Brunswick Corporation (BC)

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Brunswick Corporation (BC)

Q4 2009 Earnings Call Transcript

January 28, 2010 11:00 am ET


Bruce Byots - VP, Corporate and IR

Dusty McCoy - Chairman and CEO

Peter Hamilton - SVP and CFO


James Hardiman - FTN Equity Capital Markets

Ed Aaron - RBC Capital Markets

Tim Conder - Wells Fargo

Matt Vittorioso - Barclays Capital

Alexander Fedoro [ph] - Sun Hung Kai Capital [ph]



Good morning, and welcome to Brunswick Corporation’s 2009 fourth 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.

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 comments 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 in today’s press release. All of these documents are available on our Web site at Also, during Dusty’s concluding remarks, we will be referring to a chart containing boat pipeline information. If you have not retrieved this chart, you may do so by going to the Investor Relations section of our Web site. I’d now like to turn the call over to Dusty.

Dusty McCoy

Thanks, Bruce, and good morning, everyone. By now, I hope you’ve had the opportunity to review our fourth quarter earnings release. As a result of the strategic actions we took throughout 2009, combined with modestly improving economic and Marine market conditions, and these are comparisons, our fourth quarter year-over-year revenue declines, as compared with the previous five quarters, began to slow. I’ll comment in my concluding remarks about our plans for 2010.

We reported a net loss in the quarter of $1.40 per share on a sales decline of 22%. The net loss includes $0.78 per share of restructuring charges and $1.20 per share of benefits from special tax items. Our quarterly operating loss, excluding restructuring, exit, and impairment charges, was $120 million, a decline of approximately $130 million, compared to the prior year.

This is a complicated and a bit sloppy quarter. So in order to understand our true operating leverage, I should mention two items, which have been impacting our numbers. The largest part of the variance is the absence in 2009 of approximately an $18 million accrual reversal that benefit all of our segments in the fourth quarter of 2008. But taking into account the accruals reported in the fourth quarter of 2009, the total variance is approximately $100 million. These accruals relate to variable compensation and defined contribution retirement funding covering approximately 7,000 employees. In a cyclical business, we strive to make fixed costs variable, and this applies to our compensation and benefits as well.

The second item is an increase of defined benefit pension expense of approximately $20 million, primarily affecting the engine, bowling and billiards, and corporate segments. If we exclude these two items, the decrease in operating earnings from Q4 of 2008 to Q4 of 2009 will be approximate $2 million on a sales reduction of $180 million.

The next one illustrates another progress we are making in minimizing the impact of operating de-leverage. 2009 evolved in line with our planning assumptions. And with the great performance of our employees, we made remarkable strides in executing against our key strategic objectives. We exited the year with over $525 million in cash, a stronger dealer network with extremely low levels of inventories, and a leaner company with a significantly lower cost structure. This has been an extremely difficult period for the employees of Brunswick, but it is without question a year in which they should be extremely proud of their fundamental accomplishment, keeping the company financially strong while positioning it for revenue and earnings growth.

With these preliminary comments out of the way, let me begin with the review of some fourth quarter Marine industry data, and this data is preliminary at this point. Fiberglass, stern drive, and inboard boat unit demand fell by 30%. This compares to a decline of 47% in the fourth quarter of 2008. For 2009, units fell by an estimated 32%. Outboard fiberglass boat retail unit demand fell 10% in the fourth quarter. This compares to a decline of 41% in the fourth quarter of 2008. For 2009 units fell by an estimated 27%.

Aluminum product demand fell 20% in the quarter. This compares to a decline of 27% in the fourth quarter of 2008. For 2009, units fell by an estimated 25%. Based on this preliminary Q4 numbers, industry fire boat unit demand appears to have declined from 203,000 units in 2008 to somewhere between 140,000 and 150,000 units in 2009 over 20%, and 26%, and 31%.

Throughout 2009, we had as one of our top priorities a pipeline reduction strategy intended to support our dealer network in these difficult markets. To that end, we reduced a number of units we sold to dealers by approximately 20% in the fourth quarter versus last year. For the year, we reduced the number of units sold to our dealers by nearly 55%.

The global Marine market continued to be heavily influenced by retail discounting especially on aged and repossessed products. Throughout the industry, boats continue to enter the marketplace via non-traditional avenues. Consumer related repossessions, finance companies exiting the Marine space, or from OEMs and dealers going out of business. In addition, dealers and OEMs offered significant discounts to help sell boats in their inventories.

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