Earnings reports turn positive

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Brunswick, MarineMax chiefs say the prolonged downturn likely has bottomed out

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Many of the boating industry's publicly traded companies reported positive results in the most recent quarter and for the year, and even those with mixed results were optimistic about the future.

Many executives declared that the industry had hit bottom and was on its way back up. However, they cautioned against heightened expectations, and some predicted that this year could be flat.

The following is a summary of recent earnings reports:

Brunswick

Brunswick Corp. reported an increase in net sales for the fourth quarter and the full year, and a lower net loss per share for the quarter and the year. "We believe we hit the bottom in 2010," Dustan McCoy, the company's chairman and CEO, told analysts. He says 2010 was a transitional year for the company and that Brunswick is in an "excellent position to return to profitability in 2011."

The company reported net sales of $728.8 million for the quarter, which ended Dec. 31, up 11 percent from $657.3 million in the same period in 2009. For the full year, Brunswick reported net sales of $3.4 billion, up 23 percent from $2.77 billion in 2009.

For the fourth quarter, Brunswick recorded a net loss of $1.17 a diluted share, compared with a net loss of $1.40 a diluted share in the prior-year period. For 2010, the company reported a net loss of $1.25 a diluted share, compared with a net loss of $6.63 a diluted share in the prior year.

For 2010, Brunswick reported operating earnings of $16.3 million, which included $62.3 million of restructuring, exit and impairment charges. In 2009, the company had an operating loss of $570.5 million, which included $172.5 million of restructuring, exit and impairment charges.

For the fourth quarter, the company reported an operating loss of $74.7 million, which included $18.5 million of restructuring, exit and impairment charges. In the fourth quarter of 2009, the company had an operating loss of $188.2 million, which included $68.6 million of restructuring, exit and impairment charges.

The boat segment, which includes 16 brands, reported net sales of $163.6 million for the fourth quarter, an increase of 7 percent from $153.4 million in the prior year's fourth quarter. International sales were 41 percent of the company's boat sales in 2010, compared with 42 percent in 2009.

Boat segment production increased during the fourth quarter, compared with low levels in the fourth quarter of 2009, in response to the inventory requirements of dealers. McCoy says the industry saw 132,000 units sell at retail in 2010, a decline of about 14 percent. However, the aluminum market, particularly pontoons, appears stable, and fiberglass remains a weaker sector.

The marine engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $353.3 million in the fourth quarter, up 17 percent from $302.4 million in the fourth quarter of 2009. International sales, which represented 51 percent of total segment sales in the quarter, increased by 15 percent.

For the quarter, the marine engine segment reported an operating loss of $17.4 million, including restructuring charges of $7.4 million. This compares with an operating loss of $59.4 million in the year- earlier quarter, which included $8.2 million of restructuring and impairment charges.

The level of 2011 revenue and earnings growth primarily will be governed by retail demand, McCoy says. "Our current manufacturing footprint and cost structure should allow us to report strong future earnings leverage," he says. "Without considering the effects of changes to our fixed manufacturing cost structure or operating expenses, our earnings leverage [on incremental revenue] should approximate 30 percent."

Brunswick expects its 2011 earnings per share to be in the range of 5 cents to 40 cents. RBC Capital Markets says it continues to recommend the company's stock.

"We came away sensing increased optimism by [Brunswick] management that retail conditions are beginning to improve from very depressed levels," analyst Edward Aaron says. "While clearly too early to make a definitive call on 2011 retail, we think risk/ reward on the recovery story is favorable. As we see it, [Brunswick] shares have more upside if the market turns in 2011 than downside if it doesn't."

MarineMax

MarineMax reported a decrease in revenue and same-store sales for its fiscal first quarter, but company officials say new units sold were up 25 percent, compared with the same period last year, and margins increased. Much of the revenue decline, they say, was based on fewer used boats sold, a consequence of having less used inventory available.

Revenue was $92.2 million for the quarter that ended Dec. 31, compared with $100.4 million in the comparable quarter last year. Same-store sales declined about 8 percent, compared with a 13 percent increase in the comparable quarter last year.

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The net loss for the first quarter of fiscal 2011 was $4.7 million, or 21 cents a share, compared with net income of $10.2 million, or 45 cents a share, in the comparable quarter last year.

Inventory for the quarter declined $1 million, or 1 percent, to $189.2 million, compared with $190.2 million on Dec. 31, 2009. Sequentially, inventory remained flat, compared with the quarter that ended Sept. 30, 2010, despite the seasonal increase that the industry typically experiences.

"It does appear that the industry may have finally bottomed out," says William McGill Jr., MarineMax chairman, president and CEO. "While our results continue to be pressured by the overall challenging economic environment, we were encouraged by several points of progress in our business during the quarter."

Marine Products

Marine Products Corp., the builder of Chaparral and Robalo boats, reported a nearly 90 percent increase in sales for the fourth quarter and a 156 percent increase for the year.

