Q1 2021 Brunswick Corp Earnings Call
Good morning and welcome to the Brunswick Corporation. First quarter 2021 earnings conference. Call all participants will be in a listen-only mode until the question-and-answer.
Today's meeting will be recorded if you have any objections. You may disconnect at this time. I would now like to introduce Brent dial, vice president, investor relations office.
Good morning. And thank you for joining us with me on the call this morning or Dave box Brunswick. CEO and Ryan gwillim CFO. Before we begin with our prepared remarks. I'd like to remind everyone that this call. Our comments will include certain, forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations for cocktails on the factors to consider, please refer to our recent SEC filings and today's press release, all of these documents are available on our website at Brunswick, Georgia, during our presentation, we will be referring to certain non-gaap financial information, reconciliations of gaap to non-gaap financial measures are provided in the appendix. To this presentation wage reconciliation sections of the Consolidated financial statements. The company in today's results, I will now turn the call over to Dave.
Thanks, Brian. Good morning. Everyone has had a fantastic start with a very healthy Marine Market. Strong voting participation outstanding operating performance, driving historic Financial results robust. Retail demand for our products continues to drive low field. Imagery levels with increased production across all our facilities, necessary to satisfy orders from our OEM Partners dealer Network. Our teams are performed exceptionally. Well, in the face of supply and transportation headwinds talked to labor conditions and continued impact from the COVID-19 pandemic and we were excited about our ability to further harness, the positive momentum, we've generated to propel our industry leadership.
Paw propulsion business continues to deliver.
Hunting top-line earnings and margin growth performing. The market by leveraging and expanding the strongest product line up in the industry.
Parts and accessories, businesses delivered, strong, top-line growth, and robust operating margins as a result of increased boating participation, which drove strong aftermarket sales to get high demand for a full range OEM systems and services. As boat manufacturers attempt to satisfy retail, demand are both business performed. Well as anticipated in the quarter of reaching double-digit adjusted operating margins for the first time in over twenty years, despite elevated production levels, consistent with our plans for the year the continued surging retail demand is still driving historically, low pipeline inventory levels with 41% fewer votes in dealer inventory, at the end of the first quarter versus the same time last year.
Finally, Freedom, Boat Club inside an extremely busy start of the year, which I will discuss further in a couple of slides. We have exceptional momentum as we enter the prime retail price in most markets. As you can see, from a significant guidance increase, we are confident in our ability to perform for the rest of the year and well beyond.
Before we discuss the results for the quarter, I wanted to share with you some updated insights from twenty-twenty concerning our book buyers and Freedom. Boat Club members will reflect very favorable trade for the future of our business.
We can send you to outperform the industry in attracting new younger and more diverse boxes, positioning as a very strong growth in the years to come.
Last year, Brunswick, average by age was two years younger than the industry average, and reached its lowest level in over a decade. Additionally Brunswick's. First time home buyers average, five years younger than our overall vote, by a demographic, and three years younger than the industry.
Equally encouraging was the fact that the percentage of Brunswick female boat buyers in twenty-twenty while still a minority equal, the highest percentage on record and first-time buyers ended a double lap, right? Which was a notable seven hundred basis points higher than the industry.
Freedom Boat Club, we saw even more promising Trends, the average Freedom member being almost three years younger than our typical bulk-buying customer and female Freedom members making up 35% of Our member base in twenty-twenty and twenty Twenty-One. These Trends are an extremely important validation of our strategy to secure a healthy future for Brunswick, and also played for the entire Marine industry.
I also wanted to briefly update you on some very important Awards and milestones for Brunswick during the first quarter which are important in positioning Brunswick, for investors and employees and hostility to secure top new Talent.
I'm pleased to announce for the second consecutive year. Brunswick has been recognized by Forbes. This one of the best employers for diversity,
Those recognized were chosen based on an independent survey of over fifty thousand employees working for companies employing, at least a thousand people in their operations, diversity and inclusion of cornerstones of our culture and a source of innovation and inspiration for our company.
We also published a 2020 sustainability report at the end of March, which reviewed the exceptional progress. We've achieved against our sustainability goals, including our prioritization, the health and safety of our employees in 2020. We reported the lowest recordable incident rate in company history. In the face of immense challenges, resulting from the COVID-19 Panthers. I also wanted to share with you a snapshot of what the returns in person boat shows. Looks like the Palm Beach International Boat. Show was recently held for the first time since the spring of 2019. This was the first major in person saltwater show of the 2021 season and the outcomes were very positive.
Attendance to spell and I'll Brands outperform. The broader Marine industry over the course of the four-day show Syrian Boston Whaler, more than doubled. The number of votes old school year was his 2019 and revenues more than tripled driven by increased demand for the recently-launched models consumers were also able to see Mercury's. V12, 612 errado in person for the first time with many eager to repower their boats, with this new game-changing engine.
Al know, provide some first quarter highlights on our segments and the overall Marine Market
Propulsion business continues to gain significant retail market share in the outboard engines, especially in higher horsepower categories, what we have focused higher levels of investment in recent years. But three games each horsepower, category over 50 horsepower. In the first quarter with outside gains in notes, and excessive 200 horsepower.
