Brunswick Corp. today reported a 22 percent gain in third-quarter net sales, including a 77 percent increase in boat sales and an 18 percent increase in marine engine segment sales.
"Although we are very encouraged with year-to-date financial results - driven primarily by return from more normal balance between wholesale sales, retail sales and production - overall marine demand continued to decrease during the first nine months and remains at historically low levels, and the gap between fiberglass and aluminum demand trends continues to be quite pronounced," Brunswick chairman and CEO Dustan E. McCoy said in an earnings conference call.
As a result of the continued decline in fiberglass sales, production of fiberglass will stop between four and six weeks beyond regular shutdown, he said.
"Our business thus far has been extremely successful in executing against our strategic objectives," McCoy said in the conference call. "We still anticipate we will report a net loss for the whole year," due to the reduced production schedule, as well as lagging consumer confidence and seasonal sales drops.
Total industry demand declined around 17 percent in the third quarter, compared to 10 percent in the second quarter.
"That decline is greater than our 2010 planning assumption of 10 percent," McCoy said.
The company reported net sales of $815.4 million, up from $665.8 million in the same period last year. Operating earnings were $25.2 million, which included $12.2 million of restructuring, exit and impairment charges. In the third quarter last year, the company had a $109.4 million operating loss that included $28.8 million of restructuring, exit and impairment charges.
The Lake Forest, Ill.-based company said it had a net loss of $7.2 million, or 8 cents a diluted share, in this year's third quarter, which ended Oct. 2. The results include 14 cents a diluted share of restructuring, exit and impairment charges. The company had a net loss of $114.3 million, or $1.29 a diluted share, in the third quarter last year that included 32 cents a share of restructuring, exit and impairment charges and a 24-cent-a-share benefit from special tax items.
Cash and cash equivalents were $676.5 million at the end of the third quarter, up $149.9 million from year-end 2009 levels. The company's increased cash position reflects net cash provided by operating activities of $192.6 million, which included the receipt of a $109.5 million federal tax refund.
"Throughout the first nine months of 2010, we have successfully executed against our strategic initiatives," Brunswick chairman and CEO Dustan E. McCoy said in a press release. "This is evidenced by the outstanding operating leverage that we have demonstrated on our revenue growth during the year."
During the first nine months of this year, excluding restructuring charges, Brunswick's operating earnings increased by more than $410 million compared with 2009, McCoy said.
"In addition, we have achieved our objective of being cash-flow positive during this period," McCoy said. "All of this has been accomplished against the backdrop of a very difficult marine market."
The increase comes after second-quarter net sales increased 44 percent, the first net increase since the first quarter of 2008.
Cash totaled $676.5 million, up from a 2009 year-end balance of $526.6 million. Increased production and wholesale shipments, compared with prior-year levels, resulted from low dealer inventories at the beginning of this year.
Several factors influenced revenue, McCoy said in a statement.
This year fewer discounts were required to facilitate retail sales, McCoy said. Improved fixed-cost absorption resulted from higher overall unit production and higher sales levels in the marine business.
Also in the third quarter, Brunswick benefited from lower restructuring, exit and impairment charges, a reduction in variable compensation expense and lower pension expense, McCoy said. Partially offsetting those positive factors were higher income taxes, he said.
The boat segment, which includes 16 brands, reported net sales of $209.2 million for the third quarter, an increase of 77 percent from $118.2 million in the quarter last year.
International sales, which represented 34 percent of total segment sales in the quarter, increased by 39 percent during the period. For the third quarter of 2010, the boat segment reported an operating loss of $26.3 million, including restructuring, exit and impairment charges of $10.2 million. This compares with an operating loss of $86.7 million, including restructuring, exit and impairment charges of $6.6 million, in the third quarter of 2009.
Boat manufacturing facilities "significantly increased production," compared with 2009, to replenish dealer inventory, according to the press release.
Reduced discounts required to support retail sales by dealers, increased fixed-cost absorption, higher sales and a reduction in variable compensation expense were the primary factors affecting the segment's reduction in operating losses in the quarter.
Marine engine segment
The marine engine segment, consisting of the Mercury Marine Group, including the marine service, parts and accessories businesses, reported net sales of $429.2 million in the third quarter, up 18 percent from $363.5 million in the third quarter last year. International sales, which represented 38 percent of total segment sales in the quarter, increased 5 percent. For the quarter, the marine engine segment reported operating earnings of $49 million, including restructuring charges of $1.7 million. This compares with an operating loss of $13.4 million in the year-earlier quarter that included $18.8 million of restructuring and impairment charges.
Sales were higher across all of the segment's main operations, including a high single-digit increase in the domestic marine service, parts and accessories businesses, which represented 32 percent of total segment sales in the quarter. The segment's sterndrive engine business had the highest percentage of sales growth.
Mercury's manufacturing facilities continued to increase production during the quarter in response to customer inventory requirements.
Higher sales, lower restructuring, exit and impairment charges, reduced pension expense, fixed-cost reductions, lower bad debt expense, increased fixed-cost absorption and improved operating efficiencies had a positive effect on operating earnings during the quarter.
Partially offsetting these positive factors were gains from favorable settlements reached during the prior year's quarter.
On Wednesday, Brunswick said it will pay an annual dividend of 5 cents a share. The dividend will be paid Dec. 15 to shareholders of record on Nov. 23.