Following last week’s earnings announcement, Brunswick Corp. executives expect 2018 to be “another record-breaking EPS performance.” Chairman Mark Schwabero said that despite tariffs, production shortages in some outboard categories and foreign-currency headwinds, the first half of 2018 was a pivotal six months for Brunswick.
“I truly believe that when people look back at the first half of 2018, they are just going to marvel about what's all been accomplished from a strategic standpoint and a transformation of this company and the long-term benefits it's going to provide to our shareholders,” Schwabero said during a question-and-answer period with analysts. “The first half of 2018 has been a really exciting time, and we fully intend to execute against the actions we've taken in the quarter.”
Schwabero emphasized the company’s “favorable outlook” on the marine business, highlighting the “unprecedented demand” for outboards and the long-term strategy to grow its parts and accessories businesses.
Mercury’s production of 19 new V-6 and V-8 engines began in the second quarter, as expected. Schwabero said the engine manufacturer will reach full run rates in the third quarter. “There is substantial demand for these products that is far exceeding our expectations,” Schwabero said, adding that Brunswick plans “significant production increases” for the second half of the year with recent investments in capacity expansions.
“However, we expect that the demand will outpace production into 2019, and we are aggressively working on plans to further increase capacity,” he said.
Brunswick expects 5 to 6 percent annual growth in its Boat segment, with growth in all categories. “This revised target incorporates our latest outlook on the global retail demand, as well as continued growth in the average selling prices, market share gains, and our pipeline assumptions,” Schwabero said. “We are also anticipating improvement in our operating margins, and the low- to mid-teens earnings growth for the full year.”
Increased average sales prices, market-share gains and favorable changes in product were enhanced by new-product launches through the year, Schwabero said. Average sales prices will continue to increase during the second half of 2018.
Boat exports to Canada and the European Union have been impacted by retaliatory tariffs on U.S.-built boats from those two trading partners, but Brunswick also builds boats in Canada and Europe. Schwabero said the company expects a hit on earnings because of the tariffs, which also include a 25 percent tariff on Mercury outboards imported from China.
“Overall, we anticipate a $10 million to $15 million negative impact on second-half earnings resulting from these tariffs, with the engine tariff accounting for approximately two-thirds of the impact,” Schwabero said.
The company narrowed the range of its full-year expectations of diluted EPS as adjusted to $4.55 to $4.65. “This guidance now incorporates the projected earning benefits from Power Products, as well as the additional interest expense incurred in connection with the financing of this transaction,” Schwabero said. “It also includes the Sea Ray sport boat and cruiser business. The tariffs implemented thus far in 2018 … will affect the 2018 earnings by $0.10 to $0.15.”
Despite the headwinds, Schwabero said he expects “another record-breaking EPS performance” in 2018, adding that Brunswick remains “confident” in the global marine market.