Brunswick Corporation (BC)

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Brunswick (BC)

Q4 2012 Earnings Call

January 24, 2013 11:00 am ET

Executives

Bruce J. Byots - Vice President of Corporate & Investor Relations

Dustan E. McCoy - Chairman and Chief Executive Officer

Peter B. Hamilton - Chief Financial Officer and Senior Vice President

William L. Metzger - Vice President and Treasurer

Analysts

Edward Aaron - RBC Capital Markets, LLC, Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Jimmy Baker - B. Riley & Co., LLC, Research Division

James Hardiman - Longbow Research LLC

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division

Laura Starr

Presentation

Operator

Good morning, and welcome to the Brunswick Corporation's 2012 Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's meeting will be recorded and if you have any objections, you may disconnect at this time.

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

Bruce J. Byots

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

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 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 and today's press release. All of these documents are available on our website at brunswick.com.

During our presentation today, we are using certain non-GAAP financial information. Reconciliations of the GAAP to non-GAAP financial measures are provided in the presentation, as well as in the Supplemental Information Sections of the consolidated financial statements accompanying today's results.

Finally, earlier this month we announced our intention to sell the Hatteras and CABO businesses. Beginning with this earnings release, the results of Hatteras and CABO, which were previously in the Boat segment, are now being reported as discontinued operations for all periods presented. Figures in this presentation reflect continuing operations only, unless otherwise noted.

Now I'd like to turn the call over to Dustan McCoy.

Dustan E. McCoy

Thanks, Bruce. Good morning, everyone. I'm going to start with an overview of our 2012 results. 2012, we successfully navigated through extreme variability in markets and business conditions. U.S. marine market began a recovery, but the recovery is a historically unique one, based only on outboard product, our larger sterndrive inboard product continues to decline. Excellent sales growth was achieved in all regions for Europe, where sales, excluding Sealine, climbed a remarkable 15%. With these conditions, we're proud that our results in 2012 represent the third consecutive year of strong improvement in operating earnings and net earnings.

Operating earnings and diluted earnings per common share as adjusted, increased by 23% and 54%, respectively, for the year. In addition, increased earnings contribute to the continued generation of solid free cash flow. As a result, we made significant progress in improving our balance sheet by reducing debt balances by $121 million, which contributed to a $14 million reduction in interest expense.

Over the past several years, our entire organization has done an excellent job of executing our business plan and [indiscernible] 2012 results and the strategic [indiscernible] which we are [indiscernible], providing a solid platform for further improvement in results. Our 2013 EPS guidance of $2.20 to $2.45 targets another year of continued growth in earnings and shareholder value.

Our sales in 2012 increased by 1%. If we exclude sales from the Sealine brand, divested in 2011, our sales increased by 2%. Our full year top line was significantly affected by revenue declines experienced in our ongoing European businesses. 2012 sales to Europe declined by $84 million or 15%. Revenue growth in the U.S. and Rest of World, however, reflected solid growth and was in line with our original growth expectations for the consolidated company. Europe now represents about 13% of our total sales as a result of the declines in revenue.

Operating earnings excluding restructuring, exit and impairment charges, were $290 million for the year, an increase of 23% compared to 2011. All of our operating segments reported improvements for the year. Operating margins x charges increased by 140 basis points to 7.8%. This important metric represents 150 basis point improvement over the operating margin recorded in 2006, the year in which the company reported almost $2 billion more in annual revenues, and the U.S. powerboat and marine industry was almost double today's volume.

2012 net earnings were $1.59 per share, including $0.28 of restructuring charges, $0.18 of losses on debt retirement and $0.04 of charges from special tax items. Excluding these items, our diluted earnings per share were $2.09 per share. This compares to 2011 net earnings of $0.98 per share in the prior year, which included $0.24 of restructuring charges, $0.21 of losses on debt retirements and a $0.07 benefit from special tax items. Excluding these items, 2011's earnings per share were $1.36. Therefore, our adjusted 2012 EPS of $2.09 increased by $0.73 or 54%. If we combine both continuing and discontinued operations on an adjusted basis, EPS was $1.77 for the year. This amount represents the EPS that compares to our previous guidance for full year of 2012, from $1.65 to $1.75.

Turning now to the fourth quarter. Sales grew by 9% with all of our segments reporting increases. Sales of our European businesses declined, but only by $3 million in the quarter. I'll comment in a few moments about some of the major factors that affected our topline during the quarter.

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