As I mentioned earlier, Mercury launched this new 600-horsepower, V12 engine in February at lake in Florida too much fanfare Partners including Fountain biking and Tiara and our own Boston Whaler and Siri Brands already designed votes with this engine in mind and it's taking orders, many models are already sold out for twenty. Eighth one with twin triple or even plug configurations being very popular with both oems and customers.
You are enhanced OEM relationships along with significant investments. In the technology of also helped fuel. The continued growth in Motors, industry-leading controls rigging and propeller businesses off as microscope continues to accelerate. We regularly review our capacity requirements to ensure, we're able to meet projected demand and fully capitalize on future growth opportunities. In this regard, we anticipate having to pull ahead some additional capacity actions
Business has also experienced significant Top Line and earnings growth in the quarter as aftermarket sales remain elevated, due to strong participation Transit service needs with increased or money orders to keep up with production, resulting from The Accelerated retail demand.
Our dealer Network reported, that service centers are busier than ever with a strong participation transform 20, 20 continuing, it's a 20 21. In addition, favorable weather conditions in many parts of the US are enabling consumers to return to the water early and enforce system and drives the need for aftermarket Service Parts and a healthy distribution network box to get dealers the products. They need on a same-day or next-day basis.
The advanced systems Group, which has a larger component to its business. And also serve some non-marine segments, demonstrated significant growth across all this product categories package, delivered, strong, operating margins that were created to the overall. Segments are both segments had an outstanding quarter with successful execution of its product plan, resulting in strong earnings growth together with double-digit operating margins. Given the continued retail demand, search 95% of our production slots and that sort of the calendar year off with many Waylon Theory and other models not sold out at wholesale, well into 2022.
Pipeline imagery, which Ryan will discuss in more detail, in a few slides remains at historically, low levels, and we continue to hire additional workers at most facilities to ramp up production consistent with our stated plan.
We remain on track with our plans to reopen and staff the Palm Coast facility and expand our operations already know certain Portugal, however, it remains very unlikely. The pipeline could be significantly rebuilt until 2023 at the earliest.
Freedom Boat Club also continues to exceed our expectations that with over 40,000 memberships and 280 locations, which is more than a hundred years. Since we have quad freedom in 2019, Freedom has been expanding both through acquisition and organic growth in 2021. We acquired franchise operation Napleton markets including Chicago and New York, and open up. First location in the UK. As a reminder, having company operated locations, allows us to gain a full economic back to the territories and allows us to increase investment to enable faster growth. In addition company-operated locations, provide, the opportunity to get close to the end boating consumer and allow us to enhance our other offerings including books and our fni businesses.
You will hear more from Brenda about our plans of freedom and other business acceleration initiatives on our upcoming event which I'll discuss at the end of the day's presentation.
The outstanding operational of financial performance. I've been discussing has not been without some external challenges that our businesses continue to manage and mitigate sometimes on a daily basis.
Supply chain seems that particular performed exceptionally, well winter, storms and resulting power outages in the Central and Southern United States affected oil-based product production and Supply, including our third-party producers of President form. While tight semiconductor Supply raw material shortages and transportation disruption and resulting cost increases and you to present challenges to our businesses to varying degrees. However, the global reach of our supply network and our unique scale in the Marine industry together with our purpose for vertical integration have so far enabled us to mitigate these challenges and keep up production plans on track for 2020 West.
I want to thank God supplied teams as well as other third-party supplied partners are continuing to work together to ensure the manufacturing continuity necessary to satisfy our robust market demand off finally, labor conditions remain tight in many locations in which we manufacture product. But our talent acquisition teams have been working hard and successfully to add manufacture all the talents well, teams as we increase production,
Next, I'd like to review the sales performance of our business by region on a constant currency basis.
First quarter sales increased in each region, the international sales of 42% and sales in the US up. 47%,
International growth was very strong across all regions with continued strength in Europe and asia-pacific to contributing to growth in propulsion of being a sales. Canada continued its strength back. Half of 2020 was significant sales growth in all three segments, this table provides more color on the recent performance of the US Marine retail Market wage. Oh both categories reported retail games in the first quarter. Continuing the momentum from twenty-twenty, the main power boats segments were up 34% in the quarter with Brunswick unit. Retail performance ahead of market growth rates, especially in outboard, book categories,
Outboard engine unit registration is up, 21%. In the first quarter with Mercury significantly outperforming the market and taking market share as I discussed earlier.
As we enter the farmers selling season in the u.s. lead generation Finance applications and other leading indicators all remained. Very positive in addition a similar to I'm comments on previous calls at the end of March, I'll percentage of deal of orders received with a customer name. Already attached is approximately three times the percentage from the same time. Last name. All these factors give us high confidence in the continuing strength of the retail Market as we move through 2021.
Call over to Ryan for additional comments and our financial performance.
Thanks Dave and good morning everyone performance in the quarter stands on its own against any corner from the last two decades.
