Q2 2024 Earnings Summary
- Brunswick's recurring revenue businesses, including Engine Parts and Accessories (P&A), Mercury Repower, and Freedom Boat Club, are performing strongly, driving robust earnings and strong cash flow, demonstrating resilience in a challenging market.
- Mercury continues to gain market share, holding over 48% of the U.S. outboard market and over 70% share in 350-horsepower and above engines, positioning Brunswick to benefit significantly when the market recovers and wholesale shipments catch up to retail demand.
- Cost reduction initiatives at Navico, including closing 40% of facilities, reducing headcount, and addressing cost of sales, along with significant new product introductions, are expected to improve margins and contribute to improved performance as market conditions normalize.
- Retail unit sales are at levels similar to the 2010 post-GFC period, with expectations of approximately 140,000 units retailed in 2024, indicating significant market weakness and raising concerns about demand for new boats. , ,
- Margins are under pressure due to lower production volumes leading to lower absorption and increased manufacturing costs, compounded by currency headwinds and elevated depreciation expenses from recent capacity projects, which are not being offset quickly enough by cost reductions. ,
- Inventory reductions of 7% may not be sufficient relative to a projected 10% decline in retail sales, potentially leading to increased dealer inventory levels and higher weeks on hand, which could pressure future wholesale orders and margins.
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2025 Outlook & Margins
Q: What are margin expectations for 2025?
A: We believe we can achieve incremental margins of 20% or more in 2025. Assuming a flat or slightly up retail market, wholesale could increase by 10% or more. We expect benefits from cost reductions, new products, continued market share gains at Mercury, and improved performance at Navico Group. -
Retail Sales Guidance
Q: How confident are you in the 10% retail decline?
A: Internal retail projections are aligning with SSI data. May was down 8–10%, June down 20%, and July is better but still down mid- to high single digits. We expect retail to end the year down high single digits to 10%. -
Cost Reduction Impact
Q: Details on the cost reduction program?
A: Operating expenses will be down $90–100 million by year-end, about a 10% reduction. Approximately one-third of the reductions are permanent and will not be added back unless market conditions improve. -
Propulsion Segment Outlook
Q: What's driving propulsion segment declines?
A: Wholesale engine units will be down about 20% this year, aligned with boat declines. We have adjusted production due to OEM destocking but continue to gain market share with Mercury. -
Market Outlook
Q: Is there a secular decline in the market?
A: We do not believe there's a secular negative trend. Wealthy consumers are expected to get wealthier, supporting discretionary items like boats. Participation remains strong, with over 10 million registered boats in the U.S.. -
Navico Group Margins
Q: Expectations for Navico margins?
A: We are working diligently to improve Navico's margins. We've closed about 40% of facilities, significantly reduced headcount, and are focusing on cost of sales. New products will also contribute to improved performance. -
Dealer Inventory Levels
Q: Is a 7% inventory reduction enough?
A: We are balancing several factors, including weeks on hand and units per dealer. A further reduction could prevent dealers from carrying a representative product line. We aim to derisk 2025 while maintaining sufficient dealer inventory. -
Propulsion Margins
Q: Can propulsion margins return to 20%?
A: Yes, under normal production volumes and market conditions, the propulsion business can achieve 20% operating margins. Current margin pressures are due to lower volumes and absorption impacts exceeding $30 million. -
Dealer Health & Interest Costs
Q: How are dealer interest costs affecting them?
A: Dealer floor plan interest rates have increased due to higher SOFR rates. However, the dealer network remains extremely healthy, with reductions in aged inventory and strong liquidations of older stock. -
Market Trends
Q: How are premium and value segments performing?
A: Premium products are stronger than value. Fishing-related products, representing about two-thirds of our offerings, are performing well, while general recreational products like pontoons are down more than the market. -
Dealer Orders & Backlog
Q: What's the status of dealer orders?
A: Over 70% of planned Q3 production is accounted for with orders, which is normal. Brands like Boston Whaler are 100% accounted for. We are comfortable with our Q3 order position but know less about Q4. -
Propulsion Correlation to Boat Sales
Q: Is propulsion more tied to new boat sales now?
A: The decline is due to OEM volumes; repower sales remain strong at 15–20% of overall sales. Pricing and mix are holding up, with no significant issues. -
Pipeline Recovery in 2025
Q: Will you recoup pipeline corrections next year?
A: In a flat market, we could recover 1,500-plus units, benefiting both boats and engines. If retail is slightly up, wholesale could exceed this year's levels by 10% or more, allowing us to regain a significant portion of the pipeline correction. -
Dealer Floor Plan Costs
Q: Impact of higher floor plan costs on dealers?
A: Dealers face higher rates due to increased SOFR plus margins. Despite higher costs, dealers remain healthy with reductions in aged inventory and good sales of older stock.