Brunswick Corporation (BC)

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Brunswick Corporation (BC)

Q4 2011 Earnings Conference Call

January 26, 2012 11:00 AM ET

Executives

Bruce Byots – VP, Corporate and IR

Dusty McCoy – Chairman and CEO

Peter Hamilton – SVP and CFO

Analysts

James Hardiman – Longbow Research

Edward Aaron – RBC Capital Markets

Tim Conder – Wells Fargo Securities

Jimmy Baker – B. Riley & Co

Rommel Dionisio – Wedbush Securities

Craig Kennison – Robert W. Baird

Joe Hovorka – Raymond James

Presentation

Operator

Good morning and welcome to Brunswick Corporation 2011 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. 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 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’m sure you’ve had the opportunity to review our earnings release. We’re supplementing our remarks this morning with a slide deck that will be posted to our website at the end of our call. We’re hopeful that this enhances our discussion of our financial performance for the quarter and the year.

2011 was an important year for Brunswick. With the backdrop of global economic challenges and overall flattish retail marine demand, our results reflect the significant progress that our company has made in growing its revenue and improving its earnings.

Results for the year reflected the successful execution of our core strategy of generating free cash flow, performing better than the market and demonstrating outstanding operating leverage. Market share gains throughout our organization combined with improved production and operating efficiencies generated 10% revenue growth and increased our operating earnings by $176 million.

In 2011, net income also benefited from the marine plant consolidations and asset sales, lower restructuring costs, reductions in interest, lower warranty, depreciation and pension expenses as well as from a lower tax provision. Operating earnings excluding restructuring, exit and impairment charges were $250 million for the year, an improvement of $137 million as compared to 2010. Operating margins, ex-charges, increased by about 340 basis points to 5.7%. For the year, our operating leverage was 40%.

Sales increased over $3.7 billion in 2011 with growth reflected in all of our segments. Life Fitness experienced the highest level of sales growth at 17%. Net earnings for 2011 were $0.78 per share including $0.25 of restructuring charges, $0.21 of losses on debt retirement and a $0.07 benefit from special tax items. Excluding these three items, our diluted earnings per share would have been $1.17 per share. This compares to a net loss of $1.25 per share in the prior year which included $0.70 of restructuring charges, $0.06 of losses on debt impairments, and $0.03 of expenses from special tax items. Again, excluding these items, 2010’s loss per share would have been $0.46.

In summary, our adjusted EPS increased by $1.63. At year-end, our cash from marketable securities totaled $508 million. Total debt outstanding was $693 million, representing a reduction for the year of $138 million and our lowest debt level since the first quarter of 2004. Peter will comment in his remarks on the key drivers of our strong cash flow as well as provide you with a perspective on our 2012 targets.

Our quarterly results continue to demonstrate solid performances across all of our business segments. Results benefited from higher sales, company-wide cost reductions, and lower warranty cost partially offset by higher variable compensation expense. This was our best fourth quarter operating performance since the fourth quarter of 2007 and our consolidated results continue to demonstrate strong operating leverage.

Turning to our fourth quarter results in more detail, sales increased 8% with growth reflected in all of our segments. Our Boat segment experienced the highest increase at 20% followed by Life Fitness at 11%. Operating losses excluding restructuring charges were $14 million in the quarter, an improvement of $43 million as compared to the prior year.

All of our operating segments experienced year-over-year improvements. Operating margins ex-charges increased by 600 basis points. Our Q4 net loss was $0.33 per share which included $0.05 of restructuring charges, $0.03 of losses on debt retirement and a $0.05 benefit from special tax items. Excluding these three items, our diluted loss per share would have been $0.30. This compares to a net loss of $1.17 per share in the prior year, which included $0.21 of restructuring charges and a $0.02 expense in special tax items. Again, excluding these items, 2010 fourth quarter loss per share would have been $0.94. In summary, our adjusted fourth quarter of 2011 EPS increased by $0.64 from the prior period.

Now, let’s turn to our operating segments starting with the Marine Engine segment. From a geographic perspective, sales to U.S. markets grew by 10% while sales to Mercury’s non-U.S. customers decreased 2% in the quarter. In the aggregate, the segment experienced top line growth of 6% for the quarter. Non-U.S. revenues were affected by varying market conditions around the world. Growth across Asia continued to be strong, especially China.

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