Investment research report for BC

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Brunswick Corporation is a leading global designer, manufacturer, and marketer of recreation products, including marine engines, boats, fitness equipment, and billiards tables. The company operates through three segments: Propulsion, Parts & Accessories, and Boat. Brunswick’s well-known brands include Mercury Marine, Boston Whaler, Sea Ray, and Bayliner.

Key Insights

  1. Strong Competitive Positioning:
  2. Brunswick is gaining significant market share in the outboard engine market, driven by its Mercury brand’s performance in higher horsepower categories.
  3. The company’s premium boat brands, such as Sea Ray and Boston Whaler, are also outperforming the industry, reflecting their strong consumer appeal.

  4. Diversified Business Model and Growth Initiatives:

  5. The company is diversifying its revenue streams beyond new boat sales, with growing contributions from the Parts & Accessories segment and the Freedom Boat Club recurring revenue model.
  6. Brunswick is actively pursuing strategic acquisitions and investments in emerging technologies like electrification, autonomy, and connectivity to drive future growth.

  7. Financial Strength and Capital Allocation:

  8. The company maintains a robust liquidity position, with billions in cash and available credit facilities, providing financial flexibility.
  9. Brunswick is focused on returning capital to shareholders through consistent dividend increases and share repurchases.

  10. Operational Excellence and Long-Term Strategy:

  11. The company is implementing restructuring actions and cost-saving initiatives to streamline operations and improve efficiencies.
  12. Brunswick is investing in its ACES (Autonomy, Connectivity, Electrification, Shared Access) strategy to drive innovation and transform the marine industry, positioning itself for long-term success.

Overall, Brunswick Corporation’s strong competitive positioning, diversified business model, financial strength, and strategic focus on innovation and operational excellence make it an attractive long-term investment opportunity in the recreational products industry.

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Valuation Analysis

PE Ratio

The PE ratio for the company BC is as follows:
– Low: -16.976965816106226
– Base: 10.19994458623211
– High: 37.37685498857044

PB Ratio

The PB ratio for the company BC is as follows:
– Low: 2.6639671984880047
– Base: 3.4182720528824424
– High: 4.17257690727688

DPS Growth

The DPS growth for the company BC is as follows:
– Low: 12.17%
– Med: 13.22%
– High: 14.19%

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

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Industry and Competitors Analysis

Brunswick Corporation (BC) and the Recreational Vehicle Industry

Based on the information provided, Brunswick Corporation (BC) operates in the recreational vehicle industry, specifically designing, manufacturing, and marketing recreation products such as boats, marine engines, and related accessories.

Key Competitors

Key competitors in this industry include:

  1. MasterCraft Boat Holdings (MCFT) – Manufactures recreational powerboats under brands like MasterCraft, NauticStar, and Crest.

  2. Marine Products Corporation (MPX) – Produces recreational fiberglass powerboats for sportboat, sport fishing, and jet boat markets under brands like Chaparral and Robalo.

  3. Winnebago Industries (WGO) – Manufactures towable RVs, motorhomes, and boats under brands like Winnebago, Grand Design, Newmar, and Chris-Craft.

  4. LCI Industries (LCII) – Supplies a range of components and accessories to RV and adjacent industries.

  5. Thor Industries (THO) – Designs and manufactures various types of recreational vehicles and related parts.

  6. BRP Inc. (DOOO) – Produces powersports vehicles and marine products like personal watercraft and outboard engines.

  7. Polaris Inc. (PII) – Offers off-road vehicles, snowmobiles, motorcycles, boats, and related accessories.

Competitive Positioning

In terms of competitive positioning, Brunswick Corporation appears to be a major player in the recreational marine segment with its strong portfolio of boat brands (Sea Ray, Boston Whaler, etc.) and marine engine offerings under Mercury. Its financial metrics, such as revenue, profitability ratios, and market capitalization, indicate a relatively strong position compared to some of the other companies listed.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has maintained a relatively stable current ratio between 1.4-2.1 over the years, indicating decent liquidity to cover short-term obligations. The debt-equity ratio has been around 1.0-1.3 in recent years, suggesting a moderate level of leverage. Interest coverage ratios have generally been above 5-6x, signaling adequate ability to service debt obligations.

Potential for Growth

Revenue growth has been volatile, ranging from -16% to +24% year-over-year in different quarters, indicating cyclicality in the business. Analyst estimates project revenue growth of around 10% annually over the next few years, implying expectations of continued growth. The company operates in the recreational products industry, which could benefit from increasing consumer spending on leisure activities.

Competitive Advantage

Brunswick owns several well-known brands like Mercury, Sea Ray, Boston Whaler, and Lund, which could provide a competitive edge in the marine industry. The company’s diversified product portfolio across propulsion systems, parts & accessories, and boats may help mitigate risks.

Quality of Management

Profitability metrics like return on equity and return on assets have fluctuated significantly, suggesting potential for improved operational efficiency. The company has generally maintained a consistent dividend payout policy, which could indicate a shareholder-friendly approach.

Shareholder Friendliness

Brunswick has consistently paid dividends, with a payout ratio typically between 20-40% of earnings. Share repurchases have been limited, with weighted average shares outstanding remaining relatively stable.

Valuation

The price-to-earnings ratio has varied widely, ranging from around 6x to 30x in different periods, reflecting the cyclical nature of the business. Analyst estimates for 2024 suggest a forward P/E of around 18x, which could be considered reasonable for a consumer discretionary company with growth potential.

Overall, Brunswick Corporation appears to have a moderately strong financial position, with opportunities for growth in the recreational products market. However, the cyclical nature of the business and fluctuating profitability metrics suggest potential for improved operational efficiency and management execution. The company’s well-known brands and diversified portfolio could provide a competitive advantage, while its dividend policy indicates a shareholder-friendly approach.

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Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Strong market share gains

Brunswick is consistently gaining market share across its segments, particularly in premium boat brands, high-horsepower outboard engines, and the propulsion business. This demonstrates the strength of its brands and competitive positioning.

