‘We’re a 15’

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In a call with financial analysts yesterday following the release of Brunswick Corp.’s third-quarter earnings, CEO David Foulkes was asked to rank the company’s guidance for 2020, giving a number between 1 and 10.

“I would say that I'm very excited about the progress that we have made setting out for 2020, both on the inventory side, on some tailwinds on retail,” Foulkes said. “So I’m very, very confident— let's say 15 this time.”

Despite lower third-quarter sales in both its Boat Group and Marine Engine divisions, Foulkes said Brunswick has poised itself for growth next year, even if the marine market is flat or slightly down compared to 2019.

On the call, Brunswick executives said the growth will come through the expansion of 150-plus-hp Mercury outboards, a streamlining and consolidation of Boat Group operations that could yield double-digit profit margins as high as 20 percent, and the recent reducing of new-boat and sub-150-hp outboard inventories to dealers.

Foulkes told the analysts that he expects the growth to come without changes to its plans for expanding capacity at Mercury and Sea Ray. “And we have not adjusted any of our product development plans,” he said.

Brunswick CFO William Metzger said he expects to see “organic growth opportunities without any help from the market” next year in three areas. “It's growth in outboards as we bring new capacity online for the 175- to 300-hp engine family,” said Metzger. “We would expect to see more normal growth in the P&A business as weather normalizes next year. And we would expect to see a pop in wholesale.

“Remember, we have seen growth in boats,” he added. “We've been producing and wholesaling well below retail this year. In a stable retail environment, we will naturally see a rebound in wholesale demand to match what's going on at retail.”

The executives said Mercury has not lost market share in the sub-150-hp outboard segment, despite slowing down shipments in the third quarter. “Our share continues to be very strong,” Foulkes said. “It really is related to the softness that we experienced in pontoon and aluminum fishing boat sales in the first half of the year. As we free up constraint with the new outboard family, which was 175 to 300, but now includes the 450, and begin to use that to gain further market share, we will pull along the rest of the product portfolio with us.”

Foulkes added that most of its OEM clients for Mercury “want a full portfolio, not just the new engines.”

Production capacity will increase by 20 percent for the larger Mercury outboards. “The ramp-up in unit daily volume has been ongoing and continues into Q4 as additional capacity comes online,” Foulkes said. “So we’re already going to start getting additional benefit in Q4, but the majority of it will come as we enter 2020.”

The Brunswick executives are expecting a “flat unit, flat dollar” scenario for new-boat sales in 2020. They noted, however, that recent East Coast boat shows have been strong, particularly for its Sea Ray and Boston Whaler models.

“I would say [sales growth] is trending toward the more premium brands,” Foulkes said, adding that, despite the lowering of inventory levels this quarter, he has not seen any decline in interest from dealers. “I would say inventory levels are about 30 weeks right now. All of the segments are coming down in line with our expectations. There isn’t an anomaly somewhere.”

The company has cut back production on older Boston Whaler models, Foulkes said, because of new-product launches that will happen during the next 12 months.

“We have not talked that much about new-product launches, but I can tell you that 2020 is going to be one of the most exciting product years that we have ever had,” Foulkes said. “And the launches that you see at Fort Lauderdale are just the start of what you will see. So the initial response even to some of the products that we've teased already has been spectacular.”

The executives said sales from the Power Products and Freedom Boat Club acquisitions will continue to add revenues next year.

Foulkes said the current market for new-boat sales “feels pretty good.”

“We've seen significant improvements in retail activity over last year,” he said. “So retail on the ground seems good. The momentum that we had in September seems to be continuing. I get a good sense of dealer sentiment picking up as well.”,

At FLIBS next week, the Sea Ray brand will introduce a Sundancer 320, and Boston Whaler will launch 325 and 405 Conquest models. “This is only the beginning of a string of new-product introductions across our premium brands over the next three to six months,” Foulkes said.

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