Fitness financials: Brunswick posts wider loss, 50 percent sales drop in Q2

Brunswick, parent of Life Fitness and Hammer Strength, said that in the second quarter its loss widened and revenue dropped more than 50 percent as it sold fewer boats and engines.
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Brunswick posts wider loss, 50 percent sales drop in Q2

Brunswick Corp. (NYSE: BC), parent of Life Fitness and Hammer Strength, said its loss widened in the second quarter as it sold fewer boats and engines. Revenue dropped more than 50 percent.

The company reported a loss of $163.7 million, or $1.85 per share, in the quarter that ended July 4 compared with a loss of $6 million, or $0.07 per share, a year earlier. Excluding a $35.5 million restructuring charge and tax benefit, the company lost $1.50 per share.

Revenue fell 52 percent to $718.3 million from $1.49 billion.

"Our results continue to reflect the difficult economic situation in which we are operating," said Brunswick CEO Dustan McCoy in a July 30 call with investors. "We are operating in an extremely harsh economic environment."

The company has been offering promotions and slowing production to reduce inventory. It noted that its cash generation also helps to put it in position as the economy improves.

Despite extremely weak results in its core boat market, the company said its recreational side -- Life Fitness and Bowling and Billiards -- has "continuing strong cash flows" that help.

Fitness segment sales totaled $105.0 million, down 33 percent from $156.9 million in the year-ago quarter. International sales, which represented 45 percent of total segment sales in the quarter, declined by 40 percent.

For the quarter, the fitness segment reported operating earnings of $0.2 million, including $0.2 million of restructuring charges. This compares with operating earnings of $8.2 million, including restructuring charges of $1.3 million in the second quarter of 2008.

The company said commercial equipment sales, which account for the largest percentage of fitness segment sales, dropped as gym and fitness club operators remained cautious about ordering equipment. Sales of consumer exercise equipment were also down, although at lower rates than sales of commercial equipment, it added.

Looking ahead, McCoy admitted during the investors' call, "We lack perspective at this time of what consumer demand will look like in 2009 and beyond. We are going to do more. We’re just not prepared to tell people exactly what that is."

But the company said that its liquidity is strong, with more than $460 million in cash on hand, $100 million of which was generated during the most recent quarter. On that news, Brunswick's shares rose $0.62 to close at $7.18 on July 31. So far this year, the shares have risen 55.8 percent, outpacing the broader markets.

BMO Capital Markets analyst Edward Williams told clients in a research note that Brunswick's core boat and marine engine segments -- which make up 75 percent of sales -- are challenged by the tough economy. But he expects Brunswick will continue scaling back on production to balance supply and demand and focus on cash flow.

"We expect the company to ship significantly fewer boats and engines in the current year, though we are hopeful that this trend can reverse in 2010 after inventory has been reduced to meet demand," Williams wrote in a client note. He maintained a "Market Perform" rating on the stock.

--Compiled by Wendy Geister

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