Disciplined inventory management

The company is closely managing dealer inventories to keep them balanced and in line with historical norms, avoiding excess inventory buildup. This prudent approach supports long-term health.

Focus on innovation and new products

Brunswick is continuously investing in new product development, capacity expansions, and emerging technologies like electrification and connectivity. This positions the company well for future growth.

Diversified revenue streams

In addition to new boat sales, Brunswick is growing its recurring revenue streams from parts & accessories, the Freedom Boat Club, and aftermarket services. This diversification reduces cyclicality.

Pricing power and cost management

The company has been able to implement pricing actions to offset inflationary pressures while managing costs through operational efficiencies and restructuring initiatives.

Resilient demand and consumer appeal

Despite macroeconomic uncertainties, Brunswick is seeing robust demand from both new and existing boaters, suggesting strong consumer appeal and stickiness of the boating lifestyle.

Strategic acquisitions and investments

The company is actively pursuing acquisitions and investments to strengthen its technology capabilities, systems offerings, and competitive advantages.

Balanced approach to growth

While maintaining a focus on long-term strategic priorities, Brunswick is also taking a disciplined approach to production planning, inventory management, and cost control to navigate near-term challenges.

Overall, the key insights highlight Brunswick’s strong competitive positioning, focus on innovation, diversified business model, pricing power, and disciplined operational management – factors that position the company well for long-term success in the marine industry.

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Financial Statements Multi Year

Brunswick experienced revenue declines in recent quarters due to lower sales volumes, inventory management by dealers/manufacturers, and unfavorable currency impacts. However, pricing actions and acquisitions helped partially offset these headwinds. Gross margins compressed due to higher manufacturing costs, material/labor inflation, and unfavorable currency movements, impacting operating earnings.

Cost Restructuring Initiatives

The company recorded significant restructuring and impairment charges as it streamlined operations and improved efficiencies to reduce costs. These restructuring actions are expected to result in meaningful annualized cost savings going forward.

Liquidity and Capital Structure

Brunswick maintains a strong liquidity position with billions in cash/investments and available credit facilities. Debt levels increased due to debt issuances, but the company has a manageable debt-to-capitalization ratio around 55%.

Capital Allocation

The company continues repurchasing shares, lowering outstanding share count. Capital expenditures remain elevated to fund capacity expansions, new products, and technology initiatives.

Segment Performance

Propulsion and Boat segments showed relative strength, while Engine PA and Navico Group faced more challenges. Strategic acquisitions like Fliteboard expanded Brunswick’s product portfolio into emerging electric technologies.

Long-Term Strategy

Brunswick is investing in ACES (autonomy, connectivity, electrification, shared access) to drive innovation and future growth. Sustainability initiatives like electric outboard motors are a key focus area.

In summary, while facing near-term headwinds, Brunswick is taking actions to streamline operations, maintain financial flexibility, invest in strategic growth areas, and position itself for long-term success through its ACES strategy and sustainability focus.

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Insider Trading Analysis

Long-Term Patterns

The CEO (FOULKES DAVID M) and CFO (METZGER WILLIAM) have been actively trading Brunswick Corporation stock over the past several years. They have received large awards of common stock and stock appreciation rights, and have periodically sold or transferred shares.

Other key executives like the President (SCHWABERO MARK D), Chief Technology Officer (DREES CHRISTOPHER), and various SVPs have also received substantial stock awards and made transactions.

Overall, there appears to be a pattern of executives receiving equity-based compensation as part of their compensation packages, and then periodically selling or transferring shares.

Recent Patterns

In 2023-2024, the CEO, CFO, and other executives continued to receive large stock awards, with the CEO receiving over 200,000 shares in awards in 2023-2024.

There were also several instances of executives selling shares, with the CEO selling 35,000 shares in February 2024.

The CFO, CTO, and other SVPs also made transactions, including sales, gifts, and transfers of shares.

Implications

The active trading by the CEO, CFO, and other key executives suggests they have confidence in the long-term prospects of the company.

The large equity awards indicate the company is using stock-based compensation to incentivize and retain its top talent.

The periodic selling of shares by executives is likely for personal financial reasons, but the overall pattern suggests they remain invested in the company’s future.

For long-term investors, the insider trading activity suggests the company’s leadership is aligned with shareholder interests. The continued equity awards and executive retention is a positive sign. However, the periodic selling by executives may be something for investors to monitor, as it could signal potential concerns or a desire to diversify personal holdings.

For short-term investors, the recent transactions provide some insight into management’s views, but should be considered alongside other fundamental and market factors when making investment decisions.

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Management Compensation Benchmark Analysis

Low Bonus Payouts

For all the reported executives at BC in 2016, there were no bonuses paid out. This suggests the compensation structure may not be sufficiently incentivizing short-term performance.

High Proportion of Salary

The base salary portion of total compensation for BC executives ranges from 14.5% to 33.4%, which is relatively high compared to other companies. For example, the average base salary portion for executives at MCFT, MPX, WGO, LCII, and THO is 39.4%, 42.7%, 23.8%, 28.0%, and 31.3% respectively. The high salary component at BC may not provide enough incentive for executives to drive long-term shareholder value.

Lack of Stock-Based Awards

BC appears to rely heavily on stock awards as a component of executive compensation, ranging from 0% to 68% of total pay. However, the lack of bonus payouts and the high base salary portion suggest the stock awards may not be sufficiently performance-based to align with long-term shareholder interests.

Inconsistent Incentive Plan Compensation

The proportion of incentive plan compensation varies widely across BC’s executives, from 0% to 40% of total pay. This inconsistency may indicate a lack of a cohesive, performance-driven compensation strategy.

In summary, the executive compensation structure at BC appears to be weighted more towards fixed salary and stock awards, rather than performance-based incentives. This may not provide sufficient alignment between executive pay and long-term shareholder value creation. Benchmarking against the compensation practices of the other companies suggests BC could potentially improve its executive pay program to better incentivize long-term performance.

