Yahoo Finance Brunswick Corporation (NYSE:BC) Q1 2024 Earnings Call Transcript
Brunswick Corporation (NYSE:BC) Q1 2024 Earnings Call Transcript April 25, 2024
Brunswick Corporation misses on earnings expectations. Reported EPS is $1.35 EPS, expectations were $1.36. Brunswick Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Brunswick Corporation’s First Quarter Year 2024 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer period. Today’s meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Neha Clark, Senior Vice President, Enterprise Finance Brunswick Corporation. Thank you. You may now begin.
Neha Clark: Good morning, and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick’s CEO; and Ryan Gwillim, CFO. Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For details on these factors to consider, please refer to our recent SEC filings and today’s press release. All of these documents are available on our website at brunswick.com. During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today’s results. I will now turn the call over to Dave.
Dave Foulkes: Thanks, Neha, and good morning, everyone. Brunswick had a solid start to the year delivering sales, margin, and adjusted earnings per share consistent with expectations despite continued customer caution in the face of the economic uncertainty. Our performance benefited from continued market share gains, the wealth of recently launched and well-received new products, and comprehensive cost control measures across our businesses, offset higher promotions and discounts on some product lines. We also continue to make good progress on our strategic initiatives. Our first quarter net sales of $1.4 billion and adjusted earnings per share of $1.35 were in line with our guidance range and consistent with the anticipated restrained early season marine dealer OEM and retail wholesale order patterns which reduced production rates across our product businesses compared to the first quarter of 2023 when pipelines were being filled.
Mercury Marine continued to capture market share with first quarter U.S. outboard retail share of 200 basis points versus prior year. Our early season boat unit retail performance is tracking with our outlook of flat to 2023. As we move into the core 2024 retail selling season we continue to work closely with our channel partners to maintain balanced current model field inventory levels and we close the first quarter with 36.1 weeks on hand in the U.S., which is in line with historical norms. In addition during the quarter we successfully completed a debt issuance of $400 million to cover the refinance of our only near-term debt further solidifying our cash position and balance sheet. I'll now turn to some segment highlights for the quarter.
Our propulsion business delivered lower sales and earnings versus a record first quarter of 2023 as boat manufacturers and dealers moderated order patterns and managed production of current model year products and pipelines ahead of the annual model-year change-over. We expect OEMs to remain cautious through the model-year change-over as they assess consumer sentiment and monitor the macro environment. Mercury continued to outperform the market gaining 330 basis points of U.S. outboard market share in engines 150 horsepower and above. Our engine parts and accessories business continued its steady performance with sales and earnings down modestly from the first quarter of 2023 as anticipated but increasing sequentially over the prior quarter.
Early season weather patterns have been supportive of boating in the northern U.S. and with normalized inventory levels across the dealer network continued strong boating participation should contribute to growth for the remainder of the year. As expected Navico Group had lower sales and earnings versus the first quarter of 2023, but delivered sequential sales growth and consistent earnings versus the prior quarter. Navico Group continues to focus on investment in new products including the recently launched Simrad NSX Ultrawide multifunction display which has been very well received by customers and is preparing for several important new product launches in the remainder of the year. Finally, our boat business performs a plan with exceptional retail performance by Boston Whaler and Sea Ray at early season boat shows while continuing to introduce new models to support market share gains.
Sales and earnings were below prior year consistent with lower plan production levels while operating margins improved sequentially. Freedom Boat Club continues to deliver steady membership sales and same club sales in the quarter were mid single digit percent above prior year. Freedom has now expanded to 413 worldwide locations. Shifting to external factors now, U.S. GDP and employment remain stronger than anticipated, slowing the recent pace of disinflation and consequently the lightly cadence of Fed rate reduction, which in turn is keeping consumer loan rates high. We are however seeing a higher proportion of buyers with high credit scores financing their purchases than in recent prior periods. An interest in the recently launched Brunswick retail finance program continues to increase with more than 35% of Brunswick boat dealers having enrolled.
The Marine industry is continuing to lobby against the proposed NOAA East Coast vessel speed regulation and advocate for technology based solutions. However the exact contents of the proposed rule remain unknown, making an analysis of the impacts difficult. As noted dealer sentiment is generally sequentially improving, but with appropriate imagery levels they are carefully pacing wholesale orders particularly for current model-year, value product lines. We are working with dealers to deploy a portfolio of targeted discounts and promotions. On a per unit basis retail and wholesale program spending is in line with pre-pandemic levels, but floor-plan support spending is higher. Our investments in digital platforms continue to drive benefits across our brands with more than a third of Boat Group sales digitally assisted in the first quarter.
