Q4 2024 Brunswick Corp Earnings Call
Speaker Change: During our presentation, we will be referring to certain non-GAAP financial information.
Speaker Change: Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results.
Dave: I will now turn the call over to Dave.
Dave: Thanks, Nate and good morning, everyone.
Dave: Okay.
Dave: We had a very solid finish to 2024 characterized by significant cash generation in the fourth quarter.
Dave: But the outboard engine market share gains successful new product launches and optimal operating performance in the circumstances.
Dave: All of which enabled us to conclude full year 2024 slightly ahead of our recent expectations.
Dave: Our ongoing diligent management of the boats field inventory and production.
Dave: Good and well balanced levels exiting the year with $36 eight weeks on hand in the U S dealer pipeline.
Dave: In line with prior expectations U S. New boat retail sales ended 2024 down high single digit percent versus 2023.
Dave: With Brunswick, performing slightly better than the industry and important premium segments.
Dave: With dealer and retail inventory is well positioned our channel partners have shifted their focus towards early season boat shows which have been fairly encouraging to date.
Dave: Our continued focus on cost containment robust capital strategy execution and successful efforts to manage working capital resulted in full year free cash flow conversion of 92%.
Dave: Even as we continue to invest in new products and technologies to support strategic growth initiatives.
Dave: In addition, we completed a total of $200 million of share repurchases in 2024.
Dave: Turning to some highlights from our segments in the quarter.
Dave: As anticipated reduced reduction in our propulsion business resulted in lower net sales and operating earnings in the fourth quarter versus 23.
Dave: However, we continue to outperform the market and gained 110 basis points of U S. Retail outboard engine shed during the year. In addition to achieving significant share increases of 2025 early season boat shows.
Dave: Engine parts and accessories businesses delivered slightly lower net sales and earnings in the fourth quarter versus prior year.
Dave: Ah grew earnings and operating margins for the full year led.
Dave: Led by the products portion of the business and the operational efficiencies, resulting from the completed transition to the Brownsberg, Indiana distribution Center.
Dave: Medical group sales were essentially flat versus fourth quarter, 2023, with well receive them position new products supporting higher net sales in the aftermarket business versus prior year.
Dave: And a solid holiday season performance, which together with continued cost control and complexity reduction resulted in sequentially higher sales and adjusted earnings with the third quarter.
Dave: Our boat business delivered sales and earnings in the quarter consistent with expectations, while continuing to ensure healthy pipeline inventory levels as we enter 2025.
Dave: Strong demand for premium products together with market share gains in several categories helped provide a stable baseline for 2025.
Dave: Finally freedom boat club had another strong quarter.
Dave: Can you wait to integrate recent acquisitions and achieving over 600000 and Youll remember trips for the second consecutive year.
Dave: Over the past 12 months freedom added many new locations in the U S Europe, Australia, and New Zealand.
Dave: And continues on a path to add more regions enabled by its convenient synergistic cycle resistant business model.
Dave: Turning to the external environment, we've obviously seen some welcome interest rate released in September which was too late to affect the 'twenty 'twenty four season, which should be a tailwind for the 2025 season.
Dave: The uncertain tariff environment has of course become an elevated consideration.
Dave: We have the benefit of reducing the large majority of our products in the U S and for the U S market.
Dave: And we have significantly reduced our exposure to China over the past few years. However at current tariff rates, we anticipate the annualized impact of approximately $35 million in 2025.
Dave: We are preparing for a range of scenarios and have many short and long term mitigating actions already underway.
Dave: Including continued migration of our supply base inventory staging and optimization of our facilities.
Dave: Dealer sentiment is fairly solid with focus shifted towards early season boat shows we were pleased to see U S. Small business confidence is improving in the most recent surveys.
Dave: As we enter 2025 discounting and promotional levels remained elevated particularly on prior model year products and as anticipated Oems and channel partners are continuing to be cautious in their production and ordering patterns.
Dave: However, we continue to see strong boating participation supporting a resilient recurring revenue businesses.
Dave: There is high interest in good acceptance of our many fresh innovative new products.
Dave: Finally, the previously proposed North Atlantic right whale vessel speed restriction rule was recently withdrawn from the regulatory agenda.
Dave: Moving now to U S industry retail performance.
Dave: U S outboard engine industry retail units declined 8% on a full year basis versus prior year with.
Dave: With Mercury Marine outperforming the industry.
Dave: As mentioned Mercury Marine continues to gain share the living delivering 110 basis points of U S. Outboard engine market share increase for the full year.