First month was $2.24 each being the highest Mark for any quarter for which we have available records?
Sales in each segment benefited from strong, Global demand for marine products with earnings positively impacted by the increase sales, favorable Factory absorption from increased production and oil changes in foreign currency exchange rates, partially offset by higher variable compensation costs.
Finally, we had in the first quarter as we built inventory ahead of the Prime retail selling season, which is very favorable versus free cash flow. Usages of $100,000 million in the first quarter of 2020 and $159 million in q1 of 2019 Revenue in the propulsion business increased 46%, and each product category experienced strong demand and market share gains.
Call customer channels showed growth in the quarter as boat manufacturers continue to ramp up production and increase capacity. Enabled continued, elevated sales to the independent OEM dealer and international channels
operating margins and all our businesses.
And our parts and accessories.
Adjusted operating margins of 21.3%, with 350 basis points, better than the prior-year quarter with strong sales increases together with favorable, say I'm driving the robust increase in adjusted operating earnings.
Continuing the theme from twenty-twenty this after market driven, annuity based business is benefiting from being augmented by flexible work. Schedules allowing 4 a.m. your time, with the OEM component of the business leveraging investments in technology to take advantage of strong demand from both Builders, as they increase production,
Brand had strong operational performances and contributed to the successful results with lime, and Boston Whaler, leading the gains and premium Brands and Bayliner. Having another strong quarter as opposed to your value brand. Although it's only 1/4 above our stated goal of double-digit margins. This is the third consecutive quarter of margins above 9% and we believe that we continue this trend throughout the year and Beyond
Operating earnings were impacted by the increase sales and the lower retail discount levels versus 20/20 Freedom, Boat Club would stay discussed earlier contributed approximately 2% of the segments revenue, and a margin profile, that continues to be a creative to the segment.
Production continues to produce during the year despite producing approximately midnight in the quarter which is up 16% from the fourth quarter of 2020. We only added a few hundred units to dealer inventories given the continued robust retail Market.
RV Brands. Ended March would just under 19 weeks of both on hand measured on a trailing 12-month basis with units in the field. Lower by 41% versus same time, lapse.
We continue to believe that our current manufacturing footprint will support the production necessary to satisfy the anticipated 20-21 retail demand. But we continue to work with Our Brands to unlock a dish near term capacity through automation, labor and select Capital initiatives. Including the capacity actions announced earlier in the year related to our Palm Coast Reynosa and palm oil facilities which will begin providing benefits by the end of the year as a result of historically low product pipelines. And continued, very strong voting participation, including in many, Northern regions in recent weeks, due to the early spring production levels remain elevated across all our businesses to both satisfied, retail demand and to rebuild product Pipelines.
These factors together with our strong pipeline of new products and outstanding operational performance. Continue to provide enhanced clarity, on our ability to drive growth and upcoming periods resulting in the following guidance for full-year 20-21, we anticipate US Marine industry retail unit demand to grow mid-to-high single-digit percentage versus 2020. Net sales between 5.4 billion and 5.6 billion dollars, adjusted operating margin growth between 130 and 107. Basis points operating expenses as a percent of sales to remain lower than 20/20,
Free cash flow of $425 and adjusted diluted EPS in the range of $7.30 to $7.60.
Also, providing directional guidance regarding the second quarter where we anticipate Revenue, growth of approximately 50% over the second quarter of 2020 with adjusted operating leverage in the low 20s. But as we look to the second half of the Year, despite extremely challenging comparisons to 20/20, we still believe that we will deliver top-line and earnings growth over the second half of last year.
I will conclude with an update on certain items that will impact our cash flow for the remainder of 20 21 usage, for the month, projected increases in accrued expenses and accounts payable are exceeding anticipated increases in accounts. Receivable resulting in a lower working capital build. Throughout the year, we do estimate a working, capital increase of eighty to one hundred million dollars for twenty Twenty-One which together with the higher anticipated, earnings results in a stronger free cash flow projection of $400. Our Capital strategy assumptions. However, have been augmented in places to take advantage of our stronger early your cash position.
We still plan to retire approximately a hundred million dollars of our long-term debt obligations as we paid $9 in the first quarter and sixty million already in April. When we purchased 16 million dollars of shares in the corner and plan to continue our systematic approach throughout the year, we anticipate spending, 250 to 270 million dollars off expenditures in the year to support. And in some cases accelerate growth initiatives throughout our organization, this slightly increased spending will be directed to new product and investments in all of our businesses would cost reduction and automation, projects and select additional capacity initiatives to support demand and future growth primarily in the propulsion business.
We are also raising our dividend for the ninth straight year 233 and 1/2 cents a share or a 24% increase as our strong cash position enables us to raise our wage and earlier in the year than usual, and keep our payout ratio close to our Target. One p to 25% range and continue to provide strong returns to our shareholders.
Finally we've had a busy start to the year with m&a. Activity primarily in expanding Freedom. Boat Club is Dave discussed earlier completed deals today will have an immaterial impact on life results but remain active in several areas including P&A, freedom, and Aces and intend to close additional deal throughout the year.
