BRUNSWICK CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Performance: Solid results in Q3 despite challenging marine market. Recurring revenue businesses contributed nearly 70% of adjusted operating earnings. Managed field inventory and adjusted production, ending Q3 with 10,700 units in U.S. pipeline (~200 units below prior year).
• Product Launches: Navico Group launched Elite FS 10-inch and 12-inch fishfinders, Lowrance Eagle Eye 9, with over 20 new products year-to-date. Upcoming Ft. Lauderdale Boat Show to debut new models like Boston Whaler 330 Vantage, Sea Ray SDX line models, and Navan premium adventure products.
• Hurricane Impact: Minor impact to Brunswick facilities, estimated full-year operating earnings impact of $5M to $10M. Brunswick provided support to impacted employees and communities.
• Capital Management: Amended revolving credit facility to $1B and expanded maturity to October 2029, increased commercial paper program to $1B, and completed $190M of share repurchases year-to-date.

Segment Performance

• Propulsion: Sales down 32% vs Q3 2023, but gained 420 basis points of U.S. outboard engine share. Producing below retail due to reduced boat production. Revenue contribution: N/A
• Engine Parts and Accessories: Record operating margins of 26% despite slightly lower sales. Transition to new facility in Indiana improved efficiency and delivery, enabling modest international growth. Revenue contribution: N/A
• Navico Group: Sales down 14% due to lower marine OEM sales, but had slight international growth and new product momentum. Revenue contribution: N/A
• Boat: Sales and operating earnings below Q3 2023, consistent with lower production and summer shutdowns. Revenue contribution: N/A
• Freedom Boat Club: 3.5% year-to-date membership sales growth, acquired South Florida franchise operations. Revenue contribution: 12% of segment sales in Q3

Guidance

• Full Year: Estimates full-year new boat retail unit sales down ~10% vs prior year. Guidance for Q4: net sales $5.1 to $5.2 billion, adjusted diluted EPS ~$4.50.
• 2025 Outlook: Expect 2025 to be a growth year with positive macros (lower interest rates, solid employment), lower retail discounting, and potential market upside. Wholesale expected to be up in boats and engines as retail stabilizes.

Risks

• Macroeconomic: Geopolitical tensions, election activities, retail discounting levels remaining elevated pose challenges.
• Hurricane Impact: Modest short to midterm impact on operations and channel partners from Florida hurricanes, estimated $5M to $10M earnings impact.

Question and Answer

• Q: Changes in customer demand/dealer sentiment: A: Retail down approximately 10%, OEM demand weakening in Europe, with de-risking of the balance of the year to avoid excessive wholesale pull forward.
• Q: Inventory and 2025 outlook: A: Weeks on hand in the U.S. at high 30s, expected to remain in that range, with 2025 anticipated as a growth year due to positive macros and potential market upside.
• Q: Mercury share gains and Navico performance: A: Mercury gained 420 basis points of U.S. outboard engine share, Navico stable with new products, Q4 expected to show margin and sales growth with new product momentum.
• Q: Survey on purchase intent: A: Monthly surveys of ~400 boaters show purchase intent stable, higher for higher income households, with latent demand expected post-election.
• Q: Engine parts margins and cost cuts: A: Engine parts and accessories had record margins, cost cuts of ~$100M taken, with ~$30-40M of OpEx expected to stay out in early 2025.
• Q: Inventory and promotions: A: Inventory levels not falling rapidly, avoiding excessive wholesale pull forward to align with dealer demand and break learned behaviors of waiting for promotions.