A few weeks after announcing its planned spin-off, which could take place early next year, Brunswick Corporation reported that its fitness division reached record sales of $244.4 million in the first quarter, an increase of 4 percent from the first quarter of 2017. The management said the segment's revenues reflected strong growth in international markets. This contrasts with a decline in domestic revenues, as increased sales to health clubs were partially offset by decreases in Cybex sales in advance of new products and sales to vertical markets.
The segment's operating earnings reached $11.0 million, which included restructuring, exit, integration, and impairment charges of $1.2 million. This compares with operating earnings of $18.3 million in the first quarter of 2017, which included $2.4 million of restructuring, exit, integration, and impairment charges. The management blamed the decline on higher freight costs, challenging pricing dynamics in certain international markets, unfavorable changes in product and customer mix, and cost inflation.
Fitness segment sales in the U.S. were down by 5 percent. The management noted that sales of commercial cardio decreased slightly in the quarter, as strong sales to health clubs were more than offset by declines in sales of Cybex products, in advance of new product introductions and sales to certain vertical markets.
International sales, which represented 50 percent of total segment sales in the quarter, increased by 14 percent. European sales experienced strong growth of 17 percent, with higher sales to both direct markets and distributors. Asia-Pacific also continued to see strong growth of 14 percent, with China and Japan leading the way.
In March, Brunswick Corporation's board of directors decided to spin off its fitness business - represented by Life Fitness, Cybex, Hammer Strength, the Indoor Cycling Group and Scifit - to turn it into a new public company whose name will be formally announced at a later date, which will incorporate these brands and the Brunswick Billiards business.
The management noted that Brunswick is still early in the process of the company's move to separate the fitness segment, and expects to file the initial Form 10 registration statement in the third quarter of this year and remain on track for completion by the end of the first quarter of 2019.
Meanwhile, the management announced that the new Life Fitness Integrity and Cybex cardio products are now fully available, with two remaining updated console options to be released in the second quarter. It expects that these products, along with the Halo suite of digital solutions that was launched in March, will continue to accelerate global demand.
Looking ahead, Brunswick expects revenues in the Fitness segment to grow in the low single-digit percent range in 2018. It also anticipates operating margins to remain under pressure, while stabilizing toward the end of the year.
Company wide, Brunswick's sales grew by 6.8 percent to $1,160 million. The Marine Engine segment saw revenues rise by 9 percent to $687.1 million, driven by strong growth in propulsion, led by increases in outboard engines, and solid growth in the parts and accessories businesses. The Boat segment reported net sales of $304.0 million for the first quarter of 2018, an increase of 6.7 percent.
Overall, the group's gross margin declined by 0.6 percentage points to 26.6 percent, while net income rose by 8.5 percent to $80.5 million. The company expects revenue growth of 6 percent to 7 percent in 2018.