Our surveys continue to show strong boating participation levels supportive of steady P&A demand. Overall boat show results were encouraging with interested buyers, strong lead generation and sales above prior year levels on a unit basis and with a richer product mix. Our Boston Whaler and Sea Ray businesses demonstrated exceptional retail performance at early boat shows with new models supporting market share gains. Mercury Marine performed well at all major boat shows recording the highest outboard share at Dusseldorf, Miami and other key events. Shifting now to a global view of revenue in the quarter, overall we saw a 22% sales decline on a constant currency basis excluding acquisitions. Moving now to U.S. retail performance, U.S. industry new boat unit sales in the quarter declined versus the first quarter of 2023.
Brunswick internal retail data outperformed the overall market with particular strength in our premium brands. Our year-to-date global internal unit retail sales are flat to prior year including a solid start in the first weeks of the second quarter. It is not uncommon to see differences in SSI reporting and internal data at this point in the season, and our expectation of a flat retail market for the full year currently remains unchanged. U.S. outboard engine industry retail units declined 9% in the first quarter versus prior year. Mercury continues to outperform the market with an overall share gain of 200 basis points in the quarter. We continue to successfully manage both pipelines and we ended the quarter with U.S. inventory at 36.1 weeks in line with expectations and historical norms, and with 13,500 units in the pipeline versus nearly 18,000 units in 2019.
International boat pipelines were slightly higher which is normally the case. Notably our first quarter U.S. boat pipelines declined versus the end of the fourth quarter of 2023 which is unusual given the first quarter is commonly a period of building pipelines ahead of the selling season, underlining the caution being exhibited by our channel partners. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.
Ryan Gwillim: Thanks Dave and good morning everyone. Brunswick delivered a solid first quarter consistent with guided expectations despite a continued cautious macroeconomic environment versus a strong first quarter 2023 net sales in the quarter were down 22%, resulting in an adjusted EPS of a $1.35. Gross margins have remained resilient, adjusted operating expenses were down $11 million versus Q1, 2023 and free cash flow performed better than anticipated as CapEx spending continues to moderate given the conclusion of several major capital projects in 2023. First quarter sales were below prior year as the impact of continued measured wholesale ordering patterns by dealers and OEMs coupled with higher discounts in some business segments was only partially offset by annual price increases market share gains and benefits from well received new products.
Adjusted operating earnings were down versus prior year as a result of the impact of lower net sales, unfavorable changes in foreign exchange rates and slightly higher input costs, which more than offset benefits from significant cost control measures throughout the enterprise. Now we'll take a look at each reporting segment starting with our propulsion business. Sales and earnings were lower as anticipated as boat manufacturers and dealers moderated order patterns managing production of current model-year products and pipelines ahead of the retail season and model-year change. However, Mercury continued to gain outboard engine share as Dave discussed earlier and together with the impact of 2023 pricing gains and aggressive cost control measures partially offset the impact of lower sales unfavorable changes in foreign currency exchange rates, the lapping of prior year favorable variances related to timing of capitalized inventory and lower absorption from reduced production.
The engine parts and accessories business continued its steady performance with sales and earnings down modestly from the first quarter of 2023 as anticipated, but sequentially increasing over the prior quarter. Sales in the high margin products business were down very slightly while year over year distribution sales trends continued to improve. Segment operating earnings and margins decreased primarily due to the sales declines which offset the impact of pricing and cost control. Note that our transition into the Brownsburg, Indiana distribution facility is essentially complete, increasing our ability to service our international P&A customers in a more timely fashion. The result in the first quarter was growth in product sales in international regions while sales into U.S. channels were slightly down as dealers remain cautious on their inventory levels which remain normalized during the off season.
Navico Group reported a sales decrease of 24% driven by reduced sales to Marine OEMs as they moderate orders to control the pipeline of their current model-year products partially offset by strong new product momentum and improved RV sales trends. Segment operating earnings decreased from the impact of lower sales and increased discount activity which is only partially offset by lower operating expenses. Finally, our boat business delivered sales and earnings in the quarter consistent with expectations while continuing to ensure healthy pipeline inventory levels as we enter the prime retail selling season. Sales were down 26% versus Q1 2023 due to softer wholesale orders as our channel partners continued to order cautiously ahead of the model-year changeover partially offset by the favorable impact of carryover pricing and share gains.