Well now, turn the call back over today to continue our Outlook comments.
Thanks Ryan. As we discussed on our January call, we felt that was setting up to be an outstanding year for all of our businesses. In the first quarter did not disappoint off the combination of robust consumer demand during the quarter and solid operational execution by our businesses, has a squarely on track to deliver against our operating and strategic name, please.
But some priority for the propulsion segment continues to be satisfying, outboard engine demand from new and existing customers and expanding market share, especially in the dealer off water. We power and international channels. We're continuing to invest heavily in new product, introductions and industry-leading propulsion Solutions, the project will enable tablet line and earnings growth far into the future.
Parts and accessories segment remains focused on optimizing. Its Global operating model to leverage its distribution and position of product strength, in the areas of Advanced Battery Technology, digital systems, and connected products in support of our strategy.
We will continue to focus on m&a activity in this area. As we look for opportunities to further build out our technology and systems portfolio.
Boat excitement will build on its first-quarter successes by continuing to focus on operational. Excellence improving operating margins. Launching new products, executing capacity, expansion plans and refilling pipelines in a very robust retail environment.
Lastly, you remain keenly focused on accelerating, the company's strategy building on our connectivity and shared access initiatives, but also in the areas of autonomy that we recently announced a partnership with Carnegie Robotics and the Marine electrification where we plan a portfolio in your products.
Will also continue to advance. EST is the strategies across the company.
But that's all I'm going to say about our strategy on today's call because will cover this in much more depth on our virtual impact today.
It's been more than a year since we provided you with a comprehensive update on the company's strategy so I welcome you to view Brunswick. Next wave virtual investor event on May 10th.
We have done with possible today, we gathered our Business Leaders to provide you with an update to our 2022 strategy. That was originally presented in February of 2020 in Miami as well as to discuss. So in the longer-term initiatives that will grow and differentiate Brunswick through the next decade. The pre-recorded content will be available. Monday morning, May 10th on Brunswick.
It will be available to view at your leisure all at once or in bite-sized chunks by topic.
Will also hold a Q&A session for investors to ask questions of our management team on Monday. May 17th at noon Central Daylight Time. All of this information will be made available in a press release early next week.
Just a reminder that while will not be providing a full Financial update. During this event, Ryan will be providing an abbreviated update on our 2022. Financial targets wage will include so the details regarding the substantial, increase of our 2022, EPS Target to between $8.25 and $8.75 per share, has announced Thursday.
Finally, I went to once again, also heartfelt, thanks to our Global employee population for all that dedication, effort. And sacrifices during what is still a challenging time for our families and communities off your hard work is enabled us to seamlessly execute. Our strategic plan and significantly, outpaced our initial growth and profit expectations.
Now, open the line for questions.
Thank you, ladies and gentlemen, we will now be having our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may also press star to, if you would like to remove your question from the Q1 moment, please, while we now call for questions wrong.
Our first question comes from James Hardiman with wedbush Securities. Please proceed with your question.
Hey, good morning. So obviously great quarter. I guess my first question is, is how right you talked about production increases here and 21. It seems like most of that physical expansion is slated to happen later in the year. And so if I just look at, you know, fourth-quarter sales, you get about one point 1 billion. You did one point four billion this quarter. So north of 20% higher. How were you able to pull that off? Sort of question number one?
James, it's day for you. Well, I think a number of things really the back end of last year, although we get ramped up significantly, we were still back in Flight with plans to add shifts. Um, plans to advance of the manufacturing initiatives that really begins to come through across all of our businesses in q1. So we were hiring and we're continuing. I think we've now hired a thousand people in q1. So just having those people on board is a obviously, a huge boost is not straightforward to do that in a relatively tight, labor market, but Talent teams of of managed to do it. So, we added those boots, those people throughout all of the businesses am curious ramp up production with additional shifts. Um, she has been able to produce more boats than we originally anticipated, so I think. Yep.
Really what you saw in Q4 was still kind of in-flight situation. That is matured nicely into q1 and we've been able to mitigate through a lot of hard work. Some of the headwinds you've seen experienced across multiple verticals, and supply chain transportation, and other things. So those really had a, a, a, a material effect in terms of production destruction, which probably see were incredibly grateful for
Really helpful and then, um, back in in in last question, the margin expansion has been really encouraging, but I think the million dollar question for 4th so many investors and and I think we we've seen this amongst the a number of companies that are that are doing well right now is, how sustainable is this month? However, you want to take that question. I don't know if you can split it up into bucket between sort of what's unique to the current environment, whether it's promotional benefit, right? It's it's dead at some point. Promotions are going to pick up sort of Leverage benefits and then just sustainable margin Improvement that you've made. How do we think about sort of I just post-pandemic but post, I don't know. Twenty twenty-two uh marching power here. Hey, good morning James, it's Ryan wage.