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Proxy Statement Analysis

Compensation Structure

Evaluate the mix of fixed vs variable pay, and whether variable pay is tied to appropriate long-term performance metrics like revenue growth, profitability, and shareholder return.

Long-Term Incentives

Assess the use of equity-based awards like stock options, restricted stock units, and performance shares that vest over multi-year periods and align executives’ interests with sustained value creation.

Performance Metrics

Review the specific financial and operational metrics used for annual and long-term incentive plans to ensure they are aligned with the company’s strategic objectives and drivers of long-term value.

Clawback Policies

Look for robust clawback provisions that allow the company to recoup incentive compensation in cases of misconduct or financial restatements, promoting accountability.

Stock Ownership Guidelines

Evaluate requirements for executives to maintain significant equity ownership, further linking their personal wealth to long-term stock performance.

Pay Benchmarking

Understand how the company benchmarks its executive pay levels and practices against an appropriate peer group to ensure competitive and reasonable compensation.

The key is to assess whether the overall compensation design motivates executives to focus on sustainable long-term growth and value creation rather than short-term results. A well-structured program aligned with shareholder interests can be a positive signal for long-term investors.

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News Analysis

Strong demand and sales performance

Based on the news releases, Brunswick Corporation has seen strong demand and sales performance across its boat brands and products, setting new records at major boat shows like Miami and Fort Lauderdale. This indicates continued robust consumer demand for Brunswick’s offerings.

Expansion of the Freedom Boat Club

Brunswick has been expanding its Freedom Boat Club boat rental/membership business through acquisitions and new locations, providing a recurring revenue stream for the company.

Strategic acquisitions and new business units

Brunswick has made strategic acquisitions and formed new business units, such as the Advanced Systems Group, to enhance its capabilities in marine technology, autonomy, electrification, and other areas. This positions the company for the future of boating.

Product innovations and awards

Brunswick has introduced product innovations and received awards for its new electric, autonomous, and connected boat technologies, demonstrating the company’s investment in next-generation products.

Capacity expansions and new manufacturing facilities

To meet the high product demand, Brunswick has been expanding its capacity and building new manufacturing facilities.

Consistent dividend increases

Brunswick has consistently increased its dividends for shareholders over the past several years.

Recognition and reputation

Brunswick has been named to prestigious lists, such as America’s Best Employers and Most Trustworthy Companies, highlighting the company’s reputation.

The general sentiment seems quite positive, with Brunswick capitalizing on strong boating demand, expanding into new business models like boat clubs, and positioning itself as a technology leader for the future of marine products through investments in electrification, autonomy, and connectivity. For a long-term investor, this could signal an ability to sustain growth and adapt to industry changes.

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Technical Indicators Analysis

Next week trading

The recent price action and technical indicators suggest a potential short-term pullback or consolidation in the near future. The 20-day TEMA has been declining, indicating a potential bearish trend in the short-term. The RSI is also in the neutral zone, suggesting the stock may be overbought in the near-term. A next week trader may look for opportunities to take profits or consider short-term bearish positions if the stock breaks below key support levels.

Resistance and Support Levels

The 50-day and 200-day SMAs appear to be providing strong resistance levels, as the stock has struggled to break above these levels in recent weeks. The 20-day SMA could act as a support level, but a break below this could lead to further downside. Traders and investors should monitor these key levels for potential support and resistance.

Short-term investor

The recent decline in the TEMA and the neutral RSI reading suggest the stock may be due for a short-term pullback or consolidation. A short-term investor may consider taking profits or reducing exposure if the stock fails to break above the 50-day and 200-day SMAs. However, the overall trend remains bullish, and a short-term investor may look for opportunities to re-enter the stock on any significant pullbacks.

Long-term investor

The long-term technical indicators remain positive, with the 200-day SMA providing a solid uptrend support level. The ADX is also indicating a strong trend, suggesting the long-term bullish momentum is intact. A long-term investor may view any short-term pullbacks as buying opportunities and maintain a positive outlook on the stock’s long-term prospects.

Overall, the technical indicators suggest a mixed outlook, with potential short-term consolidation or pullback, but a generally positive long-term trend. Investors and traders should closely monitor the key support and resistance levels, as well as the overall market conditions, to make informed decisions.

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Chart of Valuation History

"Chart of Valuation History"

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Financial Statements Annual

Financial Statements Annual 2024 Q3

Revenue and Profitability

Net sales decreased 6.0% in 2023 compared to 2022, primarily due to lower sales volumes partially offset by favorable product mix and pricing. Gross margin percentage decreased 70 basis points in 2023 due to higher manufacturing costs, including material and labor inflation, partially offset by sales-related drivers. Operating earnings decreased 22.5% in 2023 compared to 2022, driven by lower sales and higher restructuring charges. Net earnings from continuing operations decreased 36.5% in 2023 compared to 2022, primarily due to the decline in operating earnings.

Segment Performance

The Propulsion segment’s net sales decreased 2.1% in 2023, with lower sales volumes partially offset by positive mix and pricing. The Engine PA segment’s net sales decreased 8.4% in 2023 due to lower sales in both the Products and Distribution businesses. The Navico Group segment’s net sales decreased 14.5% in 2023 due to lower sales resulting from softer marine OEM orders and the weak RV manufacturing environment. The Boat segment’s net sales decreased 6.1% in 2023 due to decreased sales volumes to dealers, partially offset by favorable product mix and pricing.

Cash Flow and Liquidity

Net cash provided by operating activities increased to $7,452 million in 2023 from $5,804 million in 2022, primarily due to a decrease in working capital usage. Free cash flow from continuing operations increased to $4,734 million in 2023 from $1,915 million in 2022. Total liquidity, including cash, cash equivalents, marketable securities, and available borrowing capacity, was $12,105 million as of December 31, 2023.

Acquisitions and Restructuring

The company acquired Fliteboard Pty Ltd, a leader in eFoiling technology, for $876 million in 2023. The company recorded $547 million in restructuring, exit, and impairment charges in 2023, primarily related to headcount reductions and asset-related impairments.

