Brunswick reports Q4, 2018 results

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Mercury’s new outboards have been widely accepted, according to CEO David Foulkes.

Mercury’s new outboards have been widely accepted, according to CEO David Foulkes.

Brunswick Corp. reported net sales of $5.2 billion in 2018, up 6.7 percent from $4.8 billion the year prior.

The company had $49.4 million and $151.6 million of sales last year related to sport yacht and yacht operations in 2018 and 2017, respectively.

Diluted EPS in 2018 was $2.98 on a GAAP basis versus $4.77 on an as adjusted basis.

For the fourth quarter of 2018, Brunswick reported net sales of more than $1.2 billion, up slightly from $1.18 billion last year, with $5.4 million and $38.3 million of sales related to sport yacht and yacht operations in the fourth quarter of 2018 and 2017.

“Our combined marine portfolio had a fantastic 2018, which led to the company's ninth consecutive year of adjusted EPS growth," Brunswick CEO David Foulkes said in a statement. "The financial results demonstrate the outstanding execution of our marine strategy, where our focus on product and technology leadership, along with capacity investments and operational excellence, generated strong improvements."

Engine Segment

The marine engine segment reported net sales of $669.5 million in the fourth quarter of 2018, up 18.6 percent from $564.6 million in the fourth quarter of 2017. The Power Products acquisition contributed approximately 9 percent to the growth rate in the quarter.

International sales, which represented 31 percent of total segment sales in the quarter, were up 18 percent compared to the prior year period.

For the quarter, the marine engine segment reported operating earnings of $81.5 million, which included $11.8 million of purchase accounting amortization and $800,000 of transaction costs, each related to the Power Products acquisition. This compares with $59.2 million of operating earnings in the fourth quarter of 2017.

The company attributed the increase to “significant growth in both the outboard engine and parts-and-accessories businesses, including the results of the Power Products acquisition.”

"In the fourth quarter, Mercury's propulsion business continued to excel behind powerful demand for new outboard products, which generated 20 percent revenue growth in the quarter,” Foulkes said. “The parts-and-accessories business, which was augmented by the first full quarter of results from the Power Products acquisition, also delivered impressive top-line and earnings growth.”

Boat Segment

The boat segment reported net sales of $377.3 million for the fourth quarter of 2018, a decrease from $386.5 million in the fourth quarter of 2017. Net sales included $5.4 million and $38.3 million of sport yacht and yacht sales in the fourth quarter of 2018 and 2017, respectively.

International sales, which represented 20 percent of total segment sales in the quarter, decreased by 24 percent compared to the prior year, primarily due to lower sales into Canada because of the retaliatory tariffs on wholesale shipments.

For the fourth quarter of 2018, the boat segment reported operating earnings of $10.3 million, which included $8.6 million of restructuring, exit, integration and impairment charges, as well as additional losses in excess of restructuring charges of $11 million related to the sport yacht and yacht operations.

This compares to operating losses of $22.7 million in the fourth quarter of 2017, which included $36.9 million of restructuring, exit, integration and impairment charges and $10.7 million of operating losses, each related to sport yachts and yachts.

Brunswick said the boat segment's quarterly operating earnings showed meaningful improvement, reflecting benefits from higher net sales. The segment's revenue and earnings comparisons were influenced by the results of sport yacht and yacht operations.

“The boat business achieved solid earnings improvements, led by healthy growth in Boston Whaler, Harris pontoons and Sea Ray sportboats and cruisers,” Foulkes said.

2019 outlook

"We are diligently executing against our marine strategy and expect the operational, strategic and growth advancements achieved by our marine business to lead us to greater success in 2019," Foulkes said.

With the pending separation of the fitness segment, Brunswick will provide additional outlook comments and guidance exclusive of the fitness business. The presentation will provide increased visibility into the expectations for the performance of the marine operations and will minimize adjustments to the company’s outlook at separation, Foulkes said.

"In our combined marine business, we expect top-line performance to benefit from a steady global marine market, along with ongoing benefits from customer migration to higher-horsepower engines and boats with increased technology and content,” Foulkes said.

Brunswick expects to see market share gains this year, due in part to strong demand and acceptance of new outboard products, Foulkes said.

“The parts-and-accessories business will also continue to bolster its healthy aftermarket business while investing in expanding product categories, such as controls, rigging and electrical systems, to increase sales to boat manufacturers,” he said. “As a result, absent significant changes in the global macro-economic climate, our plan reflects overall revenue growth rates in 2019 in the range of 9 to 11 percent, including an approximate 4 percent benefit from completed acquisitions.”

For the full-year, the company anticipates “strong improvement in both gross and operating margins in our combined marine business, given ongoing benefits from new products and acquisitions, volume leverage and cost-reduction activities,” Foulkes said.

Operating expenses are estimated to decline slightly versus 2018 on a percentage-of-sales basis. Operating earnings for the marine business are expected to grow by a high-teens percent for the year.

Guidance for 2019 as adjusted diluted earnings per share, excluding the fitness business, is in the range of $4.50 to $4.70, which compares to a 2018 result of $4.13 on a similar, marine-only basis.

Inclusive of the estimated full-year results of the fitness business, the company’s guidance for 2019 as adjusted diluted earnings per share is in the range of $4.80 to $5.05.

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