Our premium brands continued to perform well at both wholesale and retail. Adjusted operating earnings were down primarily due to the lower sales and lower absorption from the reduced production partially offset by focused cost reduction activities. Freedom Boat Club which is included in business acceleration had another solid quarter contributing approximately 9% of the boat segments revenue during the quarter, while seeing very steady membership levels despite the macroeconomic uncertainty. Strong performance across our businesses allowed our first quarter performance to match expectations. Despite our year-to-date internal boat retail being flat to 2023, the continued economic uncertainty is resulting in cautious ordering patterns by our channel partners, making the rate and timing of wholesale acceleration and the balance of peak season wholesale sales between the second and the third quarters more difficult to predict.
Despite the challenging conditions we remain focused on moving forward with our new product plans and growth initiatives and driving resilient EPS and cash flow while continuing to balance production to support retail sales and manage pipelines. As a result, we are not materially changing guidance as we enter the main selling season. Please see the appendix for additional guidance regarding anticipated segment metrics. I will wrap up the financial update by sharing certain updated P&L, cash flow and other capital strategy assumptions for the full year. First, we increase their dividend by 5% in February and now anticipate a full year dividend of a $1.68. Next, FX is trending more negative than our initial expectations given the continued strength of the U.S. dollar and we now anticipate up to a $15 million negative earnings impact due to FX rates.
We hope to offset a portion of this impact with a slightly lower effective tax rate of approximately 22%. Lastly, as we continue to see near-term dislocation in our stock price and our cash generation remain strong, we anticipate spending approximately $250 million on share repurchases throughout the year, up $50 million from our initial estimate. I will now pass the call back over to Dave for concluding remarks.
Dave Foulkes: Thanks Ryan. We launched an extraordinary 25 new products across our businesses and brands during the quarter, representing an important contributor to near term and future growth. And I'd like to highlight just a subset. At the Miami International Boat Show we introduced some exciting additions to the FliteBoard product line. The Flite AIR and Flite AIR PRO are the most attainable models in the brand portfolio. And they're enables to expanding participation to a broader set of consumers allowing significantly more people to enjoy the fliteboarding experience. Mercury expanded its joystick control technology to a broader set of single engine boat applications. Its joystick steering for single engine vessels is compatible with the Mercury Verado family of V8, V10 or V12 outboard engines from 250 to 600 horsepower.
Mercury also launched the fourth and fifth models in the expanding Avatar electric outboard product line. The 75e and 110e are the most powerful models introduced to date. We're also very excited about the many new boat models launched across our boat brand. Including the new award winning Boston Whaler 365 Conquest and Harris 250 Crowne which both debuted at first quarter boat shows and feature Mercury high horsepower outboard engines and advanced Simrad electronics. We are seeing a very positive response to the recently launched Simrad NSX Ultrawide which is the industry's first full functionality, high definition multifunction display and showcases the seamless interface of the latest Simrad Android operating system. In addition we launched the new Lowrance Eagle which is the latest offering in the brand entry level fishfinder chartplotter lineup and features improved clarity and depth performance through high definition sonar.
And finally, we continue to expand our Boateka certified pre-owned boat business with the opening of the newest Tampa location, which is strategically located near Freedom Boat Club's largest corporate territories in Tampa Bay in southwest Florida. Boateka's newest location will serve as a facility to accelerate certified pre-owned sales across the southwest Florida region. Before we conclude I'm thrilled to highlight the exceptional accomplishments of our teams from across the enterprise that were recognized with the record high number of awards in the first quarter. Brunswick was named to Forbes' 2024 America's best large employers list for the sixth consecutive year and also named to Newsweek's list of the most trustworthy companies in America for the second consecutive year.
Brunswick innovation also continues to be recognized including with the consumer electronic show innovation award for the Mercury Avator 20e and 35e electric outboard motors. And we receive many awards for our products innovation, customer service and marketing at early season boat shows including a record 16 total awards at the Miami Boat Show. Thank you again to all our talented Brunswick employees who make this recognition possible. That's the end of our prepared remarks. We'll now open the line for questions.
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