Sustainability and ESG

The company continued to invest in sustainability initiatives, including expanding its Avator electric outboard motor line and achieving various environmental certifications and awards.

Overall, Brunswick faced headwinds in 2023 with lower sales and profitability, but maintained a strong liquidity position and continued to invest in strategic acquisitions and sustainability initiatives.

Financial Statements Annual 2023 Q3

Strong financial performance in 2022

Net sales increased 16.5% year-over-year, driven by favorable product mix, pricing, and higher sales volume. Gross margin percentage increased 10 basis points, despite higher manufacturing costs. Operating earnings and net earnings from continuing operations increased 16.6% and 14.4% respectively, benefiting from the higher sales and improved operating efficiency. Diluted earnings per share from continuing operations increased 19.4%, also aided by share repurchases.

Continued investment in growth initiatives

The company made strategic acquisitions in 2022, including certain Freedom Boat Club franchise operations and territory rights, to expand its shared access portfolio and digital platforms. Capital expenditures remained elevated at $388 million, focused on capacity expansion, new products, and technology. The company is investing in advancing its ACES (Autonomy, Connectivity, Electrification, Shared Access) strategy, as evidenced by the launch of the Avator electric outboard motor.

Strong liquidity and capital structure

Cash and short-term investments totaled $600 million as of the end of 2022, providing ample liquidity. Total debt increased to $25.1 billion, primarily due to the issuance of $7.5 billion in new senior notes, which were used to fund the Navico acquisition and for general corporate purposes. The company maintains a healthy balance sheet with a debt-to-capitalization ratio of 55%, providing financial flexibility.

Shareholder-friendly capital allocation

The company repurchased $450 million of its common stock in 2022 and has $396 million remaining under its current authorization. The company paid $108.6 million in dividends to shareholders in 2022, reflecting its commitment to returning capital.

Overall, Brunswick’s 2022 financial results demonstrate its ability to navigate a challenging environment, invest in growth initiatives, and maintain a strong balance sheet and liquidity position, while also returning capital to shareholders. These factors position the company well for long-term success.

Financial Statements Annual 2022 Q3

Strong Financial Performance

Net sales increased 34.5% in 2021 compared to 2020, driven by increased volume, market share gains, and higher pricing across all segments. Gross margin percentage increased 60 basis points in 2021, with all segments benefiting from increased sales, favorable factory absorption, and favorable changes in foreign currency exchange rates. Operating earnings increased 50.7% in 2021 compared to 2020, reflecting the strong sales growth and improved profitability. Diluted earnings per common share from continuing operations increased 61.5% in 2021 compared to 2020.

Segment Performance

The Propulsion segment saw a 33.3% increase in net sales and a 57.5% increase in operating earnings in 2021, driven by strong global demand and market share gains. The Parts & Accessories (PA) segment reported a 33.1% increase in net sales and a 21.9% increase in operating earnings in 2021, benefiting from increased sales across all product categories. The Boat segment experienced a 36.2% increase in net sales and a significant improvement in operating earnings in 2021, as benefits from increased sales more than offset material inflation and higher costs.

Liquidity and Capital Allocation

The company had $3.55 billion in cash, cash equivalents, and marketable securities as of December 31, 2021, and $8.53 billion in total liquidity. The company repurchased $120.1 million of its common stock in 2021 and plans to continue share repurchases in 2022 and beyond. Capital expenditures are expected to increase to $375-$425 million in 2022 to fund capacity expansion projects, new product investments, and cost-reduction initiatives.

Acquisitions and Growth Initiatives

The company completed the $1.09 billion acquisition of Navico, a global leader in marine electronics and sensors, in October 2021. The company also acquired several other businesses in 2021 to expand its Parts & Accessories and Boat segments, including RELiON Battery, SemahTronix, and Fanautic Club. The company continues to invest in its ACES (Autonomy, Connectivity, Electrification, and Shared Access) strategy to drive innovation and transform the marine industry.

Overall, Brunswick Corporation delivered strong financial results in 2021, driven by robust demand, market share gains, and strategic acquisitions, positioning the company for continued growth and value creation.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q3

Revenue Decline

The company experienced a 22% decline in net sales during the first quarter of 2024 compared to the same period in 2023. This was driven by lower volumes across the Propulsion, Navico Group, and Boat segments as boat manufacturers and dealers moderated orders to manage inventory levels.

Margin Compression

Gross margin declined by 160 basis points, primarily due to higher manufacturing costs, material and labor inflation, and unfavorable foreign currency impacts, partially offset by pricing and acquisitions. This margin compression flowed through to operating earnings.

Operational Efficiency Initiatives

The company recorded $135 million in restructuring, exit, and impairment charges during the quarter as it continued to streamline its cost structure and improve operating efficiencies. These actions are expected to result in $12 million in annualized cost savings.

Liquidity and Leverage

The company maintained a strong liquidity position, with $12.9 billion in total liquidity as of March 30, 2024. However, the debt-to-capitalization ratio increased to 58% due to the $4 billion senior notes issuance during the quarter.

Capital Allocation

The company repurchased $636 million of shares during the quarter and expects to repurchase approximately $250 million in shares for the full year, reducing the expected average diluted shares outstanding to 68 million.

Segment Performance

The Propulsion segment experienced the largest decline in sales and earnings, while the Engine PA and Navico Group segments also saw declines. The Boat segment performed better than the overall company, with improved operating margins sequentially.

Acquisition Integration

The company continued to integrate the 2023 acquisitions of Freedom Boat Club and Fliteboard, which are expected to provide operational efficiencies and technological synergies.

Overall, the financial statements indicate that the company is facing near-term headwinds from inventory management and cost inflation, but is taking actions to streamline operations and maintain a strong liquidity position to navigate the current environment while continuing to invest in growth initiatives.

