Brunswick Corporation — Q1 2021 Form 10-Q
Business context and period. The unaudited quarter ended April 3, 2021, compared with the quarter ended March 28, 2020. Brunswick makes marine propulsion products, parts and accessories, and boats. The Fitness business is reported as discontinued operations. Management cautions that results are seasonal and this quarter is not necessarily indicative of the rest of the year. Unless noted, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,433.2 | $965.5 | +48.4% |
| Gross margin | $417.3; 29.1% | $243.8; 25.3% | +71.2%; +380 bps |
| Operating earnings | $231.9; 16.2% margin | $103.2; 10.7% margin | +124.7%; +550 bps |
| Net earnings from continuing operations | $169.4 | $70.7 | +139.6% |
| Diluted EPS from continuing operations | $2.15 | $0.88 | +$1.27 |
| Operating cash flow from continuing operations | $17.3 | $(83.9) | Improved |
| Free cash flow, non-GAAP | $(23.4) | $(143.8) | Improved |
Adjusted operating earnings, a non-GAAP measure, were $243.0 versus $112.5; adjusted diluted EPS was $2.24 versus $0.96. Adjustments included purchase accounting amortization and restructuring, as well as certain business, acquisition, IT, and asset-sale items. The reported income tax rate was 21.9%, versus 20.7%.
Segments and drivers
- Propulsion: Sales of $657.8, up 46.6%; operating earnings of $124.5, up 103.1%. Management cited strong global demand and outboard market-share gains, particularly in higher-horsepower engines.
- Parts & Accessories: Sales of $459.6, up 52.4%; operating earnings of $91.9, up 98.9%. Aftermarket demand and OEM orders increased.
- Boat: Sales of $419.5, up 43.9%; operating earnings of $40.8 versus $5.1. Higher wholesale shipments supported strong retail demand and initial dealer inventory replenishment.
- Corporate/Other: Operating loss widened to $25.3 from $9.4, mainly due to higher variable compensation, deferred-compensation mark-to-market adjustments, and growth investments.
Management attributed consolidated growth and margin expansion to strong marine demand across segments, increased production and favorable factory absorption, customer and product mix, and favorable foreign exchange. International sales rose 51% on a reported basis and 42% on a constant-currency basis. Dealer boat inventories were 41% below the prior-year quarter despite production increases.
Cash, debt and capital allocation
- Cash and cash equivalents were $471.9; short-term marketable securities were $7.3. Together they totaled $479.2, down $97.1 from year-end 2020.
- Total liquidity, including $397.2 available under the credit facility, was $876.4. The facility had no borrowings outstanding; availability was net of $2.8 in letters of credit.
- Total debt was $944.7, compared with $951.4 at December 31, 2020. Debt-to-capitalization was 36.5%, versus 38.7% at year-end and 53.4% a year earlier. The company reported compliance with debt covenants.
- Operating cash flow reflected higher earnings but was partly offset by working-capital needs, including increases in receivables and inventory. Capital expenditures were $42.9 in the quarter.
- Management planned to retire approximately $100 of long-term debt, repurchase $80–$120 of shares during 2021, and spend approximately $250–$270 on capital expenditures. The company raised its dividend to $0.335 per share, a 24% increase.
Outlook, risks and notable items
Management described demand as unusually strong and said production was being ramped to meet it. The filing did not provide a specific earnings or revenue forecast. It identified risks including COVID-19 uncertainty, supply and shipping constraints, rising costs, the ability to meet demand, consumer discretionary spending, weather, foreign exchange, dealer financing and inventory dynamics, and product warranty and liability claims. Management stated it expected sufficient cushion under debt covenants based on anticipated earnings.
A subsequent event: Brunswick repaid $60.0 of principal on its 2023 floating-rate term loan on April 16, 2021. The quarter included $0.5 of restructuring charges and $2.5 of Sport Yacht & Yachts costs in adjusted-results reconciliation. No material changes to previously disclosed risk factors were reported. Disclosure controls were concluded effective.
Important facts for investors to verify
- Whether demand, dealer inventory replenishment, and production capacity remained aligned after the quarter, particularly given the reported 41% year-over-year dealer inventory shortfall.
- Whether working-capital investment and seasonal cash use affected subsequent operating and free cash flow.
- Progress against planned debt retirement, share repurchases, dividend increase, and $250–$270 capital-spending range.
- How much of reported earnings growth and margin improvement was sustained versus attributable to demand, absorption, mix, currency, and non-GAAP adjustments.
- Whether supply-chain, shipping, input-cost, COVID-19, and other disclosed risks materially affected results after April 3, 2021.