Brunswick Corporation (BC)

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Brunswick Corporation (BC)

Q1 2011 Earnings Call

April 28, 2011 11:00 ET

Executives

Bruce Byots - VP, Investor and Corporate Relations

Dusty McCoy - Chairman and CEO

Peter Hamilton - SVP and CFO

Analysts

Ed Aaron - RBC Capital Market

James Hardiman - Longbow Research

Rommel Dionisio – Wedbush Securities, Inc.

Tim Conder – Wells Fargo Securities

Joe Hovorka - Raymond James

Jimmy Barco – B. Riley Co.

James Hardiman – Longbow Research

Presentation

Operator

Good morning, and welcome to the Brunswick Corporation 2011 First Quarter Earnings Conference Call. All participants will be in a listen-only mode, until the question-and-answer portion. 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 of 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 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.

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

Dusty McCoy

Thank you Bruce, and good morning everyone. By now I hope you’ve had the opportunity to review our first quarter earnings release.

Our strong performance in the first quarter reflected higher marine wholesale shipments compared to the prior year.

Our marine engine segment continued to perform well across its entire product offering, including its parts and accessory business.

Life fitness experienced strong revenue and earnings growth, and as we experienced throughout 2010, our consolidated results continue to reflect strong levels of operating leverage.

Our first quarter results have put us in an excellent position to achieve our previously-stated target of returning to profitability in 2011. I will discuss in my outlook, comment some of the factors that need to be considered when evaluating our potential results in the remaining three quarters.

Our results in the quarter reflect revenue growth of 17%, and net earnings of $0.30 per share including $0.05 per share of restructuring charges. This compares to a loss of $0.15 per share in the prior year which included $0.08 per share of restructuring charges and $0.02 per share of benefit from special tax items.

Operating earnings excluding the restructuring exit any impairment charges were 72 million in the quarter and the improvement of 55 million as compared to the prior year period.

Our operating margin excluding restructuring charges was 7.3% representing our highest consolidated operating margin for a first quarter since 2001.

In addition to higher sales levels, our earnings benefited from increased fixed cost absorption, improved operating efficiencies and companywide cost reductions.

SG&A remained relatively consistent and decreased as a percentage of net sales during the quarter. The decrease was primarily a result of our successful cost reduction efforts and a gain on a sales of a distribution facility.

Our cash and marketable securities totaled just under 550 million and net debt at quarter end was 263 million.

Peter will comment in his remarks on the key factors that resulted in our cash issues during the quarter as well as provide you with a perspective of our 2011 cash flow targets, supporting our objective of generating positive free cash flow.

Let’s review the preliminary first quarter U.S. Marine industry data. Fiberglass sterndrive and inboard boat unit demand fell by 25%. This compares to declines of 34% in the fourth quarter of 2010 and 21% in the first quarter of 2010.

Outboard fiberglass boat retail unit demand fell 2% in the first quarter. This compares to declines of 13% in the fourth quarter of 2010 and 18% in the first quarter of 2010.

Aluminum product demand increased by 9% in the quarter. This compares to an increase of 2% in the fourth quarter of 2010 and a 7% decline in the first quarter of 2010.

After taking into account the different changes unit volumes, preliminary total industry unit demand declined approximately 1% in the first quarter. This compares to a 9% decline in the fourth quarter and a 14% decline in the first quarter of 2010.

2010 industry data provided by the states and Coast Guard with Statistical Survey Incorporated continued to be updated subsequent to our January earnings call. The latest submission of data not only reflects updates to the fourth quarter and full year, but also for some of 2010’s earlier quarters.

Total industry demand in 2010 declined by 10% versus the prior estimate of the decline of 14% resulting in United States retail prior boat units in 2010 of approximately 139,000. The end result was therefore consistent with our 2010 plan for a 10% decline and overall industry boat unit sales.

On the international front, our engine segment sales outside of the U.S. increased by 6% for the quarter compared to the first quarter of 2010. Our boat sales outside the U.S. increased by 18% during the same period.

Looking at our growth and reign markets outside the U.S., we see diverse results across our global markets. Demand in key emerging markets vary. The Q1 volumes in China, Brazil, and Russia, all up substantially, while in Africa and the Middle East volume was lower compared to a year ago primarily due to the political instability in these two regions.

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