Financial Statements Quarterly 2024 Q2

Revenue and Profitability

Net sales decreased 6% in Q3 2023 and 4% in the first 9 months of 2023 compared to the prior year periods, driven by lower volumes, partially offset by pricing and mix improvements. Gross margin declined 150 basis points in Q3 2023 and 80 basis points in the first 9 months of 2023, primarily due to higher manufacturing costs, including material and labor inflation. Operating earnings decreased 17.5% in Q3 2023 and 17.1% in the first 9 months of 2023, impacted by lower sales, higher costs, and restructuring charges. The company recorded a $192 million impairment charge related to its TNBC Holdings LLC joint venture investment.

Liquidity and Capital Structure

The company had $3.3 billion in cash, cash equivalents, and short-term investments as of September 30, 2023, down from $6.0 billion at the end of 2022. Total liquidity, including available borrowing capacity, was $10.7 billion as of September 30, 2023, providing ample financial flexibility. Total debt was $24.3 billion as of September 30, 2023, with a debt-to-capitalization ratio of 54%, down from 55% at the end of 2022.

Segment Performance

The Propulsion segment delivered modest sales growth but saw a 10% decline in operating earnings in Q3 2023 due to higher costs. The Engine PA segment experienced a 4% sales decline and a 16% drop in operating earnings in Q3 2023, primarily due to lower distribution sales. The Navico Group segment saw a 9% sales decline in Q3 2023 but improved its operating margin through cost reduction efforts. The Boat segment had a 16% sales decline and a 59% drop in operating earnings in Q3 2023 as the company reduced production to manage inventory levels.

Strategic Initiatives and Outlook

The company acquired Fliteboard, a leader in electric foiling technology, for $896 million, expanding its presence in the emerging electric-powered water sports market. The company is implementing restructuring actions to streamline its cost structure and improve operating efficiencies, expecting to incur $35-$40 million in charges in 2023 and achieve $40 million in annualized cost savings. The company increased its anticipated share repurchases for 2023 to exceed $275 million, lowering its expected average diluted shares outstanding for the year.

Overall, the financial statements indicate that Brunswick is facing headwinds from lower demand and higher costs, leading to a decline in profitability. However, the company maintains a strong liquidity position and is taking actions to streamline its operations and invest in strategic growth opportunities, which could position it well for long-term success.

Financial Statements Quarterly 2024 Q1

Revenue Performance

Revenue declined 7% in Q2 2023 and 2% in H1 2023 compared to the prior year periods, primarily due to the impact of the IT security incident, lower sales in the Navico Group segment, and some softening in demand. The Propulsion and Engine PA segments were impacted by the IT security incident, while the Boat segment delivered a solid quarter with only a slight sales decline. International sales declined 13% in Q2 and 8% in H1 on a reported basis, reflecting the impact of foreign currency headwinds.

Profitability

Gross margin declined 150 basis points in Q2 and 50 basis points in H1, driven by higher manufacturing costs, the IT security incident impact, and unfavorable currency movements, partially offset by pricing and mix improvements. Operating earnings and margins declined in Q2 and H1 due to the revenue declines, higher costs, and restructuring charges, though the company was able to partially offset these headwinds through cost control measures. The effective tax rate increased significantly in H1 2023 due to a discrete tax expense related to an intercompany intellectual property transfer.

Cash Flow and Liquidity

Free cash flow generation remained strong at $889 million in H1 2023, up from $553 million in the prior year period. The company maintains a robust liquidity position with $12.2 billion in total liquidity as of Q2 2023, including $4.8 billion in cash and marketable securities and $7.4 billion in available credit facility capacity. The company increased its share repurchase authorization and expects to exceed $250 million in buybacks for the full year.

Operational Initiatives

The company implemented restructuring actions across its segments to streamline costs and improve operating efficiencies, with an estimated $30-$35 million in annualized savings. The IT security incident resulted in disruption and non-recurring costs, though the company was able to quickly restore operations and is seeking to recover a portion of the lost earnings through insurance. The company continues to invest in new product development, capacity expansion, and technology initiatives to drive future growth.

Overall, the financial results reflect the impact of macroeconomic and operational challenges, but the company maintains a strong liquidity position and is taking actions to streamline its cost structure and position itself for long-term success. The IT security incident was a significant near-term headwind, but the company appears to be managing through it effectively.

Financial Statements Quarterly 2023 Q4

Revenue Growth

Brunswick’s net sales increased 3% in Q1 2023 compared to Q1 2022, driven by strong performance in the Propulsion and Boat segments, partially offset by declines in Engine PA and Navico Group. The revenue growth was a mix of increased volumes, favorable product mix and pricing, and acquisitions, partially offset by unfavorable currency impacts.

Profitability

Gross margin improved by 50 basis points in Q1 2023 compared to Q1 2022, driven by increased sales, acquisitions, and favorable timing of capitalized variances, partially offset by higher manufacturing costs. However, operating earnings and net earnings from continuing operations declined year-over-year, impacted by higher restructuring and exit charges, increased operating expenses, and a significant discrete tax expense related to an intercompany intellectual property transaction.

Segment Performance

  • Propulsion segment delivered strong results with 21% growth in operating earnings, driven by increased sales of high-horsepower outboard products.
  • Engine PA segment saw a 22% decline in operating earnings due to lower sales, material inflation, and elevated costs associated with transitioning a distribution hub.
  • Navico Group segment experienced a 58% decline in operating earnings due to lower sales, material inflation, and unfavorable currency impacts.
  • Boat segment reported a 28% increase in operating earnings, benefiting from higher sales volumes, favorable product mix, and improved manufacturing efficiencies.

Cash Flow and Liquidity

Free cash flow declined significantly in Q1 2023 compared to Q1 2022, primarily due to higher working capital requirements and lower net earnings. However, the company maintains a strong liquidity position with $11.3 billion in total liquidity as of April 1, 2023.

Capital Allocation

Brunswick increased its share repurchase guidance for 2023 to exceed $200 million, while maintaining its capital expenditure and interest expense estimates. The company’s debt-to-capitalization ratio remained stable at 55% as of April 1, 2023.

