Brunswick Corporation — Q3 2021 Form 10-Q Summary
Business context and reporting period. This unaudited quarterly filing covers the 13 weeks ended October 2, 2021, with comparison to the 13 weeks ended September 26, 2020. Brunswick reports Propulsion, Parts & Accessories, and Boat segments. Results reflect strong marine demand, market-share gains and pricing, alongside supply constraints and higher input costs. Interim results may not indicate full-year performance because of seasonality.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,427.2 million | $1,233.1 million | $4,415.2 million | $3,186.4 million |
| Operating earnings | $209.0 million | $192.6 million | $691.1 million | $402.8 million |
| Net earnings from continuing operations | $144.6 million | $136.8 million | $493.4 million | $278.7 million |
| Diluted EPS from continuing operations | $1.85 | $1.71 | $6.28 | $3.49 |
| Gross margin | 28.8% | 30.6% | 29.2% | 27.5% |
| Operating margin | 14.6% | 15.6% | 15.7% | 12.6% |
- Q3 sales grew 15.7% and nine-month sales grew 38.6% year over year. Q3 operating earnings increased 8.5%; nine-month operating earnings increased 71.6%.
- Q3 gross margin contracted 180 basis points as higher input costs partly offset sales benefits; nine-month gross margin expanded 170 basis points, helped by volume, factory absorption and foreign exchange.
- Q3 adjusted operating earnings were $221.1 million and adjusted diluted EPS was $2.07; nine-month adjusted operating earnings were $730.5 million and adjusted diluted EPS was $6.82. These are non-GAAP measures.
- Segment trends, Q3: Propulsion sales were $626.9 million, up 19.1%, and operating earnings were $112.5 million, up 19.6%. Parts & Accessories sales were $494.0 million, up 7.4%, while operating earnings were $100.6 million, nearly flat; the New Zealand facility closure weighed on results. Boat sales were $401.5 million, up 22.4%, but operating earnings fell 12.0% to $24.9 million as inflation and manufacturing inefficiencies outweighed higher volume, pricing and lower discounts.
- Operating cash flow from continuing operations was $475.1 million for nine months, versus $637.4 million a year earlier. Company-defined free cash flow was $296.6 million versus $520.0 million, reflecting higher working capital and capital spending.
- At October 2, cash and cash equivalents were $1,486.4 million; total debt was $1,830.9 million and debt-to-capitalization was 49.7%. Reported total liquidity was $1,984.4 million, including $497.2 million available under the credit facility. The company reported compliance with debt covenants and no credit-facility borrowings.
Material changes and significant items
- Debt increased from $951.4 million at December 31, 2020, primarily following issuance in August of $450 million of 0.850% notes due 2024 and $550 million of 2.400% notes due 2031. Net proceeds were $992.9 million.
- Brunswick completed the $1.094 billion net-cash acquisition of Navico on October 4, 2021, after quarter-end, using note proceeds and cash. Navico is a marine electronics and sensors business expected to be reported in Parts & Accessories; purchase accounting was not yet complete when the filing was issued.
- Other 2021 acquisitions included RELiON, SemahTronix, Fanautic Club and certain Freedom Boat Club operations and rights. Net cash consideration was $50.3 million; preliminary acquisition accounting included $26.9 million of goodwill and $21.2 million of identifiable intangibles.
- Q3 included a $4.2 million loss on early debt extinguishment and $4.0 million of transaction financing charges related to the anticipated Navico acquisition. The company also recorded $0.7 million of restructuring charges in the first nine months.
- Nine-month share repurchases totaled $98.7 million and dividends paid were $73.0 million. The company repurchased approximately 434,000 shares during the quarter.
Outlook, risks and management commentary
- Management cited continued strong demand, market-share gains and increased production, but also described historically low boat pipeline inventory—just over 10 weeks on hand—along with supply-chain challenges and higher costs. COVID-related closures affected operations, including a New Zealand facility.
- For 2021, management expected approximately $270 million to $300 million of capital expenditures, approximately $120 million of share repurchases, and planned to retire approximately $125 million of long-term debt. The filing does not provide a clear full-year revenue, earnings or EPS guidance figure.
- Stated risks include discretionary-spending and economic weakness, supply and shipping disruptions, inflation, labor constraints, changing demand, COVID-19 impacts, foreign exchange, and the ability to integrate Navico and realize expected synergies. The filing identifies no material change to previously disclosed risk factors except for added acquisition-integration risks.
- Management stated it believed liquidity was adequate for short- and foreseeable long-term needs. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether demand, production capacity and dealer/boat pipeline inventories improved, and how supply constraints and input-cost inflation affected subsequent margins.
- Navico’s finalized purchase-price allocation, post-close debt and liquidity, integration costs, synergies and contribution to results.
- Progress against the stated 2021 capital-spending, share-repurchase and debt-retirement plans.
- Cash conversion and working-capital needs, especially inventory and receivables, given the year-over-year decline in operating cash flow and free cash flow.
- Segment profitability, particularly the Boat segment’s ability to recover margins and Parts & Accessories’ normalization following the New Zealand disruption.