Brunswick Corporation — Q3 2022 Form 10-Q
Reporting period: Third quarter ended October 1, 2022; comparisons are with the quarter ended October 2, 2021. The filing also reports year-to-date results for the nine months ended on those dates. Amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,698.2 million | $1,427.2 million | $5,229.5 million | $4,415.2 million |
| Gross margin | $498.9 million; 29.4% | $410.4 million; 28.8% | $1,518.9 million; 29.0% | $1,289.2 million; 29.2% |
| Operating earnings (GAAP) | $237.7 million | $209.0 million | $756.2 million | $691.1 million |
| Operating margin (GAAP) | 14.0% | 14.6% | 14.5% | 15.7% |
| Net earnings from continuing operations | $168.2 million | $144.6 million | $541.0 million | $493.4 million |
| Diluted EPS from continuing operations | $2.26 | $1.85 | $7.12 | $6.28 |
| Adjusted operating earnings | $278.8 million | $221.1 million | $846.5 million | $730.5 million |
| Adjusted diluted EPS from continuing operations | $2.67 | $2.07 | $8.02 | $6.82 |
Q3 total net earnings were $163.8 million, including a $4.4 million after-tax loss from discontinued operations. Q3 adjusted operating margin was 16.4%, compared with 15.5%; nine-month adjusted operating margin was 16.2%, compared with 16.5%. Adjusted measures are non-GAAP and exclude specified items.
Segments and drivers
- Propulsion: Q3 sales rose 14% to $714.4 million; operating earnings rose 27% to $143.0 million, and margin increased to 20.0% from 17.9%. Management cited demand, capacity increases, and market-share gains.
- Parts & Accessories: Q3 sales rose 19% to $587.8 million, substantially reflecting 2021 acquisitions; excluding acquisitions and currency, sales increased 1%. Operating earnings fell 13% to $87.1 million, with inflation, currency effects, purchase-accounting amortization, and restructuring weighing on results.
- Boat: Q3 sales increased 27% to $510.7 million and operating earnings nearly doubled to $49.7 million. Higher volumes, operational efficiencies, and favorable mix helped; supply constraints, inflation, and Hurricane Ian partly offset gains.
For the first nine months, sales increased 18.4% overall. Management attributed growth to demand, new products, pricing, and acquisitions, partly offset by unfavorable currency, supply-chain challenges, and Hurricane Ian. Approximately 25% of annual sales are transacted in currencies other than the U.S. dollar.
Cash flow, liquidity, and debt
- Continuing-operations operating cash flow was $313.8 million for the first nine months, down from $475.1 million. The company cited working-capital increases, including higher receivables and inventory.
- Capital expenditures were $299.3 million, versus $180.2 million. Reported free cash flow, a company-defined non-GAAP measure, was negative $1.0 million, versus positive $296.6 million.
- Cash, cash equivalents, and marketable securities totaled $491.9 million at October 1, 2022. Total liquidity, including available facility capacity, was $1,239.1 million.
- Total debt was $2,504.0 million, compared with $1,816.4 million at December 31, 2021 and $1,830.9 million a year earlier. Debt-to-capitalization was 56%, versus 49% and 50%, respectively. Interest expense increased year over year.
- The company had $747.2 million available under its revolving credit facility, net of letters of credit, with no facility borrowings outstanding at quarter-end. It reported compliance with debt covenants.
- Nine-month financing included $741.8 million net proceeds from issuing 2032 and 2052 senior notes. The company repurchased $360.0 million of shares and paid $82.4 million in dividends.
Outlook, notable items, and risks
- Management narrowed its 2022 capital expenditure estimate to $375–$400 million; estimated full-year interest expense remained approximately $95 million. It raised its share-repurchase target to approximately $450 million and projected average diluted shares of approximately 75 million. Management also anticipated a higher working-capital build, primarily from inventory.
- Q3 restructuring, exit, and impairment charges totaled $24.6 million: $17.4 million for capitalized software assets that will not be placed into service, $6.9 million for Navico-related headcount reductions, and $0.3 million of Boat-segment charges, including Hurricane Ian-related impairment net of insurance recoveries.
- Hurricane Ian disrupted Florida boat manufacturing during the last week of the quarter. Management also cited continuing supply-chain disruptions, material and freight inflation, and macroeconomic volatility.
- The filing identifies risks including discretionary consumer demand, interest and foreign-exchange rates, input costs and supply disruptions, adverse weather, geopolitical events, acquisition integration and synergies, product liability and warranty claims, and cybersecurity. Brunswick said its cessation of business in Russia, Belarus, Crimea, and disputed territories had not had a significant financial impact.
- Brunswick stated that there were no material changes to previously disclosed risk factors, contractual obligations outside the ordinary course, or market-risk disclosures. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether inventory and working-capital levels convert into operating cash flow, given lower year-to-date cash generation and negative reported free cash flow.
- Whether debt growth, higher interest expense, and the 56% debt-to-capitalization ratio remain manageable against earnings and covenant headroom.
- Whether Parts & Accessories profitability improves as acquisition benefits are weighed against inflation, currency effects, and acquisition-related amortization.
- Whether the capital spending, interest expense, buyback, and diluted-share estimates are achieved; these are management expectations, not guarantees.
- Whether Hurricane Ian impacts, supply constraints, and the software impairment lead to further costs or operational effects.