Brunswick Corporation (BC)

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Brunswick Corporation (BC)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET

Executives

Bruce Byots – VP, Corporate and IR

Dusty McCoy – Chairman and CEO

Peter Hamilton – SVP and CFO

Analysts

Ed Aaron – RBC Capital

Tim Conder – Wells Fargo Securities

Carla Casella – J.P. Morgan

Joe Hovorka – Raymond James

John Emrich – Ironworks Capital

Laura Starr – FAF Advisors

Presentation

Operator

Good day and welcome to Brunswick Corporation's 2010 first 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

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 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. Also, during our call, we will be referring to a chart containing boat pipeline information. If you have not yet retrieved the chart, you may do so by going to the Investor Relations section of our website.

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

Dusty McCoy

Thank you, Bruce. Good morning, everyone. By now, I'm sure you've had the opportunity to review our first quarter earnings release. The first quarter results reflect an important early milestone for our organization, as we transition from a company primarily focused on building liquidity to one focused on continuous improvement in financial results and strength, relative to the competition in all of our business segments. Behind our much improved results is the hard work of our employees, dealers and suppliers which has allowed us to begin to take advantage of our historically low marine inventories as well as the significant fixed cost reductions achieved during 2008 and 2009.

These factors have enabled us to report today an operating profit, as well as our first quarterly year-over-year growth in net sales since the fourth quarter of 2007. We reported a net loss in the quarter of $0.15 per share on a sales increase of 15%. The net loss includes $0.08 per share of restructuring charges and $0.02 per share of benefits from special tax items. Our quarterly operating earnings, excluding restructuring, exit and impairment charges were $18 million, an improvement of about $106 million compared to the loss experienced in the prior year. In response to [ph] the increases in production in wholesale units in our Engine in Boat segments were the primary drivers of our overall 15% topline growth, which generated a significant improvement in fixed cost absorption in our marine businesses.

Further contributing to the strong operating leverage demonstrated in these businesses were about $20 million of fixed cost reductions pertaining to actions taken in the second quarter of 2009 through the first quarter of 2010, lower discounts of approximately $6 million required to facilitate boat retail sales and about $12 million resulting from lower bad debt provisions and favorable recoveries against an insurance policy, primarily in the Engine segment. Lower pension expense of approximately $13 million also had a favorable effect on Engine and Bowling & Billiards segments, as well as on corporate expenses. This reduction, combined with fixed cost reductions and lower bad debt expense were the primary factors that reduced our first quarter's SG&A by 11%.

Our recreational segment, which is Fitness and Bowling & Billiards, also contributed to the strong earnings growth in the quarter. I'll comment in a few minutes on the factors that drove their improved accounting performance. Our cash increased by $26 million from year end and net debt decreased by $22 million. Peter will comment, in his remarks on the key factors affecting the quarter's improved cash position, as well as highlight certain cash flow targets for the remainder of the year that will support our objective of generating positive cash flow in 2010. Although encouraged by our first quarter results, driven primarily by a return to a more normal first quarter relationship between wholesale and retail, Marine retail demand in the quarter remained at historically low levels.

Let me review the preliminary first quarter Marine industry data so that we are all level set. Fiberglass sterndrive in the inboard boat unit demand fell by 23%. This compares to a decline of 26% in the fourth quarter of 2009 and 44% in the first quarter of 2009. Outboard fiberglass boat retail unit demand fell 23% in the first quarter. This compares to a decline of 10% in the fourth quarter of 2009 and 39% in the first quarter of 2009. Aluminum product demand fell 16% in the quarter. This compares to a decline of 20% in the fourth quarter of 2009 and 30% in the first quarter of 2009. After taking into account the different volumes represented in each of these segments, the first quarter preliminary total industry demand declined approximately 20%. However, there was a favorable monthly progression of retail demand occurring during the quarter. In the month of March, preliminary results show industry retail demand down about 13%.

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