Brunswick(BC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Net sales in Q3 2024 were down 20% YoY, with adjusted operating margins just under 10%, resulting in an adjusted EPS of $1.17 [13] - Year-to-date sales were down 19%, with an adjusted diluted EPS of$ 4.31, down 41% YoY [14] - Free cash flow conversion is expected to be north of 80% for the year, with free cash flow remaining solid despite lower earnings [19] - The company completed $190 million of share repurchases year-to-date [4] Business Segment Performance Propulsion Business - Sales in the propulsion segment were down 32% YoY, with lower production rates at OEM boat manufacturers leading to reduced engine orders [15] - Despite lower wholesale orders, the company gained 420 basis points of U.S. outboard engine market share in Q3 [5] - The engine parts and accessories business achieved record operating margins of 26% in Q3 [5] Navico Group - Navico Group reported a 14% decrease in sales, primarily due to reduced sales to marine OEMs, partially offset by slight international sales growth [16] - The group launched over 20 new products year-to-date, with expectations of operating margin re-expansion in Q4 [7] Boat Business - The boat business saw sales and operating earnings below Q3 2023 levels, consistent with lower planned production levels and fewer manufacturing days [6] - Sales were down 19% YoY, driven by cautious wholesale orders and higher incentives, partially offset by modest model year pricing [17] Freedom Boat Club - Freedom Boat Club delivered steady performance with 3.5% year-to-date membership sales growth and completed the acquisition of the South Florida Franchise Operations [7] Market Performance - U.S. outboard engine industry retail units declined 10% in Q3 2024, with Mercury Marine outperforming the industry at a decline of just 1.8% [11] - The company ended Q3 with 10,700 units in the U.S. pipeline, slightly below the prior year [11] Strategic Direction and Industry Competition - The company is focusing on market share gains and maintaining a fresh product portfolio to position for growth when the market recovers [9] - Brunswick is investing in new products and technologies across all businesses, with over 20 new products introduced by Navico Group year-to-date [7] - The company is expanding its presence in Asia and expects to enter the market soon [7] Management Commentary on Operating Environment and Future Outlook - Management noted that the macroeconomic landscape is stabilizing, with inflation moderating and employment remaining solid, but geopolitical tensions and election-related activities are being monitored [8] - The company expects full-year new boat retail unit sales to be down approximately 10% YoY, in line with expectations [3] - Management anticipates a stronger 2025, with healthier economic conditions, lower interest rates, and potential market share gains [24][25] Other Important Information - The company estimates a full-year operating earnings impact of$ 5 million to $10 million due to hurricanes in Florida and the Southeastern U.S. [10] - Brunswick has increased its revolving credit facility to$ 1 billion and expanded its commercial paper program to $1 billion for additional capital flexibility [4] Q&A Session Summary Question: Changes in customer demand and dealer sentiment - Retail demand is pacing as expected, down about 10% YoY, with some weakening in Europe [22] - The company is de-risking the balance of the year by avoiding overstocking pipelines and not pulling wholesale orders into 2024 [23] Question: 2025 outlook and inventory levels - The company expects 2025 to be a growth year, with flat retail sales and potential upside in the marine market [25] - Inventory levels are expected to finish the year in the high 30s in the U.S. and around 40 globally [34] Question: Mercury Marine market share gains - Mercury Marine gained 420 basis points of U.S. outboard engine market share in Q3, with a focus on the 130 basis points year-to-date gain [41] Question: Navico Group performance and outlook - Navico Group is expected to see stability and modest growth in Q4, driven by new product launches [42] Question: Engine parts and accessories business margins - The engine parts and accessories business achieved record operating margins of 26% in Q3, with sustainability expected around 20% for the full year [50] Question: Cost reductions and 2025 expectations - The company has taken out$ 100 million in costs versus the initial budget, with $30 to$ 40 million expected to stay out in 2025 [53] Question: Propulsion margins in Q4 - Propulsion margins in Q4 are expected to be lower due to reduced production volumes and absorption challenges [55] Question: International inventory levels - International inventory levels are higher than in the U.S., but the company is managing pipelines similarly to control inventory [58] Question: Dealer inventory preferences - Dealers are collaborating with the company to set inventory levels, with no significant changes expected in long-term weeks on hand [60] Question: Promotional strategy in Q4 - The company is avoiding excessive wholesale pull-forward in Q4 to prevent learned behaviors of waiting for promotions [62]