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Brunswick Corp. Reports Operating Results (10-Q)

August 07, 2009 | About:

Brunswick Corp. (BC) filed Quarterly Report for the period ended 2009-08-05.

Brunswick Corporation is a manufacturer and marketer of leading consumer brands in four segments: Marine Engines Boats Fitness and Bowling & Billiards. The company also owns and operates: Brunswick bowling centers across the United States and internationally; Land \'N\' Sea a distributor of marine parts and accessories; and Omni Fitness a chain of specialty fitness equipment retail stores. Brunswick Corp. has a market cap of $701.3 million; its shares were traded at around $7.95 with and P/S ratio of 0.1. The dividend yield of Brunswick Corp. stocks is 0.7%.

Highlight of Business Operations:

Net sales during the second quarter of 2009 decreased 52 percent to $718.3 million from $1,485.4 million in the second quarter of 2008. During the six months ended July 4, 2009, net sales decreased 49 percent to $1,453.0 million from $2,832.2 million during the six months ended June 28, 2008. For the three and six months ended July 4, 2009, the Company reported lower global sales across all of its segments. Reduction in marine industry demand and demand for other consumer discretionary products as a result of a weak global economy, the credit market crisis, soft U.S. housing markets, and decreased consumer confidence have all contributed to the decrease in demand for the Company s products and have lowered the Company s net sales. In addition, the Company has implemented an inventory management and pipeline reduction strategy to produce fewer boat units than it sells wholesale to dealers, and to sell to dealers wholesale at lower levels than dealers are selling to customers at retail. While this strategy is enabling the Company to reduce its overall boat and marine engine inventories and has assisted our dealers in reducing the number of boats and engines in stock to appropriate pipeline inventory levels, it has also resulted in greater declines in wholesale sales compared with declines in retail demand. The overall decline in net sales has led to lower fixed cost absorption, which has contributed to the decrease in Company earnings during the quarter and year to date periods.

Operating losses in the second quarter of 2009 were $145.4 million with negative operating margins of 20.2 percent. These results included $35.5 million of restructuring, exit and impairment charges. In the three months ended June 28, 2008, quarterly operating losses were $17.2 million, with negative operating margins of 1.2 percent, which included restructuring, exit and impairment charges of $83.1 million. Operating losses during the six months ended July 4, 2009, were $272.9 million, which included $75.1 million of restructuring, exit and impairment charges, while operating losses during the six months ended June 28, 2008, were $6.9 million, which included restructuring, exit and impairment charges of $105.3 million. In addition to larger operating losses during the first six months of 2009 compared with the similar 2008 period, operating margins went from negative 0.2 percent during the first six months of 2008 to negative 18.8 percent during the first six months of 2009.

In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and other costs. For the six months ended June 28, 2008, the sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded in Investment sale gain in the Consolidated Statements of Operations. As a result of post-closing adjustments made during the second quarter of 2008, an additional $1.2 million pretax gain, $0.8 million after-tax, was recorded as an Investment sale gain in the Consolidated Statements of Operations.

Restructuring, exit and impairment charges. Brunswick announced initiatives to improve the Company s cost structure, better utilize overall capacity and improve general operating efficiencies. During the second quarter of 2009, the Company recorded a charge of $35.5 million related to restructuring activities as compared with $83.1 million in the second quarter of 2008. Restructuring charges during the first six months of 2009 were $75.1 million, compared with $105.3 million during the first six months of 2008. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

Investment sale gains. In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and other costs. For the six months ended June 28, 2008, the sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded in Investment sale gain in the Consolidated Statements of Operations. As a result of post-closing adjustments made during the second quarter of 2008, an additional $1.2 million pretax gain, $0.8 million after-tax, was recorded as an Investment sale gain in the Consolidated Statements of Operations.

During the six months ended July 4, 2009, the Company recognized a tax provision of $31.1 million on losses before income taxes. Typically, the Company would recognize a tax benefit on losses before income taxes; however, due to the uncertainty of the realization of certain state and foreign net deferred tax assets, a $36.6 million valuation allowance was recorded during the first quarter of 2009 to reduce certain state and foreign net deferred tax assets to their anticipated realizable value. This special charge was partially offset by the income tax benefit on the movement of a valuation allowance from Other Comprehensive Income during the second quarter described above. During the three months and six months ended June 28, 2008, the Company recognized $2.5 million and $2.0 million of tax benefits, respectively, primarily from an interest refund received from the Internal Revenue Service (IRS). Partially offsetting this benefit during the six months ended June 28, 2008, was a higher tax rate on the sale of the Company s interest in its joint venture in Japan.

Read the The complete ReportBC is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Arnold Schneider of Schneider Capital Management, Kenneth Fisher of Fisher Asset Management, LLC, Charles Brandes of Brandes Investment.

Rating: 2.3/5 (3 votes)

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