And you get a little bit more color on 22 on the investor Day that's coming here on the on the 10th of May. But but, you know, we believe that margins are sustainable and growth and sustainable into 22 and Beyond. We we are, you know, increase volume is, is certainly a, a big good guy for us right now. And as, as we continue to grow across our segments, that is helping absorption. And, and some of the other things, within our facilities, you know, keeping fixed costs low throughout the entire footprint. It's something we've been focused on for the last five years and as we're growing here on the top line and and growing earnings, we're not adding a whole lot of fixed costs to the system. And so, I think that'll continue. We also had a mixed benefits that fluctuate from from kind of quarter-to-quarter first, half of the second half and those are always bounced around a little bit, but but we're continuing to see favorable sales, mix dog.
Most of our business units. So you know, there are some some potential headwinds like they've talked about in terms of cost and material inflation and and terrorists continue to be a bit of a bad guy. But, you know, nothing you're seeing from our results, it's really a bespoke or unique factor that is being driven by the, by the pandemic or anything from there. It's, it's really, if you go back to our initial plan that we laid out in February of last year, this is kind of where we thought we'd be. Now, we didn't take a normal trajectory to get there, but I do you ever do kind of in a, in a 3-year plan, but we're, we're pretty confident that margins will continue to, to grow for us. I would add James that every new product that wage. Do you think no matter where it is? Mercury Boat, Group, whatever is being introduced at a higher gross margins. So, all the new products that we've been talking about come in at Highgrove,
and the
We have not backed off at all on the manufacturing efficiency an automation initiatives that that are part of our strategy that are progressively lowering costs every year. So, I know we have some of these short-term headwinds around the elevated pricing for transportation and other things. Those will mitigate all the time. And but what will not mitigate of the month, cost, reductions that we've been putting in place and the increased Automation and other efficiency initiatives that we continue to implement just consistently month after month.
Great color. David Ryan. Thank you.
Thank you. Our next question comes from Red Wightman, with Wolf's research, please proceed with your question. Hey guys, thanks for taking the question. You alluded to continue to reach him a few different times on the call, I think, right? And you mentioned some strong demand out of northern states recently due to weather. But could you just put a finer point on what you're seeing at retail as we move through April and you sneak some of those tougher prior-year comparisons?
Yeah, hi. It's David Brian. Can can add retails? It's just very, very strong and our brands are stronger than retail. Whether you look at boats or jet engines of DNA. So what a creative to to retail performance, which as you know, is up by, you know, protests aside data and other things in the mid thirty percent. I think in the first quarter pack keeps them insight into April. April is very strong. So we are not seeing any any pullback in the tracks that we've continued to see through that the season did start earlier than the last year for a number of reasons. I think, particularly in the northern markets, whether we generally warmer, I was off Northern Lakes in Canada and the Upper Midwest and people would just desperate to get their boats in the water. So the season is really started a lot of
Cases in other markets, four to six weeks earlier than last year. Which means obviously, a lot of tall, poppy in a great great, great for our dealers, but also great for us, I in terms of accelerating up a business and causing people to continue to purchase that record rates on boats and engines, and other things know, but the no. Oh, yeah, no deal. I wants to get caught with Out product right now. So it is driving a tremendous momentum Falls.
And maybe just to ship to the wholesale side, you mentioned that 95% of your capacity is sort of earmarked already for this year. Can you give us a sense for what that looks like wage as we look ahead to 22, just give them the fact that you think, you know, it's going to be a 23 time line until we start to make meaningful progress on the dealer inventory side.
Yeah, well I think we noted that for some of our Brands they're already taking the wholesale slots in 2022 or also sold a significant number of slots in 2022. Uh are already sold particularly for the premium Brands. You know, we are really off premium Brands right now at a very low field, inventory levels significantly below the averages that we've quoted, but it was, you know, interesting. The Palm Beach boat show that happened. The first in-person saltwater boat show in about three weeks ago. But noted that our unit sales were up 100%, which is 2019 that wasn't a showing 4:20 and then our revenues were up 200%, it tripled essentially, more than tripled revenues and Ed
For those people, buying big boats, I think we sold. I remember, you know, 5405 Whalers in that single show. Obviously, people of Iraq had to wait for delivery on those products until well into twenty twenty-two. Now, and I'll just reiterate the wholesale production plan. That we laid out on January, call are very much. We are, we are executing to those plans and if not, and, and that's with a lot of great effort by are both businesses in light of some of the supply headwinds. So, if you think about it, again, this year, we believe we can wholesale and produce 38000 plus units with additional units next year and in 2023 to get you into the low 40s, which will definitely We Believe, hopefully, close the gap on some of the inventory that we need to fill.
Perfect. Thanks guys.
Thank you. Our next question comes from Scott. Stember with cl King and Associates. Please proceed with your question. My guys.
Morning. Good morning.
My questions are really surrounding Freedom Boat Club at some big news this quarter with some of the purchases of in some of the bigger markets. Just could you spell wage war strategy? Would you rather own all of these locations throughout the country? Just for the reasons that you outlined in your prepared remarks number one, number two, you talked about some of the month, low-hanging fruit with regards to upfitting, these newer models and The Fleets with your with your engines and and all the other stuff off. And just and also, have you seen any early signs that you've owned them?
