Brunswick Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022. Brunswick designs, manufactures and distributes marine propulsion products, parts and accessories, and boats. The quarter is seasonal, and the company cautions that interim results may not indicate full-year performance. Comparisons below are with the three months ended April 3, 2021 unless noted.
Financial performance
| Metric | Q1 2022 | Prior year | Change |
|---|---|---|---|
| Net sales | $1,695.7 million | $1,433.2 million | +18.3% |
| Gross margin | $483.6 million; 28.5% | $417.3 million; 29.1% | Margin down 60 basis points |
| Operating earnings | $239.5 million; 14.1% margin | $231.9 million; 16.2% margin | +3.3%; margin down 210 basis points |
| Adjusted operating earnings | $267.5 million; 15.8% adjusted margin | $243.0 million; 17.0% adjusted margin | +10.1%; adjusted margin down 120 basis points |
| Net earnings from continuing operations | $174.0 million | $169.4 million | +2.7% |
| Diluted EPS from continuing operations | $2.25 GAAP; $2.53 adjusted | $2.15 GAAP; $2.24 adjusted | GAAP +4.7% |
| Net cash from operating activities, continuing operations | $(140.9) million | $17.3 million | Declined $158.2 million |
| Capital expenditures | $100.9 million | $42.9 million | Increased $58.0 million |
| Free cash flow (company-defined, non-GAAP) | $(239.0) million | $(23.4) million | Outflow increased |
Adjusted figures are non-GAAP measures; the filing reconciles them to GAAP results. The GAAP-to-adjusted operating earnings difference in Q1 2022 primarily reflects $23.0 million of purchase-accounting amortization and $5.0 million of acquisition, integration and IT-related costs.
Segments
| Segment | Net sales | Sales change | Operating earnings |
|---|---|---|---|
| Propulsion | $705.9 million | +7.3% | $125.3 million, up 0.6% |
| Parts & Accessories | $617.8 million | +34.4% | $91.6 million, down 0.3% GAAP; $116.6 million adjusted |
| Boat | $492.8 million | +17.5% | $45.3 million, up 11.0% |
Parts & Accessories sales growth chiefly reflected the 2021 Navico, RELiON and SemahTronix acquisitions; excluding acquisitions, the segment grew 2%. Segment sales also benefited from pricing and demand. Brunswick reported 20% international sales growth on a constant-currency basis overall.
Cash, debt and liquidity
- Cash and cash equivalents were $680.1 million at April 2, 2022; cash, cash equivalents and marketable securities totaled $686.9 million.
- Total liquidity, as defined by the company, was $1,434.1 million, including $747.2 million of available revolving-facility capacity, net of letters of credit.
- Total debt was $2,500.5 million, versus $1,816.4 million at December 31, 2021 and $944.7 million a year earlier. Debt-to-capitalization was 56%, compared with 49% and 37%, respectively.
- In March, Brunswick issued $450 million of 4.400% notes due 2032 and $300 million of 5.100% notes due 2052, receiving $741.8 million in net proceeds for general corporate purposes. It also repaid the remaining $56.3 million of its 2023 floating-rate term loan.
- The amended revolving credit facility has $750 million of commitments, a March 2027 maturity and up to two one-year extensions. There were no borrowings outstanding at quarter-end; Brunswick reported compliance with its debt covenants.
- Operating cash use reflected working-capital investment: receivables rose $179.8 million and inventory rose $138.5 million, while accrued expenses fell $62.3 million, primarily due to payment of previously accrued compensation.
Material changes, outlook and risks
- Sales rose substantially, but gross and operating margins contracted. Management attributed margin pressure to inflation, supply-chain inefficiencies and higher manufacturing costs, alongside greater SG&A and R&D spending on growth, sales and marketing, and new products.
- Management said demand remained strong and production was being ramped up, but supply disruptions continued to constrain pipeline inventory. Dealer boat inventory at quarter-end was 6% below the prior-year level. Parts & Accessories also faced supply constraints and a slower start to the season in northern U.S. and Canadian markets due to weather.
- For 2022, Brunswick planned capital expenditures of $375 million to $425 million, estimated full-year interest expense of approximately $95 million, and targeted share repurchases of approximately $300 million. It anticipated average diluted shares of 76 million to 76.5 million and higher working-capital needs, particularly from inventory. The filing does not provide a full-year revenue or earnings forecast.
- Brunswick repurchased $79.8 million of stock in the quarter; $266.6 million remained authorized at April 2. It paid $28.0 million in dividends, or $0.365 per common share.
- In April and early May, the company acquired additional Freedom Boat Club operations and territory rights and marine assets for approximately $100 million in net cash. A preliminary purchase-price allocation had not yet been completed when the statements were issued.
- Management said its cessation of business in Russia, Belarus, Crimea and disputed territories had no significant direct financial impact. It continued to identify risks including consumer discretionary spending, inflation and supply disruptions, interest and foreign-exchange rates, geopolitical conflict, weather, acquisition integration, product liability and warranty claims, and cybersecurity events. No material changes to previously disclosed risk factors were reported.
- The filing reports no restructuring, exit or impairment charges in Q1 2022. It reports a $0.1 million loss on early extinguishment of debt. Product warranty liabilities were $135.3 million at quarter-end.
Important facts for investors to verify
- Whether elevated demand can be converted into sales as supply constraints, production capacity and dealer inventory evolve.
- Whether pricing and productivity can offset inflation, manufacturing inefficiencies and other cost increases, supporting margins.
- How much of Parts & Accessories growth and earnings depends on Navico and other acquisitions, and whether expected integration benefits are realized.
- Whether working-capital investment and capital spending moderate as the boating season progresses, and how cash generation compares with the quarter’s substantial outflow.
- How increased debt, interest expense, the planned share repurchases and subsequent acquisitions affect liquidity, leverage and capital allocation.