Dave: We have diligently manage quote pipeline levels and for the full year wholesale shipments were down 24%.
Dave: In a retail environment that was down high single digits, leading to healthy U S year end inventory of $36 eight weeks on hand.
Dave: Premium fiberglass pipe lines finished well below historical levels.
Dave: Yeah.
Dave: Before I turn it over to Ryan I wanted to walk through the components of our full year 2025, adjusted EPS guidance.
Dave: I mean $3 $55 per share.
Dave: As many of you are aware there are several unique factors that will influence this years earnings profile with some outside our direct control.
Dave: This bridge illustrates our current view of the moving pieces.
Dave: In the areas over which we have more control.
Dave: We believe that will grow earnings result, as a result of additional volume primarily in the back half of the year.
Dave: In addition, we have significant cost reduction efforts underway with an anticipated benefit of approximately <unk> 25 per share.
Dave: Which lead partly offset by the variable compensation, we set of a dollar per share.
Dave: The combination of tariffs and the impact of foreign exchange rates creates a headwind of just under 80 cents per share split roughly evenly.
Dave: The tariff estimate reflects a base impact predicated on current rules and rates, which Ryan will speak more about in a moment.
Dave: The further strengthening of the U S dollar versus several currencies, including the euro peso real and others, resulting primarily transaction losses as our non U S businesses puts us product from our U S operations.
Dave: We believe we can partially offset this impact through pricing for certain markets and product lines, but will not be able to offset the full impact.
Dave: I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.
Ryan: Thanks, Dave and good morning, everyone.
Ryan: Fourth quarter results were slightly ahead of expectations, but remained below prior year due to the continued challenging U S retail marine market.
Ryan: Versus the fourth quarter of 2023 net sales in the quarter were down 15% with adjusted operating margins of 4%, resulting in an adjusted EPS of 24 cents.
Ryan: Fourth quarter sales were below prior year as the impact of continued lower production and wholesale ordering by dealers Oems and retailers, coupled with higher discounts in select segments and unfavorable changes in foreign currency exchange rates were only partially offset by annual price increases and why.
Ryan: We received new products.
Ryan: Adjusted operating earnings and margins declined versus the fourth quarter of 2023, resulting from the impact of lower net sales and lower absorption from decreased production levels, partially offset by ongoing cost control efforts.
Ryan: Lastly, we generated $278 million of free cash flow in the fourth quarter of <unk>.
Ryan: Record for any fourth quarter in <unk> history.
Ryan: On a full year basis sales were down 18% with adjusted operating margins of nine 5%, resulting in adjusted diluted EPS of $4.57 down 48%.
Ryan: Gross margin performance remained steady despite the topline softness while operating expenses were down more than 7% versus 2023 levels, even after absorbing the impact of acquisitions as the entire enterprise remains focused on reducing controllable costs.
Ryan: Our strong Q4 free cash flow resulted in a full year free cash flow conversion of 92%, which is above our annual target of 80%.
Ryan: Now, we'll look at each reporting segment, starting with our propulsion business, which saw a 24% decrease in sales, resulting from continued efforts to moderate field inventory.
Ryan: Firstly offset by continued market share gains in outboard engines.
Ryan: Mercury lowered its U S engine pipeline by over 25000 units in 2024.
Ryan: With production rates in the U S down 65% in the second half of the year, which together should allow for wholesale improvement in 2025.
Ryan: Segment operating earnings were below prior year due to the impact of sales decline lower absorption and higher labor and material inflation, partially offset by cost control measures.
Ryan: Our aftermarket lead engine parts and accessories business had another solid quarter.
Ryan: Segment sales were slightly down as the impact from slightly lower domestic sales were only partially offset by higher sales in certain international markets.
Ryan: While segment adjusted operating earnings were impacted by the sales declines and higher material inflation, which more than offset the impact of pricing and lower operating expenses.
Ryan: For the full year aided by the efficiencies generated by the completed transition to our new state of the art facility in Brownsberg, Indiana.
Ryan: Our engine P&A segment grew adjusted operating earnings despite the slower retail conditions.
Ryan: Another reminder of the importance of this recurring annuity based high profit business.
Ryan: The ethical group had essentially flat sales versus same period in 2023 has the business experienced softer marine OEM orders and the continued weak RV manufacturing environment in the quarter, which were mostly offset by the higher net sales and the resilient aftermarket business.
Ryan: <unk>.
Ryan: Operating earnings decreased in the quarter, primarily as a result of the slight net sales declines.
