Brunswick Corporation — Q1 2023 Form 10-Q
Business context and period: The quarter ended April 1, 2023, compared with the quarter ended April 2, 2022. Brunswick operates in marine propulsion, engine parts and accessories, marine electronics and systems, and boats. Effective January 1, 2023, it reorganized its reportable segments as Propulsion, Engine P&A, Navico Group, and Boat; comparative segment results were recast.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,743.6 million | $1,695.7 million | +2.8% |
| Gross margin | $505.6 million; 29.0% | $483.6 million; 28.5% | +50 bps |
| Operating earnings | $236.1 million; 13.5% margin | $239.5 million; 14.1% margin | -1.4% |
| Net earnings from continuing operations | $112.4 million | $174.0 million | -35.4% |
| Diluted EPS from continuing operations | $1.56 | $2.25 | -30.7% |
| Adjusted operating earnings | $262.4 million | $267.5 million | -1.9% |
| Adjusted diluted EPS | $2.57 | $2.53 | +1.6% |
Adjusted figures are non-GAAP measures. Adjustments included restructuring and impairment charges, purchase accounting amortization, acquisition/integration/IT costs, and, for adjusted EPS, a special tax item.
Cash flow, debt and liquidity
- Cash from continuing operating activities was negative $14.5 million, versus negative $140.9 million a year earlier. Free cash flow, as defined by the company, was negative $103.6 million, compared with negative $239.0 million.
- Capital expenditures were $93.5 million. Cash and cash equivalents were $387.8 million; cash, equivalents and marketable securities totaled $388.6 million at quarter-end.
- Total debt was $2,510.3 million, and the debt-to-capitalization ratio was 55%. Total liquidity, including $741.9 million of available credit capacity, was $1,130.5 million. The company reported compliance with debt covenants and no Credit Facility borrowings at quarter-end.
- Q1 financing uses included $60.0 million of share repurchases and $28.5 million of dividends.
Material changes and segment results
- Propulsion: Sales rose 6.5% to $751.6 million; operating earnings increased 20.6% to $151.1 million. Higher high-horsepower outboard sales, manufacturing efficiencies, and inventory-variance timing supported results.
- Engine P&A: Sales fell 12.6% to $288.6 million; operating earnings declined 21.6% to $47.8 million. Management cited softer international and third-party distribution demand, dealer/retailer inventory adjustments, inflation, and distribution-hub transition costs.
- Navico Group: Sales decreased 11.0% to $277.3 million; operating earnings fell 58.2% to $12.8 million. Lower aftermarket and RV OEM sales, currency effects, material inflation, and temporary new-product launch pressures weighed on results.
- Boat: Sales increased 16.7% to $575.2 million; operating earnings rose 27.6% to $57.8 million, supported by volume and favorable mix/price. Cost inflation, discounting, and delayed shipments associated with a supplier recall were offsets.
Consolidated sales growth reflected favorable product mix and pricing, partly offset by lower volume and currency effects. Gross margin improved, but SG&A rose to 12.1% of sales from 11.4%, including higher sales/marketing and technology spending. Operating margin declined 60 bps.
Outlook, commentary and risks
- Management maintained expected 2023 capital expenditures of approximately $350 million, interest expense of approximately $100 million, and working-capital usage of approximately $100 million. It raised anticipated 2023 share repurchases to more than $200 million and projected average diluted shares of approximately 71 million. The filing does not provide a clear full-year earnings or revenue forecast.
- The company recorded $9.5 million of restructuring, exit, and impairment charges and estimated approximately $16 million of related charges during 2023. It completed an intercompany intellectual-property transfer that generated $52.9 million of discrete tax expense; the effective tax rate was 46.8%, versus 21.1% a year earlier.
- Management noted seasonal working-capital needs. Risks cited include discretionary consumer demand and economic conditions, dealer inventory reductions, inflation and supply-chain constraints, foreign-exchange movements, product and warranty claims, cybersecurity, and execution of restructuring and growth initiatives. Brunswick stated there were no material changes to previously disclosed risk factors.
- Results are seasonal and interim performance may not indicate full-year results. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether weaker Engine P&A and Navico Group demand, inventory normalization, and margin pressure persist or improve.
- How much of the GAAP earnings decline reflects the $52.9 million discrete tax charge, and the effect of that item on comparisons with adjusted results.
- Whether seasonal working-capital demands and planned capital spending and repurchases are supported by cash generation while liquidity and leverage remain within management’s expectations.
- Progress on the estimated $16 million of 2023 restructuring charges, and any effects of the supplier recall on boat shipments.