Life Fitness, Rosemont, Illinois, reported net sales of $769.3 million in 2015, parent company Brunswick Corp., Lake Forest, Illinois, announced Thursday.
The $769.3 million reflected growth of seven percent on a constant currency basis over 2014. Brunswick released 2015 fourth quarter and year-end financials to investors Thursday, one week after the company acquired Cybex, Medway, Massachusetts, for $195 million. Brunswick's full-year revenues increased 11 percent on a constant currency basis to $4.1 billion, and Life Fitness' performance was called "solid" by retiring Brunswick CEO Dustan McCoy in the company's media release.
Life Fitness' fourth quarter sales in 2015 totaled $237.7 million, up one percent from fourth quarter 2014, and the gain marked the 13th consecutive quarter of year-over-year quarterly growth. International sales, which represented 43 percent of total sales in the quarter, decreased 7 percent.
Brunswick cited the increase in Life Fitness' revenue to growth in U.S. health clubs, local and federal governments, and hospitality customers. The revenue was partially offset by a slight net decline in overall international markets due to lower sales in Europe. The U.S. region accounted for 54 percent of total quarterly revenue and was ahead of Europe (20 percent), Asia-Pacific (12 percent), Latin America (6 percent), Africa and the Middle East (4 percent), and Canada (4 percent).
Life Fitness' fourth quarter operating earnings were $39.9 million, down from operating earnings of $40.8 million in the fourth quarter of 2014. Higher sales, cost reductions and savings related to sourcing initiatives, transaction costs associated with the Cybex acquisition, and an unfavorable customer and channel sales mix were key factors that affected Life Fitness' fourth quarter operating earnings, the company said in its earnings presentation.
SCIFIT and Cybex
The July 2015 acquisition of SCIFIT contributed 1 percent to Life Fitness' 2015 growth and 2 percent to fourth quarter growth. Brunswick is targeting revenue growth in the mid-to-high 20 percent range for Life Fitness in 2016 with the inclusion of Cybex and a full year of SCIFIT, which would result in total revenue approaching $1 billion, said Brunswick President and COO Mark Schwabero. Life Fitness' sales outlook continues to reflect mid-to-high single digits percentage growth, he added. Brunswick is planning to incur between $5 million and $10 million of restructuring and integration costs associated with the Cybex business in 2016.
"Cybex margins have been typically lower than those of Life Fitness largely due to a higher operating cost base on a percentage of sales basis," Schwabero said. "However, after an initial period of margin dilution, we expect to return the combined business margin levels to the traditional Life Fitness margins by 2018 due to cost reductions and revenue growth. We are planning for 2016 operating margins, as adjusted, to be lower due to the Cybex acquisition including the purchase accounting adjustments with the impact being more first half weighted."
The question and answer session with financial analysts revealed more insight into Brunswick's vision for Life Fitness. The focus for Life Fitness remains primarily on the commercial market, and the Cybex acquisition gives it a stronger presence there, Schwabero said.
"If you really go back and look at all the positive things that were said on the fitness business today [Thursday]– club growth, all of the things going on around wellness, where the demographics are at – we just think this is a phenomenal business to keep building on," Schwabero said. "We think the underlying foundation of the business is extremely strong, and the Cybex acquisition just allows us to build on it. And what it is going to be able to do is create more power for us in the area of product development. It gives us more capabilities and capacity from a manufacturing standpoint, and we believe it enhances our capability to even continue to grow this business internationally. It's about becoming an even stronger player in the segment we're in."
In response to a question about whether Brunswick needed to invest more in the company's manufacturing capability to keep up with demand, Schwabero cited expansions at the Life Fitness factory in Kiskoros, Hungary, and the $4 million expansion project at its Ramsey, Minnesota, factory.
"Both in terms of facility in Hungary and additions or expansions in our Ramsey facility – it was a significant part of our interest in Cybex because we pick up some more manufacturing capacity for our business there to grow off of," Schwabero said. "As we look to it, we don't have to go create or find a site or start a new plant up from scratch. We basically bring in a well-established facility with a great workforce and give us the ability to grow that piece as well."
One analyst's question focused on Brunswick's replacement cycle for outboard motor products, which is part of Brunswick's marine segment. McCoy elaborated before closing his comment on Brunswick's purpose in the fitness industry.
"One of the reasons we are into the fitness business is because health, wellness and fitness are growing globally and becoming increasingly important," McCoy said. "The replacement cycle for fitness products is less than half of the existing replacement cycles for boats."
Schwabero shared Brunswick's overall outlook for the year in a statement, saying the company believes it is "well-positioned to generate sales and earnings growth in 2016 and beyond."
“We expect our businesses' top-line performance will continue to benefit from the continuation of solid growth in the U.S. and Europe and the success of our new products, partially offset by the negative impact of a stronger U.S. dollar and weakness in certain other international markets," Schwabero said. "As a result, our plan, including the Cybex International acquisition completed on Jan. 20, 2016, reflects revenue growth rates in 2016 to be in the range of 9 to 11 percent, absent any significant changes in our global macroeconomic assumptions. In total, acquisitions are expected to account for about 5 percent of 2016’s projected growth, reflecting the impact of completed acquisitions."
Brunswick shares closed down 7.6 percent at $39.95 per share on Thursday.