Brunswick Corporation — Q2 2021 Form 10-Q
Reporting period: Second quarter ended July 3, 2021; comparisons are with the quarter ended June 27, 2020. Financial amounts are in U.S. dollars and, unless stated otherwise, in millions.
Business context and results
Brunswick operates in marine propulsion, parts and accessories, and boats. Management attributed strong results to elevated marine demand, market-share gains, increased production and favorable factory absorption. The company reported approximately 50% fewer boats in dealer inventory than a year earlier, as demand continued to outpace production.
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Net sales | $1,554.8 | $987.8 | +57.4% |
| Gross margin | $461.5; 29.7% | $256.0; 25.9% | +380 bps |
| Operating earnings | $250.2 | $107.0 | +133.8% |
| Operating margin | 16.1% | 10.8% | +530 bps |
| Net earnings from continuing operations | $179.4 | $71.2 | +152.0% |
| Diluted EPS from continuing operations | $2.29 | $0.89 | +157.3% |
Adjusted operating earnings, a non-GAAP measure, were $266.4 million and adjusted diluted EPS was $2.52, compared with $117.9 million and $0.99, respectively, in Q2 2020. Adjusted operating margin was 17.1%, versus 11.9%.
Segment performance
- Propulsion: Sales of $649.5 million, up 64.3%; operating earnings of $122.1 million, up 156.0%. Management cited demand and outboard market-share gains, particularly in higher-horsepower engines.
- Parts & Accessories: Sales of $548.9 million, up 42.0%; operating earnings of $114.4 million, up 42.8%. Aftermarket participation and service demand remained strong, alongside increased OEM orders.
- Boat: Sales of $449.1 million, up 79.7%; operating earnings of $44.2 million versus $2.0 million. Higher dealer shipments, lower discounting and mitigation of supply constraints supported results.
Six-month financial and liquidity position
- Net sales were $2,988.0 million, up 53.0%; operating earnings were $482.1 million versus $210.2 million; net earnings from continuing operations were $348.8 million versus $141.9 million. Diluted continuing-operations EPS was $4.44 versus $1.77.
- Cash from continuing operating activities was $350.5 million, versus $215.7 million. Capital expenditures were $110.3 million, and reported free cash flow, a non-GAAP measure, was $244.3 million versus $124.2 million.
- At July 3, cash and cash equivalents were $590.2 million and short-term investments were $0.8 million. Total debt was $875.5 million, down from $951.4 million at year-end 2020 and $1,285.7 million a year earlier. Debt-to-capitalization was 33.1%, compared with 38.7% and 48.5%, respectively.
- Total liquidity, including available facility capacity, was $988.2 million. No Credit Facility borrowings were outstanding; $397.2 million was available, net of letters of credit. The company said it believed liquidity was adequate for short- and long-term needs and reported compliance with debt covenants.
Outlook, capital plans and risks
- The filing does not provide a clear full-year earnings or revenue guidance figure. Management planned 2021 capital expenditures of approximately $270–$300 million and expected to retire approximately $100 million of long-term debt.
- Management planned $80–$120 million of 2021 share repurchases. The board increased the authorization by $350 million on July 20, 2021; remaining authorization was reported at $410.6 million. The quarterly dividend had been increased to $0.335 per share.
- Brunswick agreed to acquire marine-electronics company Navico for $1.05 billion. Closing was expected in the second half of 2021, subject to customary conditions and regulatory approval. The company arranged a commitment for a 364-day bridge facility of up to $900 million and expected permanent financing to include senior unsecured notes and cash.
- On July 16, the revolving credit facility was amended: commitments increased to $500 million, maturity extended to July 2026, and additional capacity and extension options were provided.
- Key risks include COVID-19 and its variants, supply and transportation disruptions, constraints on meeting demand, discretionary-spending sensitivity, and Navico closing, integration, cost and synergy risks. The company also cited currency, commodity, interest-rate, weather, competitive, cyber, product-liability and other risks.
Important facts for investors to verify
- Whether production and supply-chain capacity can catch up with demand, given historically low dealer inventories.
- Navico’s regulatory and closing status, final financing mix, integration costs and expected synergies.
- Whether planned capital spending, debt retirement and repurchases remain consistent with liquidity and the acquisition financing plan.
- How much of reported earnings and cash generation reflects sustained demand and operating performance versus favorable absorption, currency effects and working-capital movements.