Of, you know, folks, trying and then decided to go and buy, let's say a Brunswick brand just because they decided that they loved the Boating lifestyle. After the, they rented a book. Thank you. Okay. Well, thank you very much for the question yet. So the answer is, we are electing to repurchase palm trees where we think that the potential of the territory is significantly greater than the current the current number of club members. So the answer is we don't know, want to repurchase every region a lot of franchisees you know doing a great job, maxing out the palm of the territories. But the if you looked at Chicago Market potential and New York Long Island and Manhattan Market potential versus dead.
An existing number of numbers, and I'm both.
We believe that the, you know, order of magnitude higher and it's very difficult for our franchisees to be able to accelerate growth, you know, quite a capital to be home as fast as we would like to do that. So you'll see us doing this more selectively than than universally in terms of the penetration of the freedom Fleet with friends with boats and Mercury Engines. It's going extremely well, I believe that we are now at either be delivered or ordered 1500, ish Brunswick, boats has replied or being quiet by freedom and you remember it was almost nothing in the middle of 2019. When we started that saw it is a huge kind of Leap Forward. If you like the other thing to think about here is dead.
Majin accretion for us and we'll talk about this bit more invested day but every vote will be put into Freedom can service 10 to 12 members month, to pay the monthly membership to send the boats in the fleet for two or three years. We are now the mechanism vehicle to resell that Bowdoin capture margin on the month sale. So as we build out Freedom, particularly the Company locations, and as we build out the back, end ability to resell and capture margin on the resale. The the margin stacks for Freedom becomes extremely attractive to us and I was just the only thing I would add, you know, similar to the business office. This is a business that has recurring annuity type earnings and revenue regardless of whether we own or whether we are going to the franchise model. Yep.
People are staying in the staying in the club. They are generating P&A and boat and engine sales. So you know, we are as Dave said, a big agnostic on this overall wage because the flywheel if you would be the annuity base Freedom earnings just continue to grow at an accretive margin rates of the company. As a whole on the left side of your question about people buying phones of friends, we are seeing that I don't have a specific date so I can tell you, I saw a I think was an email recently from somebody who had joined Freedom. Like the theory that they were using in Freedom song, they bought a c, right? So I can only give you anecdotes right now but we'll try and build out that information for you. That was very helpful. Thank you so much.
Thank you.
My next question comes from and raised with keybanc capital, please proceed with your question.
Hey, good morning guys. So a question on the Marine Market Outlook of mid-to-high, singles, I don't think the industry has really ever entered a selling season with inventory. With this low in retail is obviously a very seasonal business. So I guess embedded in that Market Outlook, do you have any assumptions around being able to the industry, be able to pass by that demand? Or are you assuming some kind of Headway in front low low inventories?
I think we we believe that the unconstrained retail Market is is double digits, but we believe so I believe yes that there will be some, uh, it had went from supplies and that at the end of this year, our pipelines will be lower. So yes, we are. Assuming in that mid mid to high that they do some Supply constraint built into that we don't exactly have cuz we're, you know, we're we're not the whole Market. But but yes and we think the youngest remarketing got it. Okay. No, that's it's very helpful and then a question on Capital deployment. So free cash, flow guy up, you know, debt repayment BuyBacks kept unchanged interpret that as is may be placing a higher emphasis on larger m&a in the near-term. And then separately the extent that you want to share have you made any changes to the m&a contribution? Yep.
Options in that twenty-two. Target you gave us today.
Hey, good morning. Brad. I'd, I figured we'd get that question. So I won't make you wait until the ten. You know, I'll take them in reverse order. There is no change in the Assumption to get to the page eight and a quarter to eight. Seventy-five that anticipates us spending, you know, around a hundred million this year. And next on on m&a and the contribution into that back to that EPS next year's relatively minor, a few pennies so that that is that's how the model shakes out. And then you know in terms of capital deployment I I don't think it wrong changes, what we're looking at for the year, you know you saw that we did take capex up a little bit, which I think is really important. There is some programs that we're able to accelerate and and bring forth and into the year to support our growth. I think that's important. You know, share repurchases. And and uh you know, debt repayment. I think we'll be right on as we as we planned, obviously, chef.
Purchases fluctuate a little bit dependent on, not only our price, but the overall Market valuation. But we do believe that being in the Market at all time for share repurchases is prudent. Choice will continue to do that. Do you solve a dividend increase? I think that's really important. That is, that's a pretty big jump that we decided to make earlier. In the year, we generally raise dividends in October, but given the, the strong cash flow thought that that was a, a, a good thing to do earlier in the year. And, and so, we were able to flex the balance sheet very quickly. If, if a large deal, would would be something we're looking at? I know there's zero problem of us getting funding. I mean, our our growth Leverage is kind of at one time with net below them at the at the seven, you know, considerably lower, so no, no problem flexing, the balance sheet to, to do a larger transaction.
