Brunswick Corporation's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Brunswick Corporation ( BC)

Q3 2011 Earnings Conference Call

October 27, 2011 11:00 ET

Executives

Bruce Byots – Vice President, Corporate and Investor Relations

Dusty McCoy – Chairman and Chief Executive Officer

Peter Hamilton – Chief Financial Officer

Analysts

Ed Aaron – RBC Capital Markets

Jimmy Baker – B. Riley & Company

Tim Conder – Wells Fargo Securities

Laura Starr – Nuveen Asset Management

Carla Casella – JPMorgan

Presentation

Operator

Operator

Good morning, and welcome to the Brunswick Corporation’s 2011 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode, until the question-and-answer period. Today’s meeting will be recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Bruce Byots, Vice President, Corporate and Investor Relations. Please proceed.

Bruce Byots – Vice President, Corporate and Investor Relations

Good morning and thank you for joining us. On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO and Peter Hamilton, our CFO.

Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in my mind that our actual results could differ materially from these expectations. For the details on the factors to consider, please refer to our recent SEC filings in today’s press release. All of these documents are available on our website at brunswick.com.

And now I’d like to turn the call over to Dusty McCoy.

Dusty McCoy – Chairman and Chief Executive Officer

Thanks Bruce and good morning everyone. By now I hope you’ve had the opportunity to review our third quarter earnings release. I know a lot of folks have been releasing today.

Our quarterly results continued to reflect solid performance across all of our business segments. Third quarter nine-month operating earnings achieved our highest level since 2006. This outstanding performance by our four business segments was accomplished despite some very difficult economic conditions.

Consistent with the previous six quarters, our consolidated results continued to demonstrate strong operating leverage. As we highlighted on our second quarter call, our SG&A expenses in the third quarter of 2010 included a favorable adjustment to variable compensation expense. If we exclude variable compensation expense from our 2011 and 2010 results, our operating leverage for the quarter would be in our 2011 targeted annual range of 30% to 40%.

Our results in the quarter reflected year-over-year revenue of 8% and net earnings of $0.05 per share, including $0.14 of restructuring charges, $0.13 from losses on debt retirement, and a $0.01 expense from special tax items. Excluding these three items, our diluted earnings per share would have been $0.33. This compares to net loss of $0.08 per share in the prior year, which included $0.14 of restructuring charges and a $0.01 charge from losses on debt retirements. Again, excluding these items 2010 third quarter diluted earnings per share would have been $0.07.

Operating earnings excluding restructuring, exit, and impairment charges, were $49 million in the quarter, an improvement of $11 million as compared to the prior year period. If we exclude variable compensation expense from our 2011 and 2010 results, our operating earnings increased by about $24 million in the quarter. In addition to higher sales levels, our earnings benefited from companywide cost reductions, improved operating efficiencies and increased fixed cost absorption. Partially offsetting these items was the previously mentioned higher variable compensation expense.

Our cash and marketable securities totaled $547 million and our total debt outstanding at quarter end was $703 million. This is our lowest debt level since the first quarter of 2004. And you can see that lay down in the supplemental chart, I think we labeled it chart number one to our earnings release.

Peter will comment in his remarks on the key drivers of our strong cash flow in the first nine months as well as provide you with a perspective on our 2011 targets, supporting our objective of generating free cash flow for the year.

Now, let’s take a look at our operating segments starting with the marine engine segment. From a geographic perspective, Mercury’s non-U.S. revenues increased by 12% in the quarter with all major markets experiencing growth and with relative strength demonstrated in Europe and Asia-Pacific.

Our Europe’s growth in the quarter was healthy. Results do continue to vary widely across the region. Revenues in Russia were extremely strong and revenues in core markets such as Germany, France, Italy, and Holland also increased at a healthy rate. However, the markets in southern and northern Europe continued to be quite weak. Asian demand was very robust in the quarter put along by strong macroeconomic growth led by China. Asia’s growth is more than offsetting subdued market conditions in Australia and New Zealand.

Overall, Mercury continues to experience growth outside the U.S. due to sales into commercial and government segments, low re-power activity, and healthy demand for service bars and accessories in all market segments. U.S. revenues increased by 8%. In the aggregate, the segment experienced top line growth of 9% for the quarter and 10% for the nine months.

From a product category perspective, sales on our outboard engine business continued to experience growth reflecting in improving aluminum and fiber glass outboard boat marketplace as well as from market share gains. We believe the overall impact of Japan’s catastrophic events earlier this year and the resulting supply issues were for the most part not a material factor in the overall competitive landscape during the quarter.

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