Company Reports

Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine. We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset, which underpins our narrow moat rating. Bolstering its market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access, or ACES, strategies, which strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club.

Narrow-moat Brunswick continues to face the same headwinds as the rest of its peer set: a fully inventoried dealer network (limits upside from restocking), higher borrowing costs, (hinders floorplan affordability for dealers and financing for consumers), and the conclusion of the model year (creates caution around unit orders). These issues resulted in first-quarter sales that fell 22% to $1.37 billion with pressure across all segments, most significantly in boats (down 26%) and propulsion (down 23%), which combine for 70% of annual sales. Such robust top-line declines invariably led to expense deleverage, resulting in an adjusted operating margin decline of 460 basis points to 10.4%; however, this was still better than the 9.1% we had forecast.

Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine. We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset, which underpins our narrow moat rating. Bolstering its market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access, or ACES, strategies, which strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club.

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.

Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine. We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset, which underpins our narrow moat rating. Bolstering its market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access, or ACES, strategies, which strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club.

At its September investor day, narrow-moat Brunswick said that third-quarter earnings would probably land at the low end of its previous guidance range (sales slightly down, EPS of $2.35), and reported results strayed only modestly, with sales down 6% to $1.6 billion and adjusted EPS of $2.42. Like other manufacturers, Brunswick is facing slowing demand for high-ticket items, with boat sales down 16% in the period, in line with our previous estimate of a 15% decline. Additionally, 1% sales growth in propulsion fell shy of our expectation of a 6% increase, but it still posted 90 basis points of market share improvement, according to the firm. Not surprisingly, weak sales led to profit compression, with Brunswick’s operating margin contracting 200 basis points to 14.4%, dragged down by slower boat production and higher promotions.

Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine. We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset, which underpins our narrow moat rating. Bolstering its market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access, or ACES, strategies, which strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club.

We don’t plan to alter our $118 fair value estimate for narrow-moat Brunswick after considering the 2027 outlook offered at its Sept. 18 investor event and view shares as attractive. Brunswick launched inaugural 2027 goals that include $8.7 billion in sales, a 16% operating margin, and $15 in EPS. Although all three of these metrics trail its prior 2025 goals—that included $10 billion in sales, a 17% operating margin, and $16-$17.50 in EPS—they are ahead of our 2027 forecast for $7.8 billion in sales, a 15% operating margin, and $13.79 in EPS. We plan to bump our 2027 estimates for sales and EPS to $8 billion and $14.60, respectively, while maintaining our 15% operating margin expectation. With fiscal 2023 sales now set to arrive near the low end of prior guidance of $6.7 billion and wholesale softness that could persist longer than anticipated, we have modestly lowered our outlook for the next 18 months to account for a slower improvement in category spending.

Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine. We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset, which underpins our narrow moat rating. Bolstering its market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access, or ACES, strategies, which strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club.

We are initiating coverage of Brunswick with a $118 fair value estimate and view shares as attractive. While share have risen 18% year to date through Aug. 9, they have largely traded sideways over the last six months, which we believe is a result of investor concern around consumer health. Our valuation considers both Brunswick's financial projections and our internal outlook for recreational products. Brunswick has fiscal 2025 goals of $10 billion in sales, a 17% operating margin, and $16.00-$17.50 in EPS. We forecast sales of $7.3 billion, a 14% operating margin, and EPS of $11.08 in fiscal 2025 given our more tepid industry growth prognosis. While demand for outdoor recreational products rose significantly due to social distancing measures during the pandemic, we expect category retail sales to moderate over the next few years (to 2%) as consumers reallocate spending to other categories. Still, we think Brunswick should take share, with firmwide sales set to grow 3% on average over the next decade, including acquisitions.

We are dropping coverage of Brunswick BC. We provide broad coverage of more than 1,700 companies across a wide variety of sectors and industries, and adjust our coverage as necessary based on client demand and investor interest.

Brunswick's BC first quarter was hampered by weak demand in all of its segments abroad. The company was still able to churn out greater profitability, although much of the difference was from below-the-line items. Our fair value estimate remains unchanged.

Brunswick's BC fourth-quarter results continue to shed light on the firm's return from the depths of the recession. While the company still posted a fourth-quarter loss, it is becoming clearer that the firm is on the right path to rectifying a business that is highly dependent on the sluggish marine industry. At this time, we are maintaining our fair value estimate.

Brunswick BC reported mixed third-quarter results, but we are encouraged as the firm continues to climb out of the recessionary lows that the marine industry endured over the past few years. After evaluating the quarterly results and our longer-term operating assumptions, we have decided to raise our fair value estimate for Brunswick to $16 per share from $14.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon. With that said, Brunswick has restructured its business and lowered its cost structure to accommodate the sharp decline in the boating industry. As a result, even with lower production, the firm should be able to return to profitability.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon. With that said, Brunswick has restructured its business and lowered its cost structure to accommodate the sharp decline in the boating industry. As a result, even with lower production, the firm should be able to return to profitability.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession has annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession has annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession has annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon.

We believe the scale of Brunswick's operations, its dominant market share, and the strength of its brands all contribute to the company's narrow moat. However, the recession has annihilated consumer spending on high-ticket discretionary items, and we do not expect demand in the boating industry to approach its peak levels experienced between 2005 and 2007 anytime soon.