Well before announcing its spin-off, Brunswick Corporation had reported that its fitness division had an operating loss of $33.4 million for the fourth quarter, compared with operating earnings of $26.9 million in the year-ago period.
The company blamed the loss on restructuring, exit, integration, and impairment charges of $16.7 million, primarily related to an impairment for the Cybex trade name, and a $13.5 million charge related to field campaigns developed for certain Cybex products prior to its acquisition in 2016.
Excluding exceptional items, the fitness segment had an adjusted operating profit of $38.1 million in the quarter, down from $47.9 million. The adjusted operating margin of 12.5 percent was better than the adjusted margin of 10.1 percent recorded by Brunswick's larger marine segment for the quarter.
The settlement of a pension dispute and other extraordinary items led the group to post a net loss of $116.9 million for the quarter against a profit of $17.7 million in the corresponding quarter of 2016.
A 14 percent gain in the marine division helped Brunswick's total revenues to jump by 11 percent to $1,090 million in the quarter. Comparatively, the fitness division's revenues advanced by only 3 percent to $304.8 million, in spite of recent acquisitions. Sales declined in the U.S., while international sales, which represented 45 percent of total segment sales in the quarter, rose by 11 percent from the year-ago quarter. They went up by 14 percent in Europe, thanks largely to the acquisition of the German-based Indoor Cycling Group (ICG), which was completed during 2016.
Brunswick bought Cybex in January 2016 and ICG a few months later, during the summer, declaring at the time that it wanted to double the size of its fitness operations by 2020. Cybex and ICG posted revenues of $195 million and around €37 million in 2015, respectively.
For the full year, the fitness segment's revenues went up by 5 percent to $1,033.7 million. The management said this performance reflected overall growth in international markets, offset by slight declines in domestic sales, as market demand continued to be flat versus 2016.
The fitness division booked a 45 percent decline in operating earnings for last year to $64.1 million, resulting in a drop in its operating margin of 5.8 percentage points to only 6.2 percent. On an adjusted basis, the division's operating margin declined to 10.4 percent, down from 13.3 percent in 2016, compared with a higher adjusted operating margin of 13.9 percent achieved in the marine segment last year.
To explain the drop in the fitness segment's profitability, the management noted that it was faced with several headwinds throughout the year including higher costs, particularly for freight in the fourth quarter, challenging pricing dynamics in certain foreign markets and unfavorable changes in the sales mix. These factors more than offset benefits from higher sales and cost reduction initiatives.
The marine engine segment, led by Mercury, performed better, posting a sales increase of 13 percent for the year that helped the group to record overall sales increases of 10.6 percent for the quarter and 9 percent for the full year. They reached $4,510 million for the year. However, the group's annual operating margin dropped by 1.9 percentage points to 7.9 percent and its net income declined by 47 percent to $146.4 million.
Before announcing the spin-off of its fitness division, the company said it will keep its strategic focus on driving product leadership, operational excellence and technological development. It said that the long-term fundamentals of the fitness market are favorable, adding that it was anticipating contributions from new and recently introduced products, particularly in the second half of 2018.
