Brunswick Corporation (BC)

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Brunswick Corporation (BC)

Q3 2012 Earnings Call

October 25, 2012, 11:00 am ET

Executives

Bruce Byots - VP, Corporate & Investor Relations

Dusty McCoy - Chairman & CEO

Peter Hamilton - SVP & CFO

Analysts

Ed Aaron - RBC Capital Markets

Tim Conder - Wells Fargo Securities

Mike Swartz - SunTrust

James Hardiman - Longbow Research

Jimmy Baker - B. Riley & Company

Rommel Dionisio - Wedbush Securities

Craig Kennison - Robert W. Baird

Gerrick Johnson - BMO Capital Markets

Carla Casella - JPMorgan

Presentation

Operator

Good morning and welcome to Brunswick Corporation's 2012 Third 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 presentation today, we are using certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in this presentation as well as in the Supplemental Information Section of the consolidated financial statements of company's today's release.

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

Dusty McCoy

Thanks, Bruce, good morning, everyone. I am going to start with an overview of our third quarter results. As you are aware earlier this month we announced a series of restructuring and impairment actions in our Boat segment which represented third quarter charges that we estimated to be in the range of $25 million to $32 million pretax.

As Peter will explain the amount actually booked in the quarter is approximately $28 million. Because this amount is significant, we will be describing many of our financial metrics for the quarter on an adjusted basis which excludes restructuring and impairment charges, losses on debt retirement and any special tax item.

We believe that this adjusted comparison provides the necessary important perspective on the company's operating performance, in addition to GAAP comparisons and will improve comparability versus past periods. In addition, we expect further restructuring charges related to previously announced actions in the fourth quarter this year, as well as further debt extinguishment expenses and so we will be referring to adjusted financial metrics in Q4 and for the full year as well.

Our third quarter results demonstrated continued success of our business strategy. Short-term financial performance continues to improve even as we make increased investments for long-term organic growth. Gross profit, as well as adjusted operating earnings and net earnings per diluted share, each increased by double digit percentages versus prior year.

Our Engine segment experienced strong revenue growth during the quarter, but was partially offset by lower sales in our Boat, Fitness and Bowling and Billiards segments. We experienced lower sales in Europe in all four of our segments. For the total company, excluding Sealine, revenues declined about 15% in this region. If we include 2011 Sealine sales, European sales declined 19%. Revenue generated from our U.S. and rest of world customers increased by 4%.

We continue to make excellent progress in reducing our debt balances. Debt outstanding at end of the quarter was $598 million; the lowest level since June 1997.

Sales increased by 1% in the third quarter. Sales of our ongoing European businesses declined by approximately $17 million. Additionally, revenues from the Sealine and Boat brand, which we divested in the third quarter of 2011 were approximately $5 billion in the third quarter of 2011.

I will comment in a few moments about some of the other major factors that affected our topline during the quarter. Year-to-date, our sales have decreased by 1%. Sales of our ongoing European businesses declined by about $80 million or 17% during the first nine months. Sealine sales during 2011 were approximately $37 million; U.S. and rest of world revenues increased 3% year-to-date.

Operating earnings excluding restructuring, exit and impairment charges were $66 million for the quarter, a 35% increase compared to 2011. Operating margins ex-charges, increased by 180 basis points to 7.4%. The increase in operating earnings reflect strong gross margin improvements, partially offset by increases in operating expenses.

Operating earnings excluding restructuring, exit and impairment charges were $249 million for the nine months, an increase of 9% compared to 2011. This reflects an increase in all of our operating segments. Operating margins ex-charges increased by about 80 basis points to 8.5%.

Net earnings for the quarter were $0.02 per share including $0.31 of charges for restructuring, $0.08 of losses on debt retirements and $0.02 of losses from special tax items. Excluding these items, our diluted earnings per share were $0.43 per share. This compares to net earnings of $0.05 per share in the prior year which included $0.14 of charges for restructuring, $0.13 of losses on debt retirements and a penny of losses from special tax items. Again, excluding these items, 2011 earnings per share were $0.33. In summary, our adjusted EPS increased by $0.10 or30%.

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