Ryan: And intangible asset impairment charges, which more than offset the benefit of cost control measures.
Ryan: Note that as expected Navajo improved sales and adjusted earnings sequentially versus the third quarter as a result of the strong performance in the aftermarket business and ongoing cost control measures.
Ryan: Finally, our boat business had sales and operating earnings below the fourth quarter of 2023, consistent with lower planned production levels across many of our brands.
Ryan: Similar to my comments on Mercury Our boat group also did an excellent job managing field inventory, reducing full year production by over 30% and finishing the year with more than a thousand fewer boats in the U S pipeline.
Ryan: Sales decreased 18% in the quarter, resulting from the anticipated softer wholesale orders as dealers continue to manage pipeline levels, coupled with higher levels of selective discounting, which offset favorable mix and the impact of pricing actions taken earlier in the year.
Ryan: Segment, adjusted operating earnings decline, resulting from net sales declines and lower absorption due to the reduced production levels.
Ryan: Freedom boat club delivered another strong quarter contributing approximately 12% of sales to the segment.
Ryan: We successfully executed our capital strategy in 2024, ending the year with $287 million of cash while funding strategic growth in our businesses and returning capital to shareholders.
Ryan: We deployed $167 million for capital expenditures on exciting new products and growth projects across our businesses, which we believe will drive future revenue and earnings growth.
Speaker Change: In addition, as Dave mentioned, we took advantage of market and Brunswick share value dislocation and repurchased $200 million of our own shares representing approximately two 5 million shares or 4% of the company.
Speaker Change: We also increased our dividend for the 12th consecutive year.
Speaker Change: Lastly, we have reduced net inventory by 12% versus end of the year levels in 'twenty two 'twenty three.
Speaker Change: And anticipate a similar reduction in throughout 2025.
The result was a second half working capital generation of over $170 million with benefits continuing into 2020 fives as you'll see shortly when I just discussed 2025 guidance.
As we look at our outlook for the year 2025 has the potential to be a year of steadily easing financial conditions and while we entered the year with cautious outlook, particularly for the first quarter.
Speaker Change: We remain extremely focused on delivering steady free cash flow and resilient earnings per share.
Speaker Change: <unk> and continued strong shareholder returns.
Speaker Change: Our disciplined pipeline management strong operational performance and continued investment in new products and growth coupled with prudent cost containment actions strong cash management and generation and a thoughtful capital strategy provide the necessary controllable levers in this uncertain consumer and business environments.
Speaker Change: The result was the guidance you see on this slide as previewed by Dave earlier, including net sales of between 5.2 and $5 $6 billion and adjusted diluted EPS of between $3 50 and $5.
Speaker Change: We anticipate free cash flow in excess of $350 million with strong free cash flow conversion.
Speaker Change: Note that we anticipate Q1 looking very similar to the fourth quarter, just completed with continued improvement in wholesale ordering patterns as we progress throughout the year.
Speaker Change: Our underlying market assumptions for this guidance is a U S boat retail market that is flat to 2024 in terms of retail units sold.
Speaker Change: We continue to believe that there are good reasons to believe that the market could outperform a flat assumption.
Speaker Change: But we consider this the most balanced assumption on which to base our initial guidance.
Speaker Change: I'll end my prepared remarks. This morning with a quick review on other P&L and cash flow assumptions underlying our initial guidance.
Speaker Change: We believe that our spending on capital expenditures and annual depreciation expense will be similar to 2024 levels.
Speaker Change: We plan to generate approximately $100 billion of net working capital as we anticipate inventory levels continuing to moderate throughout the year building on the work started in 2024.
Speaker Change: Our plan assumes that we continue our systematic share repurchases with a minimum of $80 million of repurchases done in the year, which could increase in the event the cash generation outpaces our initial expectations.
Speaker Change: Note, we have already completed $10 million of repurchases in January taking advantage of significant value dislocation between our recent share price and our future outlook.
Speaker Change: Our guidance on tariffs assume $30 million to $40 million of incremental tariffs in 2025.
Speaker Change: Primarily a result of existing China, 301, tariffs and the absence of benefits from certain exclusions and catch up duty drawbacks that expired or were completed in 'twenty 'twenty four and will not repeat this year.
Speaker Change: We are actively working to mitigate the overall tariff impact through inventory staging pricing and other methods and it will be ready to accelerate mitigation efforts should new tariff laws be enacted throughout the year.
