Q3 2024 Earnings Summary
- Brunswick expects 2025 to be a growth year for EPS, driven by better economic conditions, potential flat or slightly up retail sales, and wholesale expected to be up due to low pipelines.
- Mercury Marine continues to gain market share, achieving a 420 basis point gain in the quarter and 130 basis points year-to-date, indicating strong product performance and potential for continued growth.
- The Engine Parts and Accessories business achieved record operating margins of 26%, showcasing stability, strong recurring revenue, and profitability, which is expected to continue into 2025.
- Declining Sales and Margins: Brunswick reported that net sales in the quarter were down 20% versus the third quarter of 2023, with adjusted operating margins just under 10%, resulting in an adjusted EPS of $1.17. The company also expects production volumes to be down 25% year-over-year in Q4, leading to lower margins due to negative absorption.
- Elevated Inventory Levels and Dealer Caution: The company indicated that global weeks on hand are expected to finish the year in the high 30s to around 40 weeks, which is higher than desired and suggests potential overstocking issues. Additionally, dealers are showing cautiousness in reordering, leading to lower wholesale orders and production cuts.
- Weakening International Markets and Uncertainties in 2025 Outlook: Brunswick acknowledged weakening demand in Europe and uncertainties in the 2025 outlook due to geopolitical tensions and cautious dealer sentiment. The company is cautious about overstocking pipelines and is not anticipating significant change entering the off-season.
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2025 EPS Outlook
Q: Does 2024 EPS cut impact 2025 EPS expectations?
A: Management maintains that 2025 will be a growth year for EPS despite the $0.75 reduction in 2024 EPS estimates; as long as retail holds flat, they believe EPS will improve, with low pipelines aiding year-over-year comparisons. -
Cost Savings Sustainability
Q: How much of the $100M cost reductions are sustainable?
A: Of the $100 million in cost reductions versus the original budget (about $50 million from 2023 levels), management expects to keep $30 to $40 million of operating expenses out into 2025 until market conditions improve, supporting future earnings. -
Inventory and Wholesale
Q: Will inventory levels finish lower, and how does this affect wholesale?
A: Pipelines will continue to be managed down, with wholesale exceeding retail by about 1,500 units globally; despite lower inventories, management anticipates wholesale in 2025 will be higher than in 2024 due to production catch-up, without increasing weeks on hand. -
Q4 Propulsion Margins
Q: What's causing the Q4 propulsion margin drop?
A: Propulsion margins in Q4 are impacted by volumes being down 25% year-over-year, leading to negative absorption; production cuts protect inventory levels, and headcount reductions lag, but these headwinds are expected to reverse in the first quarter of next year. -
Engine P&A Margins
Q: Is the record 26% Engine P&A margin sustainable?
A: While not expecting 26% margins every quarter, the business is stable with full-year margins approaching 20%; efficiency gains and cost reductions support continued margin stability and growth into 2025. -
Mercury Share Gains
Q: Are the 400 bps Mercury share gains one-time?
A: Management highlights the 400 basis points share gain in the quarter but advises focusing on the 130 basis points year-to-date gain; they expect to continue outperforming competitors due to strong product lines. -
Pricing and Promotions
Q: Thoughts on pricing and promotional landscape for 2025?
A: Planning very modest pricing increases across the portfolio for the third consecutive year; elevated discount levels keep consumer prices stable or even lower, with wholesale pricing increases being very modest. -
Navico Outlook
Q: Has Navico stabilized, and can we expect growth?
A: Navico shows stability, with Q4 expected to be marginally up in sales and margins; new products ahead of Black Friday provide confidence, though significant growth will be gradual. -
Dealer Inventory Strategy
Q: Are dealers pushing for leaner inventory models?
A: Collaborating with dealers on inventory levels; given low market volumes, maintaining adequate boats per dealer is important, and they're not anticipating significant changes in long-term weeks on hand. -
Consumer Demand Surveys
Q: What does the consumer survey indicate about purchase intent?
A: Monthly surveys of around 400 boaters show stable purchase intent among core and value boaters, with higher-income households increasing; latent demand may emerge once uncertainties like interest rates and elections subside.