Brunswick Corporation (NYSE:BC) reported results for the second quarter of 2010:
-- Total net sales of $1,014.7 million, up 41 percent versus 2009.
-- Net earnings of $13.7 million, or $0.15 per diluted share, which includes $0.26 per diluted share of restructuring, exit and impairment charges and $0.02 per diluted share of expense from special tax items.
-- Operating earnings of $55.7 million, a $201.1 million improvement from prior year.
-- Cash totaled $619.6 million, up from 2009 year-end balance of $526.6 million.
-- Increased production and wholesale shipments resulted from low beginning-of-year marine dealer inventories.
"The continued successful execution of our strategic initiatives over the past several quarters was a key factor in our improved second quarter results," said Brunswick's Chairman and Chief Executive Officer Dustan E. McCoy. "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 factors that positively affected our revenues and earnings in the second quarter of 2010, compared to the previous year, included higher overall unit production and sales levels, improved fixed-cost absorption in our marine businesses, and lower discounts required to facilitate retail boat sales. During the quarter, we also benefited from reduced bad debt expense, lower restructuring, exit and impairment charges, as well as reduced pension expense. Partially offsetting these factors were higher income taxes and interest expense," McCoy said.
Second Quarter Results
For the second quarter of 2010, the company reported net sales of $1,014.7 million, up from $718.3 million a year earlier. For the quarter, the company reported operating earnings of $55.7 million, which included $24.2 million of restructuring, exit and impairment charges. In the second quarter of 2009, the company had an operating loss of $145.4 million, which included $35.5 million of restructuring, exit and impairment charges.
For the second quarter, Brunswick reported net earnings of $13.7 million, or $0.15 per diluted share, compared with a net loss of $163.7 million, or $1.85 per diluted share, for the second quarter of 2009. The diluted earnings per share for the second quarter of 2010 included restructuring, exit and impairment charges of $0.26 per diluted share, and $0.02 per diluted share of expense from special tax items. Diluted loss per share for the second quarter of 2009 included $0.40 per diluted share of restructuring, exit and impairment charges, and a $0.05 per diluted share benefit from special tax items.
Review of Cash Flow and Balance Sheet
Cash and cash equivalents were $619.6 million at the end of the second quarter, up $93.0 million from year-end 2009 levels. The company's increased cash position reflects net cash provided by operating activities of $138.1 million, which included the receipt of a $109.5 million federal tax refund. Net cash provided by operating activities was negatively affected by changes in certain current assets and current liabilities during the first half of 2010. These changes were largely the result of seasonal increases in the company's accounts and notes receivable and decreases in accrued expenses, partially offset by increases in accounts payable balances and decreases in net inventories.
Net debt (defined as total debt, less cash and cash equivalents) was $204.4 million, down $119.9 million from year-end 2009 levels. The change in net debt reflects the $93 million increase in cash, along with reductions in debt resulting from debt repurchases. The company's total liquidity (defined as cash and cash equivalents, plus amounts available under its asset-backed lending facilities) totaled $752 million, up $137 million from year-end 2009 levels.
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 $579.2 million in the second quarter of 2010, up 39 percent from $415.2 million in the year-ago second quarter. International sales, which represented 41 percent of total segment sales in the quarter, increased by 28 percent. 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-ago quarter, which included $9.6 million of restructuring, exit and impairment charges.
Sales were higher across all of the segment's main operations, including a low-teen increase in the domestic marine service, parts and accessories businesses, which represented 28 percent of total segment sales in the quarter. The segment's sterndrive engine business experienced the greatest percentage sales growth.
Mercury's manufacturing facilities continued to increase production during the quarter in response to customer inventory requirements. Higher sales, lower bad debt expense, fixed-cost reductions, increased fixed-cost absorption, improved operating efficiencies, lower restructuring, exit and impairment charges and reduced pension expense all had a positive effect on operating earnings during the quarter.
The Boat segment is comprised of the Brunswick Boat Group, and includes 16 boat brands. The Boat segment reported net sales of $296.6 million for the second quarter of 2010, an increase of 114 percent compared with $138.8 million in the second quarter of 2009. International sales, which represented 38 percent of total segment sales in the quarter, increased by 64 percent during the period. For the second quarter of 2010, 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.
Boat manufacturing facilities continued to increase production during the quarter to address inventory requirements of their dealers. Higher sales, increased fixed-cost absorption, and reduced discounts required to support retail sales by dealers were the primary factors affecting the segment's reduction in operating losses in the quarter.
"We entered 2010 with planning assumptions that reflected continued challenging conditions in the economy and in the markets in which our businesses operate," McCoy said. "We further believed that if we continued to successfully execute against our strategic objectives, we would be able to generate positive cash flow and demonstrate outstanding operating leverage. We have achieved these objectives in the first half of 2010.
"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.
"During the second half of 2010, we will continue to focus on liquidity and closely manage our overall cost structure. 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.
"The continued execution of our strategic plans will help us maintain outstanding operating leverage in subsequent quarters and enable us to come out of this downturn stronger than we began the period. As we continue to progress on this path, subject to the state of the global economy and retail marine markets, we maintain our objective of returning to profitability in 2011," McCoy concluded.