Speaker Change: As we continue to see foreign currency rates fluctuations, our guidance assumes $30 million to $40 million in unfavorable earnings impact due primarily to the strong U S dollar impacting our non U S operations.
Speaker Change: Finally, and just as a reminder, we've been very diligent in managing our debt structure, which is well positioned with no meaningful debt coming due until 2029.
Speaker Change: I will now pass the call back today for concluding remarks.
Speaker Change: Thanks, Brian.
Speaker Change: We're extremely pleased with the enormous excitement generated by Brunswick six year exhibiting at the consumer electronics show in early January well.
Speaker Change: Where we showcased our full portfolio of already commercialized and upcoming new Aces and boating intelligence products technologies and concepts.
Speaker Change: We've also seen positive momentum in sentiment from consumers and dealers at the major early season boat shows.
Speaker Change: <unk> Dusseldorf, New York, Toronto and Minneapolis.
Speaker Change: Year to date aggregate unit boat sales across all boat shows up 13% versus prior year.
Speaker Change: At the Dusseldorf boat show the world's largest indoor show.
Speaker Change: Several of our boat brands had record sales, including sea Ray, which surpassed last year's record total by more than 20%.
Speaker Change: Quick silver, which tripled unit sales versus prior year.
Speaker Change: We were encouraged to see the consumer strength in buying interest extend across our premium and core brands.
Speaker Change: Mercury is also had a very robust start to the show season.
Speaker Change: Gaining share at multiple shows.
And dusseldorf Mercury overall outboard share increased dramatically.
Speaker Change: 48% in 2024% to 55% in 2025.
Speaker Change: For larger 150 horsepower and above outboards Mercury had a 69% share of Mercury outboards with present on every outboard powered flagship and on newco larger than seven meters.
Speaker Change: At the Toronto show Mercury's outboard share was also up significantly reaching 45% up from just under 38% in 'twenty 'twenty four.
Speaker Change: Never go group also had a strong dose of both show this technology present on more than 80% of boats on display.
Speaker Change: We continue our rapid cadence of exciting new product launches from across our businesses and brands.
Speaker Change: Medical Group recently began shipping its new low rent elite F. S fish finders and will shortly begin shipping its new industry, leading re controlling motors under the low rents and cymrite brands, but freshwater insult what's applications respectively.
Speaker Change: At the upcoming Miami show, some rentable launch its most advanced F. A multifunction display which uses the latest version of its unique Android based operating system and a new ultra class processor.
Speaker Change: Oh, both business continues to introduce outstanding new products to meet the needs of domestic and international customers at all price points.
Speaker Change: And recently launched the new Baler in the V series and the Sea Ray SPX to 70 hybrid surf boat, but the dusseldorf show.
Speaker Change: Freedom Boat club is expanding into New Zealand and recently partnered with a Spanish distribution partner to wrong to begin opening locations in Madrid.
Speaker Change: In addition to a slate of exciting new products and solutions for recreational markets Textron systems recently announced its partnership with Brunswick.
Speaker Change: Jesus tsunami autonomous marine surface vessel, the U S and allied navies.
Speaker Change: The vessel utilizes the Brunswick Hull, our Mercury propulsion system.
Speaker Change: Similarly radar pet with Textron autonomous control system.
Speaker Change: And it's another example of brunswick's unique ability to supply leading edge system solutions.
Speaker Change: As you all know we pride ourselves on being an employer of choice on being an innovator enough space and on being a responsible and trustworthy company.
Speaker Change: And for the third consecutive year, we again surpassed the 100 awards for our people our culture, our products and our innovation.
Speaker Change: Notably, 15% of our awards, our National Awards from outlets, such as Newsweek USA today time on Forbes.
Speaker Change: One highlight in 2024 being a number one ranking in the engineering and manufacturing Cat degree time magazine's list of America's Best Midsized companies.
Speaker Change: Finally on January 15, 2025, we celebrated the 100th anniversary of our listing on the New York Stock Exchange.
Speaker Change: Brunswick is the 31st company currently listed.
Speaker Change: The 100 year milestone.
Speaker Change: Before I finish I'd like to remind you about upcoming investor and analyst events during the Miami boat show.
Speaker Change: Including a tour of our Brunswick's many exhibits at the show well whereby a cocktail hour the Ritz Carlton.
Speaker Change: Thank you for your attention, we'll now open the line for questions.
Speaker Change: Thank you.
