Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brunswick Corp (BC, Financial) achieved significant market share gains, particularly in the US outboard engine market, with a 420 basis point increase.
- The company's recurring revenue businesses, including Freedom Boat Club and Navico Group's aftermarket sales, contributed nearly 70% of Q3 adjusted operating earnings.
- Brunswick Corp (BC) executed an amendment to its revolving credit facility, increasing commitments to $1 billion and extending maturity to October 2029, enhancing capital flexibility.
- The engine parts and accessories business reported record operating margins of 26%, driven by efficiency gains from the new facility in Brownsburg, Indiana.
- Freedom Boat Club showed steady performance with a 3.5% year-to-date membership sales growth and completed the acquisition of the South Florida franchise operations, strengthening its market position.
Negative Points
- Brunswick Corp (BC) experienced a 20% decline in net sales for the third quarter compared to the prior year, impacted by lower wholesale ordering and elevated discounting.
- The propulsion business saw lower sales and operating earnings due to reduced production rates at OEM boat manufacturers.
- Navico Group reported a sales decrease of 14% due to reduced sales to marine OEMs and delayed aftermarket orders.
- The boat business had sales and operating earnings below the third quarter of 2023, affected by lower planned production levels and extended summer shutdowns.
- Dealer sentiment remained generally stable but negative, with cautious ordering and elevated discounting and promotion levels.
Q & A Highlights
Q: Could you speak to any changes in customer demand or dealer sentiment recently, and elaborate on the drivers of the stronger 2025 setup you cited?
A: Retail is pacing as expected, down about 10%. September was slightly stronger. There's some weakening in Europe, a premium market for us. We're cautious about overstocking pipelines and not pulling wholesale from early 2025 into 2024. The hurricanes in Florida will have a modest impact. For 2025, we expect healthier economic conditions, lower interest rates, and stable unemployment. Retail is expected to be flat, with potential upside, and wholesale should be up. Brunswick's unique market share gains and new products will drive growth.
Q: On a flat retail sales backdrop for '25, how are you thinking about pricing and promotional landscape? Any change to 20% incremental margins for the front half versus the back half loading?
A: Incrementals will be better in the second half due to earnings calendarization. We plan modest pricing increases across our portfolio, the third year in a row. Elevated discount levels help the end consumer price. We will take a little price at wholesale, but it will be very modest.
Q: It seems like retail is playing out as anticipated, but there's a steep cut to Q4. Should we interpret that as expecting to finish the year lower on inventories than previously thought?
A: Yes, wholesale will trail retail by about 20,000 units on the engine side in the US. The change is due to cautiousness in orders from channel partners, as we can supply products quickly at the start of the retail season. Wholesale in '25 could be ahead of '24, not above retail in '25.
Q: Are you still expecting global weeks on hand to finish this year around 40%, and where is it today?
A: At the end of the quarter, it was 32 weeks in the US. We'll end in the high 30s by year-end. Exact weeks on hand are harder to predict due to unit implications. Globally, we'll end in the 40-ish range. Our focus is on setting up for 2025, with premium product inventory still historically low.
Q: Can you speak to the decision to pull back on promotions in Q4 to avoid excessive wholesale pull forward?
A: We prefer selling boats when there's pull rather than pushing them at dealers. We don't want dealers to wait for the next promotion to order. Breaking that habit now is beneficial.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