For the quarter that ended Dec. 31, Marine Products generated net sales of $20.814 million, an increase of 89.4 percent from $10.99 million a year earlier.

"The increase in net sales was due to a significant increase in the number of boats sold and more normalized incentive costs as a percentage of net sales, compared to the prior year, as well as a slight increase in the average gross selling price per boat," the company says in a statement.

Gross profit for the quarter was $3.6 million, or 17.3 percent of net sales, compared with a gross loss of $1.39 million in the prior year. The company attributed the gain to significantly lower incentive costs as a percentage of net sales and operating at significantly higher production levels, compared with the same period in 2009.

Net income for the quarter was $468,000, compared with a net loss of $2.764 million in the prior year. Earnings per share for the quarter were 1 cent, compared with a loss of 8 cents in the prior year.

Net sales for the 12 months that ended Dec. 31 were $101 million, a 156.1 percent increase from the year that ended Dec. 31, 2009. Net income for the period was $3.85 million, or 11 cents a share, compared with a net loss of $10.7 million, or 30 cents a share, in the prior year.

"In the fourth quarter of 2010 we continued to experience the ability and willingness of our dealer network to build inventory levels to meet anticipated customer demand for the 2011 retail selling season," CEO Richard Hubbell says in a statement.

Hubbell says the company is guardedly optimistic about the coming selling season.

West Marine

West Marine reported a 3.3 percent increase in net revenue for the fourth quarter, which ended Jan. 1, and a 5.8 percent increase in net revenue for 2010. Fourth-quarter net revenue was $107.3 million, compared with $103.9 million in the year-earlier period. Comparable-store sales for the fourth quarter increased 1.6 percent, or $1.3 million. Revenue increased $6.4 million from stores that opened during the fourth quarter of 2009 and fiscal 2010.

"We are delighted to have finished 2010 with overall sales growth of 5.8 percent, to $623 million, in total net revenues," CEO Geoff Eisenberg says in a statement. "The revitalization of West Marine during the last few years, in an environment that has been so very challenging for boating, has resulted in both total sales and comparable-store growth for six consecutive quarters, when you adjust for the calendar shift in 2008 and evaluate the reporting periods so that both 2008 and 2009 are based on the same number of weeks."

Net revenue for the 52 weeks that ended Jan. 1 was $622.8 million, an increase of $34.4 million, or 5.8 percent, from net revenue of $588.4 million for the same period a year earlier. The increase was primarily attributable to a comparable-store sales increase of 6.3 percent, or $30.7 million, the company says. Stores that opened during the fourth quarter of 2009 and fiscal 2010 generated $30.4 million in sales; however, stores that closed during these periods effectively reduced net revenue by $25.8 million.

West Marine was scheduled to release its full results Feb. 24.

Other reports

  • Caterpillar: The company announced sales and revenue of $42.6 billion for 2010, an increase of 31 percent from $32.4 billion in 2009. Profit in 2010 was $2.7 billion, an increase of 202 percent from a 2009 profit of $895 million. Profit per share of $4.15 was up from $1.43 in 2009. Fourth-quarter sales and revenue were $12.8 billion, an increase of 62 percent from $7.9 billion in the fourth quarter of 2009. Fourth-quarter profit of $968 million was 317 percent higher than profit of $232 million in the same quarter of 2009. Profit per share of $1.47 was up from 36 cents a share in the fourth quarter of 2009. Excluding redundancy costs, profit for the fourth quarter of 2009 was 41 cents a share.
  • Twin Disc: Twin Disc reported an increase in sales for the second quarter, which ended Dec. 31, but says its "pleasure craft marine business continued to be challenging." Sales for the second quarter of fiscal 2011 were $75.16 million, compared with $55.19 million for the fiscal 2010 second quarter. For the year to date, sales were $136.6 million, compared with $102.2 million for the first half of fiscal 2010. The improvements in sales were the result of growing demand from customers in the oil and gas market. Stable demand continued from the airport, rescue and firefighting, land- and marine-based military, and commercial marine markets, the company says.
  • Cummins: The engine manufacturer reported record profits for 2010 and record quarterly sales and profits for the fourth quarter. Fourth-quarter sales were $4.14 billion, up 22 percent from $3.4 billion during the same period in 2009. Earnings before interest and taxes were $541 million, or 13.1 percent of sales, a 41 percent increase from $383 million, or 11.3 percent of sales. For the fourth quarter, the engine, components and distribution segments all reported record sales and earnings before interest and taxes, the company says in a statement. For the full year, sales were $13.23 billion, up 22 percent from $10.8 billion in 2009. Earnings before interest and taxes of $1.66 billion, or 12.5 percent of sales, increased 114 percent from $774 million, or 7.2 percent of sales, excluding restructuring and other charges, in 2009.

This article originally appeared in the March 2011 issue.

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