Defining the Industry?

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Executives at Brunswick Corp. yesterday revealed ambitious goals through 2022 during its annual Brunswick Investor Day, held in Miami prior to the Miami boat shows. Five Brunswick executives gave presentations in front of analysts and investors, outlining growth strategies for its four divisions.

The strategies included the launches of 96 new boat models by the first quarter of 2021, 110 new Freedom Boat Club locations, continued growth in its P&A businesses, an acceleration of technology initiatives, and $220 million for mergers and acquisitions.

Brunswick plans to raise annual revenues from last year’s $4.1 billion to between $4.9 billion and $5.2 billion in 2020. Revenue growth will range from 6 to 8 percent, including 1 to 2 percent from mergers and acquisitions, according to the presentation.

The company summed up its strategy in one of its visuals: “It’s not our intention to participate in the marine industry. It’s our intention to define it.”

“Brunswick is a very different company now than it was in 2006,” said Brunswick CEO Dave Foulkes, who led with an overview of recent structural changes and upcoming initiatives.

Foulkes noted that boat sales accounted for 41 percent of total sales, or $2.9 billion, in 2006, while in 2019, they were 32 percent of total sales or $1.3 billion. Engines and OEM parts were $1.4 billion in 2006 (20 percent of total sales) and $1.7 billion in 2019 (41 percent). Aftermarket sales brought in $800 million in 2006 (11 percent) and $1.4 billion in 2019 (34 percent). The company’s earnings were $330 million in 2006 and $610 million in 2019.

Foulkes talked about two new operating divisions within Brunswick, Business Acceleration and Advanced Systems Group, and how the Boat Group now has a new structure. “Our new operating model is designed to enhance commercial focus and develop talent as well as leverage our scale,” he said. “The new operating divisions will help us tighten our focus on key opportunities and develop parallel growth initiatives.”

The Business Acceleration division would be the “home” for emerging and disruptive business models, Foulkes said, and also focusing on service. It would also allow Brunswick to invest in early-stage companies. The Advanced Systems Group will focus on growth for “non-propulsion systems and technologies,” as well work with marine and “cross-vertical applications.” It would also establish Brunswick Centers of Excellence.

Foulkes called 2019 a “pivotal” year for Brunswick. The company reduced salaried staff by 9 percent, expanded its outboard manufacturing capacity, expanded production at Boston Whaler, and doubled the capacity at its boat plant in Portugal with “minimal investment,” according to Foulkes.

Foulkes also outlined growth initiatives, with targets for 2022, including:

  • 45-plus percent market share for its outboards
  • growing its P&A business to $400-plus million in sales, via incremental growth and M&A
  • expand Freedom Boat Club from 210 to 325 locations
  • lead in product innovation through programs like ACES and other technologies
  • lead in digital transformation with 90-plus percent apps in the cloud and also lead in e-commerce and digital marketing
  • create “One Brunswick” through a “fully integrated marine culture and organization”

“The plan would extend our record of annual EPS growth through 2022,” Foulkes said, adding that the target would be $6.25 to $7.25 EPS, compared to 2019’s $4.33 EPS.

The 2022 target includes $200 million for mergers and acquisitions.

Mercury president Chris Drees said Mercury plans to grow sales and earnings from 2019 to 2022, with target revenues of 5 to 7 percent CAGR growth and earnings of 9 to 11 percent.

“We’ll leverage the continuing strong growth trends in high horsepower while investing in our sterndrive portfolio to capture growth in premium and surf-capable segments,” Drees told analysts about its engines division. “We’ll also capitalize on emerging trends in advanced control technologies, connectivity and electrification.”

Drees said Mercury has increased manufacturing capacity by about 50 percent since 2018, with productivity growth up 25 points. Its propeller facility has increased capacity by 60 percent since 2018, with cost dropping by 13 percent.

Mercury forecasts its global shipments of 175 to 300 hp in 2020 to be almost double those of 2018. It will continue to move forward with its ACES (autonomy, connectivity, electrification and shared access) development program.

Drees also said Mercury will grow its P&A business by 4 to 6 percent in sales from 2019 to 2022, and 6 to 8 percent in earnings.

“We’re taking advantage of emerging trends in digital and connected products,” Drees said. “At the same time, we’re increasing vessel content. Mercury P&A dollars per boat have increased at a CAGR of 11 percent since 2017.”

Huw Bower, president of the Boat Group, said his division’s target revenue from 2019 to 2022 will be 5 to 7 percent CAGR, with target earnings of 17 to 21 percent. He said “sustained operational improvements and striking new product” will provide a “focused path” to 10-plus percent operating margins.

The Boat Group will launch 97 new products in 18 months, Bower said, with Sea Ray launching seven new products before the second quarter of 2021, Boston Whaler launching 8 during that time frame, and Lund launching nine new boats.

Bower said Whaler’s first assisted docking system will be available this summer and the first pontoon with digital switching was launched.

Freedom Boat Club’s fleet renewal will mean Brunswick brands will supply more than 1,000 units each year.

Brenna Preisser, head of Business Acceleration, said the company plans to gain the “untapped consumer and market potential” in the domestic market. She estimated that 50 million consumers might be interested in boat club memberships or rentals. She also said that the $20 billion marine services market, which is “highly fragmented,” could be a “new business opportunity” for Brunswick.

“Boat club expansion is a key priority for us,” she said. “We plan to expand our clubs from 210 now to 325 by 2022, with member growth rising from 30,000 to 50,000.” By 2022, the company forecasts sales of $70 million from clubs and synergies.

Brunswick said it plans to continue mergers and acquisitions activity through 2022. “We will have flexibility to engage in more significant M&A activity with attractive returns,” said CFO Bill Metzger.

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