Overall, Brunswick’s financial performance in Q1 2023 was mixed, with strong results in the Propulsion and Boat segments offset by challenges in Engine PA and Navico Group. The company’s liquidity position remains robust, allowing it to continue investing in growth initiatives and returning capital to shareholders.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Market Share Gains

Brunswick is maintaining market share gains across its segments, particularly in the premium boat brands like Sea Ray and Boston Whaler, as well as in the Mercury outboard engine business.

Inventory Management

The company is closely managing dealer and OEM inventory levels, aiming to keep them balanced and in line with historical norms. This suggests they are trying to avoid excess inventory buildup.

Consumer Financing

Brunswick is seeing a higher proportion of buyers with high credit scores financing purchases, which could indicate a healthier consumer base.

Inventory Transition

The company is using targeted discounts and promotions, particularly on value product lines, to move prior model year inventory as the new model year approaches. This suggests they are being proactive in managing the transition.

Digital and Product Investments

Brunswick’s investments in digital platforms and new product launches across its brands appear to be contributing to market share gains and customer appeal.

Guidance Maintenance

The analysts seem to be probing for any signs of weakness or caution from the company, but Brunswick is maintaining its full-year guidance despite some near-term macroeconomic uncertainty.

Regulatory Advocacy

The potential NOAA East Coast vessel speed regulation is a risk factor, but Brunswick is advocating for technology-based solutions rather than a blanket regulatory approach.

Overall, Brunswick seems to be navigating the current environment well, maintaining market share, managing inventory, and investing in innovation – all positive signs for a long-term investor.

Earnings Call Analysis 2024 Q1

Inventory Management

Brunswick appears to have managed its inventory levels well, ending 2023 with 36.7 weeks of inventory in the U.S., in line with historical norms. This contrasts with commentary from some other industry players about higher than desired inventory levels.

Cost Savings Initiatives

Brunswick is targeting at least $40 million in structural cost savings across the enterprise in 2024 to help offset headwinds. This suggests the company is proactively managing its cost structure.

Propulsion Margin Pressure

The Propulsion segment is expected to see a 200 basis point decline in operating margins in 2024, driven by factors like lower absorption from reduced production volumes, higher tariffs, and more modest pricing power over input cost inflation.

While the Navico acquisition has not yet delivered the financial performance initially anticipated, Brunswick remains confident in the strategic rationale and sees opportunities for margin expansion in 2024 as new products launch and cost reductions take hold.

Cautious Wholesale Ordering

Brunswick expects continued caution from OEM and dealer customers in their ordering patterns, particularly in the first quarter, as they monitor retail demand and the macroeconomic environment. This could pressure near-term sales and earnings.

Potential Interest Rate Tailwind

Brunswick anticipates that interest rate reductions by central banks could provide a tailwind through lower financing costs for consumers and increased discretionary spending power.

Overall, the key insights suggest Brunswick is actively managing its operations and costs to navigate the current market environment, while remaining focused on its long-term strategic initiatives. The company’s inventory management and cost savings efforts appear prudent, though near-term wholesale demand pressures are expected.

Earnings Call Analysis 2023 Q4

Brunswick is maintaining production discipline and inventory levels to set up for a more predictable 2024, even if it adds short-term pressure. They are targeting inventory levels generally in-line with historical norms to avoid overstocking.

The company is maintaining production discipline and inventory levels to set up for a more predictable 2024, even if it adds short-term pressure. They are targeting inventory levels generally in-line with historical norms to avoid overstocking.

The company sees continued secular growth trends supporting its Propulsion business, particularly in high-horsepower outboard engines, despite some near-term headwinds from OEM production cuts. They are confident Mercury will end up stronger by the end of next year.

Brunswick has multiple levers to pull to protect earnings power in a recession, including aggressive cost control, COGS reductions, and flexible promotional financing offerings through the new Brunswick Finance solution.

Brunswick has multiple levers to pull to protect earnings power in a recession, including aggressive cost control, COGS reductions, and flexible promotional financing offerings through the new Brunswick Finance solution.

The company is cautious but not overly pessimistic about the 2024 retail outlook, guiding to a flat market as its base case. This seems more optimistic than some industry peers.

The company is cautious but not overly pessimistic about the 2024 retail outlook, guiding to a flat market as its base case. This seems more optimistic than some industry peers.

Analysts probed the company’s confidence in this 2024 outlook, with management highlighting the progressive cost takeouts, capital flexibility, and ability to adjust go-to-market strategies as key factors supporting their view.

Analysts probed the company’s confidence in this 2024 outlook, with management highlighting the progressive cost takeouts, capital flexibility, and ability to adjust go-to-market strategies as key factors supporting their view.

The company continues to see strong brand recognition and new boater appeal across its portfolio, including through the growing Freedom Boat Club business, which could help offset broader market softness.

The company continues to see strong brand recognition and new boater appeal across its portfolio, including through the growing Freedom Boat Club business, which could help offset broader market softness.

Overall, the key message is that Brunswick is taking a prudent, balanced approach to managing through the current uncertain environment, while maintaining confidence in its long-term growth drivers and ability to adapt as needed.

Earnings Call Analysis 2023 Q3

The IT security incident in June had a significant impact on the Propulsion and Engine Parts & Accessories segments, resulting in lost production and revenue that will be difficult to fully recover in 2023. This impacted the company’s overall financial performance.

Despite the IT incident, the company continues to gain market share in key areas like high-horsepower outboard engines and premium boat brands. This demonstrates the strength of their product portfolio and brands.

The company is seeing some softness in demand, particularly in the value boat and lower horsepower engine markets, as well as in some international markets. This is leading to more cautious ordering and inventory management by dealers and channel partners.

The company is taking a disciplined approach to production planning and inventory management, prioritizing keeping dealer inventories at appropriate levels rather than maximizing short-term sales. This suggests a focus on long-term health over short-term results.