Got it.
Thanks guys.
Thank you.
Our next question comes from Mike Schwartz with truest please proceed with your question.
Hey guys. Good morning. Just wanted to touch on guidance and and specifically the the segment guidance that you provided and updated this morning, you're you're holding your boat Revenue guidance, steady versus prior, but your propulsion parts and accessories are up materially. So maybe help us understand what what's may be holding back the boat side of it or conversely, you know why? Maybe you were a bit cautious on that to begin the year?
Hey, good morning, Michael here. It's actually pretty straightforward and both the guidance assumed that we'd be producing full out against our production plan and that just doesn't change. So we we set out the year kind of at that 38,000 boat wholesale number and and we're continuing on that on that trajectory. So really don't think that the name that it's actually a big positive that bodes. We still believe can can maximize its production and generate the revenue that we anticipated in in light of some of the headwinds that you've heard both from us and end of the month. Free, so moving to propulsion and P&A. You know, for Paul should have really benefited from from market share gains and they just said they've said been able to ramp up production, probably a little bit crazy, we anticipated and and mix has been strong as well. So we're not only selling to, you know, to customers overseas and and other places where it's a positive mix dead.
Volume is is is up there as well. And then for the parts accessories business, it's simply more more boat usage at the end of last year, really kept and and kept going into this year's. And it has as boat usage. Continues to be strong and people get out of the water earlier season here in some of the northern climates that really moved the needle on on that aftermarket business. So I'm mostly the trends that we're seeing in the start of the year and you, you know, you can kind of flowed through the what we believe the rest of the year is going to look like. And what, not just that in propulsion that follow. Obviously, we announced the number of new customers all customers, where we increase, share that, that trend is continuing through the first quarter, think we have a choice either, 6 or so. And then even though we talked a lot about the V12, it's only just entering production and that is a obviously a high-margin product for us off.
Links between new customers, the turn of the model year that allows us to increase. Share the shipment kind of share of transom and introduce more propulsion products. Also the V12 coming on board in the back, half of the year. There's a lot going on propulsion.
Okay.
Maybe just don't on on the capex commentary as well as it looks like you're taking up your capex guidance by about fifty million this year and it sounds like you're accelerating some of the the investment with the additions, particularly in in, in the engine business. But I guess the question being is, when will the capacity investments in engine actually start to translate to English, you know, higher higher, production volumes and getting more product out into the market?
They have already obviously I think we're in a great position. We I think we noted earlier that even in the elevated Market we're gaining market share across all channels you know regions. And we wouldn't have been able to do that without the capacity that we already put in place. These conquests customers are being served out of that capacity if you like we noted earlier that mercury us. Share is now trailing twelve and excessive 45% and do I look at trailing 3 and trailing 6, that's heading north. So it's heading no faster than we anticipated. And obviously, we want to fully capitalize on about all the opportunities that are coming off of exciting new products. Like, the V12, which is just bringing in honestly a lot more interest and potential business than than we'd originally anticipated.
That's it for me. Thank you.
Thank you.
Our next question comes from Joe. Altobello with Raymond James, please proceed with your question. Hey guys. Good morning. Just sitting on on the agent side for a second you guys have been very explicit about the pipeline refill opportunity and votes, but I think less so on the engine side are, are there any way you can contextualize for us? What, that opportunity is at least compared to what it is on the boat side? For example,
Joe. Sorry we're having a little bit trouble hearing you, I believe it was, was this pipeline. Phil. I mean an engine exactly how it compares to the both side. Yeah, it's a little different, you know, it's um, I will tell you that, that engines, that are sitting at our OEM partners and at our dealers are extremely low. Just, as you would expect given given the strong demand, but we don't think of it as weeks on hand, like you do for for both just because of the fungible nature of of where they are and how they're sold. But we can tell you that, you know, are the capacity that we put in back in nineteen and twenty is really helping us ensure that we are maximizing the retail pull through, and, and trying to get as many engines as he can into into our partners hands. But it's not, you know, I would say it's probably not as dire because we can, you can manufacture engines a little bit quicker than you can pick up inventory in in the boat. Yep.
And there's no model years for instance, another and other things. But still the
Inventory in the field for engine Still Remains relatively thin.
Understood and just maybe a second follow up in terms of in terms of pricing. How are you guys thinking about pricing for model year 22? It doesn't seem like there's much pushback from either dealers or or a customer from a pricing standpoint. So could we see a higher than typical bump in to offset some of the cost pressures? You guys are saying
We believe that in all of us and says we have the ability to price at least two inflation. And obviously we've you know, we we're seeing some short-term goal Precious on on Commodities and transportation and other things I think in our engine business, you know, we already price the premium to our competition long as we think about pricing that we we will continuing to accelerate market. Share and a point of market share is very valuable to us, not just as we noted because of the check engine sales but because of the 25-year BNA annuity, so I think that we will continue to use pricing is 11 to cover inflation. And I think a market is just fine with that but that's our objective at the moment. Okay, great, thank you.
