Brunswick Earnings: Soft Retail Environment Pressures Near Term, but Long-Term Opportunities Remain

Narrow-moat Brunswick failed to escape softer retail conditions for boats of late, echoing industrywide sentiment on slower sales conversion and the impact of higher interest rates. As with other manufacturers, not only did this crimp fourth-quarter results, but it resulted in a soft outlook for 2024, hindered primarily by an expected first-quarter reduction of inventory at dealers. In 2024, Brunswick is calling for sales of $6 billion-$6.2 billion and adjusted earnings per share of $7-$8, beneath our $6.6 billion and $9.29 respective projections. These figures imply that the back three quarters of the year will return to a more normal growth trajectory and that excess dealer units will be trimmed easily heading into the peak selling season. We believe this assumption is the biggest risk to shares as consumers continue to wait for lower interest rates to execute a purchase. We plan to lower our $103 fair value estimate by a high-single-digit rate as we adjust our 2024 outlook to reflect current conditions. We still view the shares as attractive for investors with a longer time horizon.