The company continues to invest in new product development and innovation, including the launch of the Mercury Racing 500R and expansion of the Avator electric outboard lineup. This positions them well for the future.

The analysts seem to be probing for any signs of weakness or overly optimistic assumptions in the company’s guidance and outlook. The management team appears to be providing transparent and balanced commentary, acknowledging both the challenges and opportunities.

Overall, the key insights suggest a company that is navigating near-term disruptions and demand shifts while maintaining a focus on its long-term strategic priorities and competitive positioning. The management team seems to be taking a prudent, disciplined approach.

Earnings Call Analysis 2023 Q2

Brunswick is delivering strong financial results despite a challenging macroeconomic environment, with record first quarter net sales and adjusted EPS. This highlights the robustness of their business model and portfolio.

The Propulsion segment is performing exceptionally well, with 20% operating margins driven by increased shipments of high-horsepower outboard products and operational efficiencies. This appears to be a sustainable trend.

The Engine Parts & Accessories and Navico Group segments faced some headwinds in Q1 due to factors like inventory destocking, inflation, and product launch challenges. However, management expects these to moderate through the year.

The Boat segment continues to deliver double-digit adjusted operating margins, though discounting has increased somewhat. Boat field inventory appears well-balanced heading into the peak season.

Brunswick is seeing strong consumer demand, particularly for premium products, as evidenced by boat show performance. However, there is some disconnect between the company’s internal retail data and industry data that bears watching.

The company is being proactive on cost control, having completed restructuring actions in the Navico Group. This should help offset macroeconomic pressures.

Brunswick is maintaining a wide guidance range due to the dynamic external environment, but management seems confident in their ability to achieve the upper end of the range as the year progresses.

The company continues to invest in new product development and innovation across its segments, which should support long-term growth. Key examples include the Mercury Avator electric outboards and the Lowrance HDS Pro fish finder.

Overall, Brunswick appears to be navigating the current challenges well and positioning itself for continued success. The strong performance of the Propulsion segment and the company’s focus on innovation and cost control are positive signs for long-term investors.

Earnings Call Analysis 2023 Q1

Strong Operational and Financial Performance

Brunswick Corporation has delivered strong operational and financial performance despite a challenging macroeconomic environment. The company reported record sales, operating earnings, and EPS in 2022.

Diversified Business Model

The company’s diversified business model, with strong performance across the Propulsion, Parts & Accessories, and Boat segments, has contributed to its resilience. The Boat segment reached double-digit adjusted operating margins for the first time.

Managing Supply Chain and Inflation

The company has been proactive in managing supply chain challenges and input cost inflation, leveraging pricing actions and operational efficiencies to maintain margins.

Capacity Expansion and Market Share Gains

Brunswick is focused on capacity expansion, particularly in high-horsepower outboard engines, which it expects will enable further market share gains and growth in underserved international and repower channels.

New Product Development and Emerging Technologies

The company is investing in new product development, including the launch of the electric Mercury Avator outboard and the new Veer boat brand, positioning it for future growth in emerging technologies and market segments.

While the company is cautious about the near-term retail outlook, given macroeconomic uncertainties, it believes it can achieve its 2023 guidance targets even in a flat to slightly down retail environment, leveraging its operational excellence and product portfolio.

Analyst Focus

The analysts’ questions suggest a focus on understanding the company’s ability to navigate potential downside scenarios, the impact of supply chain and inflation dynamics, and the long-term growth opportunities in the propulsion and parts & accessories businesses.

Overall, the key insights suggest that Brunswick is a well-managed, diversified company with a strong track record of operational execution and a focus on innovation, which could make it an attractive long-term investment opportunity.

Earnings Call Analysis 2022 Q4

Strong Financial Performance Despite Challenges

Brunswick is delivering strong financial performance despite macroeconomic and supply chain challenges, with record Q3 results. This demonstrates the resilience of the business.

Propulsion Segment Driving Growth

The Propulsion segment is a key growth driver, with Mercury Marine gaining significant market share globally. The capacity expansion at the Fond du Lac facility is expected to further accelerate share gains in the coming quarters.

Parts & Accessories Segment Facing Headwinds

The Parts & Accessories (P&A) segment faces some near-term headwinds from foreign exchange impacts and supply chain disruptions, but the company is taking actions to improve margins in this business.

Boat Segment Performing Well

The Boat segment continues to perform well, with double-digit operating margins, though the impact of Hurricane Ian will be a near-term headwind.

Maintaining Margins and Returning Capital

The company is focused on maintaining margins despite inflationary pressures, and is aggressively repurchasing shares to return capital to shareholders.

Preparing for a Range of Market Scenarios

While the company is preparing for a range of market scenarios in 2023, including the possibility of a flattish market, management remains confident in the long-term growth prospects and ability to achieve its 2025 targets, with organic growth and strategic acquisitions as key drivers.

Monitoring Potential Demand Weakening

Analysts are probing for any signs of weakening consumer demand, but the company indicates that order patterns from dealers remain healthy, and they are not seeing significant cancellations or deferrals at this time.

Overall, the company appears to be executing well and positioning itself for continued success, though the analysts are closely monitoring the potential impact of macroeconomic headwinds on the business.

Earnings Call Analysis 2022 Q3

Brunswick is Maintaining Strong Focus on Cost Control and Operational Efficiencies

Brunswick is maintaining strong focus on cost control and operational efficiencies while continuing to invest in new capacity, new product programs, and ACES (Autonomy, Connectivity, Electrification, Shared Access) initiatives to fuel future growth and market share gains.

Consumer Demand Remains Strong, but Facing Tougher Comparisons and Supply Chain Disruptions

Consumer demand for Brunswick’s products remains strong, though the company is working through a period of tougher year-over-year retail comparisons versus a particularly strong first half of 2021, while being impacted by continued low field inventory and some supply chain disruptions.

