Brunswick Corporation CEO Discusses Q1 2012 Results - Earnings Call Transcript

Brunswick Corporation (BC)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET

Executives

Bruce Byots - VP, Corporate and IR

Dusty McCoy - Chairman and CEO

Peter Hamilton - CFO

Analysts

James Hardiman - Longbow Research

Ed Aaron - RBC Capital Markets

Tim Conder - Wells Fargo Securities

Scott Hamann - KeyBanc Capital Markets

Gerrick Johnson - BMO Capital Markets

Jimmy Baker - B. Riley & Co.

Craig Kennison - Robert W. Baird

Rommel Dionisio - Wedbush Securities

Joe Hovorka - Raymond James

Presentation

Operator

Good morning and welcome to Brunswick Corporation 2012 first quarter earnings conference call. (Operator Instructions) I would now like to introduce Bruce Byots, Vice President, Corporate and Investor Relations. Please proceed

Bruce Byots

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. Please keep in 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.

As you are aware by now, we have issued our Q1 results today by way of an advisory release. The full tax financial results are available on website. We plan on using this method all of our future earnings releases. I would also like to point out that on April, 19 we filed our Form 8-K to reflect the change to our segment reporting. These changes do not revise or restate the information previously reported in our consolidated financial statements. Please see the 8-K for the detail supporting this revision.

Now I would now like to turn the call over to Dusty.

Dusty McCoy

Thank you, Bruce, and good morning, everyone. I'll start with the few overview remarks regarding our first quarter results, a quarter which represented our ninth consecutive of year-over-year earnings per share growth.

This was a good quarter from many perspectives. Our first quarter increase in earnings per share demonstrates the continuing success of our business strategy. Short-term financial performance continues to improve even as we make increased investments for long-term organic growth.

As anticipated consolidated sales were modestly lower due to specific factors, affecting our Marine Engine and Life Fitness segment on which I will elaborate shortly.

Our gross margin of 24.2% represents an increase of 20 basis points from the prior year. Low depreciation and pension expenses combined with the successful cost reduction activities contributed to the higher gross margin.

During the quarter SG&A and R&D expenses in the aggregate increased by 3% which is inclusive of company-wide investments in growth initiatives, many of which we highlighted in our Investor Meeting in Miami earlier this year.

As well as the absence are beginning from a sale of properties and insurance settlements recognized in Q1 2011, partially offset by lower variable compensation. Preliminary U.S. retail boat demand was up in the quarter with strong improvements continuing in aluminum and fiberglass outboard product categories. And lower net interest expense and a reduced income tax provision contributed to higher net earnings during the quarter.

Sales decreased by 1% in the first quarter. Three of our four segments reported modest growth in the period which was more than offset by a 2% decline in the engine segment.

Operating earnings excluding restructuring, exit and impairment charges were $68 billion for the quarter, a decline of $5 million as compared to 2011. Operating margins, ex-charges, decreased by about 30 basis points to 7%. Factors causing the decline in operating earnings largely occurred in Engine Segment which I will describe in more detail in a few minute.

Net earnings for the quarter were $0.43 per share including $0.02 charge from special tax items. Excluding these item, our diluted earnings per share would have been $0.45 per share. This compares to a net earnings of $0.30 per share in the prior year which included $0.05 of restructuring charges, and a $0.05 loss on debt impairments. Again, excluding these items, 2011 earnings per share would have been $0.40. In summary, our adjusted EPS increased by $0.05.

Now let's turn to our operating segments and we'll start with the Engine segment. From a geographic perspective, sales to U.S. markets were flat while sales to Mercury non-U.S. customers decreased by 7% in the quarter.

In aggregate, the segment sales declined 2% a quarter. U.S. sales continue to experience growth from our outboard and parts and accessories businesses. They were offset by decline in sterndrive engine. Non-U.S. revenues were affected by varying market conditions around the world. Growth across Asia continued to be healthy, especially in China.

On the other end of the spectrum, Australia continued to be weak even during the height of the retail selling season. In Europe, business conditions were off versus the prior year with variations across the continent. There was a growth in Russia, stability in Central Europe that would be Germany, France and the Netherlands and weakness in much of the Nordic region as well as Italy and other Southern European markets. On certain economic conditions are having an impact on overall demand in this region.

From a product category perspective, sales in our U.S. outboard engine business continued to deliver solid growth, reflecting an improving aluminum and fiberglass outboard boat marketplace, in addition to the market share gains. Outboard engine production in Mercury in the quarter was higher than year-ago levels.

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