Thank you. Our next question comes from Anna, glass in with Jeffrey's, please proceed with your question.
Hi, good morning. Just one question for me. Thanks for providing some color. On the demographic, profile tires and twenty20. As we think about laughing a surgeon, younger buyers, could you provide some perspective on how you see the average age shaking out in 2021 and Beyond and it's totally our dealers continuing, to report younger buyers, coming to the market or do you expect from whatever reversion to Prior levels off?
Yeah, I think thank you for the question. Obviously, we're very excited about that changing, the demographic profile. It's very exciting for us for the industry. Overall, I would tell you that there are some things that we know from our surveys in the fact that we formed online communities and we'll talk about this a lot more actually on investor day. So if you log in, you'll get more about this, some things we do know, we do know that people who have bought both last year who knew both buyers, really, really enjoyed that first season on the water. We should avoid them. And I think ninety percent rated their season as a, more than 90% rate of the season is 4 plus stars out of five. So, we know that those people entering, I having a really good time and we know that the network effect, I think we also know that some of the kind of COVID-19 related Trends, including flexible working are going to birth
positively affect demographics obviously people
Who are involved Prime kind of working age. Now, generally have more flexibility in their ability to, you know, to to bolt and do other activities during the week. And we've even seen people working from their birth, which is, you know, interesting because of the additional flexibility. So I we will continue to Monitor and an update. You on the demographic Trends but everything was seeing so far continues to be favorable towards encouraging that Trend and probably one other thought and and kudos to our it and our digital marketing teams. You know, we are we are investing in areas that enable us to reach a younger consumer and frankly enable them to want to buy our products. You can look online through our website for Whaler for Lund and it's just it's just easier, you can design your product and, you know, I think investing there and and finding a way to ensure that the yep
Consumer doesn't just have to go to a dealership and start the process there but can start their process in their living room and finish it at the dealer. I think that's really important to continuing to, to get the younger voters in a, that's a good point. One of the other things and advertising for the May 10th of last eight year is you will see some more there about new bolts and new boat Brands Thursday, we are bringing to Market specifically to address that young goodbye
Great, thanks.
Thank you. Our next question comes from Eric, Wold would be Riley, please proceed with your question.
Thank you guys. Good morning. Just a couple of questions, I guess. One on, going back to Freedom Boat Club last on, on the acquisition of existing franchisees or Thursday areas. What's the biggest hurdle beginning new location Tu opening? Are you seeing you know pressure on finding you know space and marinas and spots or set up shop with the going to be increasing in, boating dispatch. And how does the lack of of inventory and kind of demand? Overhang play into that as well for for for Bode availability.
Yeah, good question. So no, we continue to believe that we have, there are multiple multiples of existing slips if you like available into which we can expect with with Freedom Boat Club locations. So we we are not seeing anything that amounts to a kind of macro-level constraint on stuff availability right. Now, certainly a boat availability. Obviously, we have our own brands that we're selling into freedom and this continues to be somewhat tight situation. Put one that we can one that we can manage. I think so. Yeah. No, no. We can, we expect to continue to grow freedom, very quickly. And we also, I think you may have seen that, that we have we've established a team in Europe now, which will begin to fill it out. Freedom, more aggressively in that market.
Two. So we have no.
Immediate constraints, a lot of intent to continue to build out that business model very quickly.
Thank you. Then last question on how much of a growth of that is going to come from the the both coming off line from Freedom Boat Club vs. I guess traditional used boats from kind of you know regular voters out there non-returnable club and then that that a business that you could you could proceed growing inorganically as well to move Nationwide or is that going to be purely org?
BowTech is really kind of car business model. If you like is is taking boats out of, not just freedom, but also bolts that we took the shared access Partners, we do sell boats into other kind of shared access operations, like rentals that we can have returned and resell through the vortec. Assist certainly, as Freedom expands books will need more locations, but we're not currently planning m&a. Around the around. Portico will continue to build it out organically as we continue to, you know, find out more ourselves about the nuances of the of the pre-owned boat Market.
I think it.
Thank you.
Is there no further questions at this time? I would like to turn the call back to date for some concluding remarks.
Okay, thank you. Well, first of all, thank you very much for joining us. We are very, very excited about the strength of the market, but even more excited about our new products, our market share increases, our operating performance, all of those, secular trends that are very, very favorable for our business and allow us to plan and build into the future. It is wonderful to see the new demographic entering boating and to see us over indexing on that new demographic. That says we have the right strategy in place and you'll continue to see more about that were both sides about. The May 10th invested a lot of preparation gone into that and we will really be pulling back the curtain on some initiatives that you haven't necessarily seen before. And expecting on something you might be aware of including a lot more detail on our, uh, AC strategy, our plan portfolio of electric um, products and other parts of a table.
Including the building out of freedom and other shared access model. So please join us for. That'll be a very exciting event and give you a much better picture of what life had in the coming years of Brunswick. Thank you for joining
Ladies and gentlemen, this concludes today's Web Conference, you may now disconnect your lines at this time. Thank you for your participation and have a great day.