Propulsion Segment Continues to Deliver Outstanding Results

Brunswick’s Propulsion segment continues to deliver outstanding results, with Mercury Marine expanding outboard propulsion and retail market share globally, especially in the higher horsepower outboard engine categories. The additional outboard engine capacity coming online by the end of 2022 is expected to drive further global market share gains.

Parts & Accessories Segment Facing Headwinds, but Expects Growth in the Back Half of the Year

The Parts & Accessories segment faced some headwinds related to early quarter poor weather, supply chain constraints, and retailers returning to more normal stocking patterns, but the company expects growth in the back half of the year as some of these issues are resolved.

Boat Segment Posts Robust Top Line Growth and Double-Digit Operating Margins

The Boat segment posted robust top line growth and double-digit operating margins, with each product category delivering strong performance. The Freedom Boat Club continues to grow rapidly, both organically and through acquisitions, providing an additional channel for Brunswick’s boat and engine sales.

Brunswick Increasing Planned Share Repurchases for the Year

Brunswick is taking advantage of the current market and sector value dislocation by increasing its planned share repurchases for the year, returning a record $500 million to shareholders through share repurchases and dividends.

Focus on New Product Development with Exceptionally Busy Second Half

The company remains focused on new product development, with an “exceptionally busy” second half on new product launches across the enterprise, including advanced technologies and connectivity solutions.

Earnings Call Analysis 2022 Q2

Demand remains strong despite macroeconomic pressures

The company reports that boater sentiment and intention to buy boats remains unchanged from 2021. Supply chain issues are the main constraint on retail sales.

Pricing power and ability to pass on inflation

The company has been able to implement price increases across its segments, with boat prices up mid-teens to 20% cumulatively over the past 2+ years. The company is aiming to cover inflation costs through pricing.

Capacity expansion plans on track

The company’s capacity expansion in its Propulsion segment, especially for higher horsepower outboard engines, remains on schedule. This should enable the company to better meet strong international demand.

Inventory levels extremely low

Dealer pipeline inventories are at historically low levels, with only around 5,000 boats actually available for sale in the US. This suggests the company is essentially sold out for 2022.

Aggressive share repurchase program

Given the current market dislocation, the company has significantly increased its 2022 share repurchase target to $300 million, signaling confidence in the stock’s valuation.

Diversified business model and recurring revenue streams

The company’s portfolio of businesses, including the high-growth Freedom Boat Club, provide diversification and recurring revenue streams that should support performance in any economic environment.

Overall, the key insights point to a company with strong demand, pricing power, capacity expansion plans, low inventories, and a diversified business model – factors that suggest it is well-positioned for long-term success despite the current macroeconomic challenges.

Earnings Call Analysis 2022 Q1

Brunswick’s Operational Excellence and Growth Outlook

Brunswick is executing well against its operating and strategic priorities, demonstrating the strength and resilience of its marine-focused portfolio. It delivered record sales and earnings in 2021 and is poised for another strong year in 2022.

The company is seeing robust demand from both new and existing boaters, with 90% of second-season boat buyers rating their experience as 4-5 stars and 93% expecting to continue boating in 5 years. This suggests strong stickiness of the new boater segment.

Mercury Outboard Engines Gaining Market Share

Mercury outboard engines are gaining significant market share, especially in higher horsepower categories (200HP+), outperforming the industry. The company is investing heavily to expand capacity to meet growing demand from both existing and new OEM customers.

Parts & Accessories Segment Optimization and M&A

The Parts & Accessories segment is benefiting from strong aftermarket demand and is focused on optimizing its global operating model, integrating recent acquisitions like Navico, and pursuing further M&A opportunities in higher-technology systems.

Boat Segment Initiatives and Freedom Boat Club

The Boat segment is focused on expanding margins, launching new products, executing capacity expansion plans, and increasing vertical integration to mitigate supply chain issues. The growing Freedom Boat Club business is also expected to be margin accretive.

Proactive Inflation Management

The company is proactively managing inflation through pricing actions, aiming to offset cost increases while carefully balancing price increases to maintain affordability for new boaters.

Analyst Insights and Market Expectations

The analyst questions suggest the market is closely watching the company’s ability to sustain its strong growth trajectory, particularly as it relates to dealer inventory replenishment, retail demand trends, and the long-term revenue and margin potential of the business.

Overall, the key insights point to Brunswick’s operational excellence, strong demand backdrop, strategic initiatives, and financial discipline – all of which suggest the company is well-positioned for continued success as a long-term investment.

Earnings Call Analysis 2021 Q4

Brunswick’s Business Segments Performing Well

Brunswick’s business segments are performing well, with the Propulsion and Parts & Accessories segments delivering strong top-line and earnings growth. The Boat segment is also growing despite supply chain challenges.

Gaining Significant Market Share in Outboard Engines

The company is gaining significant market share in the outboard engine market, with the Mercury brand outperforming the industry. This suggests strong competitive positioning.

Actively Managing Inflation Through Pricing Actions

The company is actively managing inflation through pricing actions, though it is trying to balance maintaining affordability for consumers. This indicates a focus on long-term market health.

Diversifying Revenue Streams Beyond New Boat Sales

Brunswick is diversifying its revenue streams beyond just new boat sales, with growing contributions from the Parts & Accessories segment and the Freedom Boat Club recurring revenue model. This reduces cyclicality and provides more stability.

Pursuing Acquisitions to Strengthen Technology and Systems Capabilities

The company is aggressively pursuing acquisitions, such as Navico, RELiON Battery, and SemahTronix, to strengthen its technology and systems capabilities. This suggests a focus on building competitive advantages.

Managing Supply Chain Challenges Better Than Competitors

While supply chain challenges are impacting production, Brunswick appears to be managing this better than competitors, leveraging vertical integration and strong supply chain management.

Confident in Continued Strong Retail Demand

The company is confident in continued strong retail demand, even as industry data shows some softening. This suggests the company has unique insights into the market.

Overall, Brunswick appears to be executing well strategically, diversifying its business, and investing for the long-term, which should position it well for continued success.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.