sales increasing by $17.3 million, or 9.4 percent.

Stores that opened during 2009 and the first two quarters of 2010 increased revenues by $9.9 million, compared with last year. Stores that closed during these same periods generated revenues of $8.8 million in the second quarter last year. The majority of the closings occurred in connection with the company's ongoing real estate optimization program.

The company opened its fifth flagship store, in Middletown, R.I., in the second quarter this year. Large-format stores also opened in Jensen Beach, Stuart and Fort Walton Beach, Fla.

Other marine companies

  • Caterpillar Inc. reported a second-quarter profit of $1.09 a share, an increase of 49 cents a share from a profit of 60 cents a share in the second quarter of 2009.

Profit of $707 million was 91 percent higher than the second-quarter 2009 profit of $371 million. Sales and revenues of $10.41 billion were up 31 percent from $7.98 billion in the second quarter of 2009, the company says. The company reported an increase in engine sales of $74 million, up 3 percent from the second quarter of 2009.

"We've been highly focused on three things this year: significantly increasing production in response to higher demand from our customers, particularly in developing economies, aggressively managing costs and driving better cash flow," Caterpillar CEO Doug Oberhelman says.

Sales and revenues were up $2.43 billion from the second quarter of 2009.

The Peoria, Ill.-based company is improving its outlook for 2010 by raising the sales and revenues range and increasing profit expectations. Sales and revenues are now expected to be in a range of $39 billion to $42 billion.

  • Cummins Inc. reported for the second quarter its highest quarterly earnings as a percentage of sales in more than 25 years. Sales of $3.21 billion in the second quarter were 32 percent higher than its $2.43 billion in the same quarter in 2009. Net income attributable to Cummins in the second quarter more than quadrupled to $246 million, or $1.25 a share, from $56 million, or 28 cents a share, in the same period a year earlier.

The sales gains were led by the Columbus, Ind.-based company's engine and components segments. Each reported 45 percent sales improvements from the same period in 2009.

Based on the company's performance in the first half of 2010 and its forecast for the rest of the year, Cummins increased its financial guidance for 2010. The company now expects to generate earnings of 12 percent of sales on revenues of $13 billion.

  • FLIR Systems Inc. reported a 19 percent increase in revenue for the second quarter, which ended June 30. It was the company's first earnings report since it acquired Raymarine.

Revenue was $331.1 million, compared with second-quarter 2009 revenue of $278 million. Excluding the effect of the Raymarine acquisition, second-quarter revenue was $303.9 million, an increase of 9 percent.

Second-quarter 2010 net income was $59.5 million, or 37 cents a diluted share, compared with net income of $55.7 million, or 35 cents a diluted share, in the second quarter a year earlier.

During the second quarter, Raymarine contributed $27.2 million of revenue and $3.4 million of operating income. Acquisition-related costs and expenses associated with post-acquisition restructuring totaled $4.6 million in the quarter and $5.8 million in the first half of the year.

"We are pleased with our performance in the second quarter, as the company continues to perform well across markets and geographies," president and CEO Earl Lewis says. "We are especially pleased with recent growth and profitability trends in our commercial vision systems business and with the continued strong operating margins generated by our government systems business."

Wilsonville, Ore.-based FLIR expects revenue for 2010 in the range of $1.3 billion to $1.4 billion and net earnings in the range of $1.48 to $1.53 a diluted share.

  • Garmin announced a 9 percent increase in total revenue and a 23 percent increase in marine segment revenue for the second quarter, which ended June 26. Total revenue for the quarter was $729 million, up from $669 million in the second quarter of 2009, with all segments posting growth. Marine segment revenue was $74 million, the company says.

For the year to date, total revenue of $1.16 billion was reported, up 5 percent from $1.11 billion for the year to date in 2009. For this same period, marine segment revenue increased 18 percent, to $116 million.

"The marine segment posted revenue growth of 23 percent as we took advantage of the continued recovery in the industry," chairman and CEO Min Kao says. "We believe we are outperforming the market and gaining share on the strength of our chart plotters and networked solutions. The significant margin expansion, both sequentially and year-over-year, speaks to our strong execution in the segment."

  • KVH Industries Inc. reported a 35 percent increase in revenue for its second quarter, which ended June 30. Revenue for the quarter was $29.5 million, the company reported.

In the second quarter of 2010, mobile communications revenue from marine, land and aeronautical products and services was $16.7 million, up 33 percent on a year-over-year basis.

KVH reported net income of $7.4 million, or 50 cents on a per-diluted-share basis, for the first six months of 2010. During the same period last year, the Middletown, R.I.-based company reported a net loss of $2.4 million, or 17 cents on a per-share basis.

Company officials say they expect to see an increase in revenue of 18 to 26 percent for the third quarter of 2010, compared with last year.

  • Teleflex Inc. says net revenue for the second quarter, which ended June 27, increased 5 percent, to $461.7 million, from $439.2 million in the same period in 2009.

Commercial segment revenue in the second quarter of 2010 rose 26 percent, to $55.3 million, from $44 million in the same period last year. Core revenue growth of 25 percent was the result of increased sales of marine OEM and aftermarket sales, the Limerick, Pa.-based company reported.

  • Twin Disc Inc. reported a drop in sales for the fourth quarter of 2010, as well as the full fiscal year, partially because of weakness in the Racine, Wis.-based company's megayacht market.

Sales for the quarter were $64.31 million, compared with $72.05 million for the fiscal 2009 fourth quarter. Sales for fiscal 2010 were $227.5 million, compared with $295.6 million last fiscal year.

Net earnings for the fiscal 2010 fourth quarter were $2.04 million, or 18 cents a diluted share, compared with $2.75 million, or 25 cents a diluted share, for the fiscal 2009 fourth quarter.

For fiscal 2010, net earnings were $597,000, or 5 cents a diluted share, compared with $11.5 million, or $1.03 a diluted share, last fiscal year.

This article originally appeared in the September 2010 issue.

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