Speaker Change: It would be now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line isn't a question Kim you May press star two if he would like to remove your question from the queue and for our packet switches or equipment may be necessary to pick up your handset before pressing the star keys, we ask that you limit to one question and one follow up question.
Speaker Change: One moment, while we poll for questions. Our first question is from Craig Kennison with Baird. Please proceed.
Craig Kennison: Good morning. Thank you for taking my question I wanted to ask about your cost savings can you help us unpack that one dollar in twenty-five stack cost savings in the EPS Bridge that you mentioned, Dave just curious where those savings are coming from.
Speaker Change: Yeah morning, Craig and thanks for the question Yeah, a number of places really I think.
Speaker Change: If you kind of the base of it really is a kind of run rate savings.
Speaker Change: But we began to generate and even in 2024, if you look from.
Speaker Change: First of January 2024 to 31 December.
Speaker Change: We unfortunately had.
Speaker Change: Got to exit about 20% of our hourly staff.
Speaker Change: And about 7% of our salaried staff.
Speaker Change: The majority of that happened in the back half of the year when it was clear that we had to.
Speaker Change: Reduce our production.
Speaker Change: Production levels are to support kind of year end inventory levels that we were that we needed to go into 2025.
So we'll get a full year run rate of those savings in 2025, which is significant.
Speaker Change: The other thing to think about is that.
Speaker Change: We were kind of under significantly under producing retail in the back half of two.
Speaker Change: 2024, it is pretty it's a pretty inefficient process I think we did a good job the best job that we could have done in the circumstances.
Speaker Change: But we really were producing at low levels, Ryan, we'll maybe talk about it later, but we only produced about 10000 units I think in our boat business, we certainly significantly under produced.
Speaker Change: Sales in our engine business and elsewhere that is inefficient thing to do.
Speaker Change: <unk> got too much labor.
Speaker Change: We've got too many shifts your production lines are not re optimized for lower rates, there's no retraining possible.
Speaker Change: Modest amounts of retraining possible in that period of time.
Speaker Change: So as we go into 2025, we highlighted some of the additional.
Speaker Change: Additional potential headwinds that we face with tariffs and.
Speaker Change: FX, but really we go in with a much more optimized operating position.
Speaker Change: With staffed correctly, we've re optimized all production lines and a lot of cases, we've been able to go back to our suppliers and negotiate cost reductions.
Speaker Change: And on top of that we'll be doing other things during the course of the year, but in a lot of ways. We are set up as a very efficient operation going into 2025, which is a big benefit throughout the year.
Dave: Thanks, Dave.
Speaker Change: Our next question is from Mike Swartz with truly Securities. Please proceed.
Mike Swartz: Hey, guys. Good morning, maybe just following up on Craig's question.
Mike Swartz: Little more detail of the of the dollar 25, which I think works out to about $100 million or so I guess, how much of that is from things that have already been enacted versus things. The common then.
Mike Swartz: I guess, how much of that structural versus versus maybe temporary in nature.
Mike Swartz: You'd see maybe some of those costs come back when when volume returns.
Mike Swartz: Yeah, I don't have a.
Mike Swartz: A complete number for that but can Orion and I would just probably 50 or.
Mike Swartz: About yes about 50 50.
Mike Swartz: Probably I think youll costs coming back first of all we learn how to operate more efficiently. So we are always I'm reluctant to add back fixed costs anywhere.
Mike Swartz: And I think the amount of kind of variable cost that we add back will obviously depend on how volumes progressed during the year I do not imagine is adding back a lot of that cost and suddenly in 2025, and probably not a lot of fixed cost in 2026.
Mike Swartz: Either.
Mike Swartz: But there are projects that we have already underway, but didn't really yield material benefits in 2024 that are yielding I will yield benefits in 2025.
Mike Swartz: And there are a combination of supply chain projects operating efficiencies, where we can make our plants. Some production lines, even more efficient for example.
Mike Swartz: We will be combining our multiple.
Mike Swartz: Products onto a single production line for example, with some of our boat facilities that we were not able to do in 2024 until we got through shutdowns and other things over the course of the year of the back half of the year and undertook retraining and those kinds of things.
Mike Swartz: Certainly going after.
Mike Swartz: A lot of value engineering work, which will reduce cogs on our own.
Mike Swartz: Products that would be a significant focus of our engineering and operational.
Mike Swartz: Functions during the course of the year.
Mike Swartz: These savings that we're projecting are not speculative every.
Mike Swartz: Some of that those 25 has a plan behind it some of it's already in our pocket. If you like but there's significant work to do but we know what we're gonna do.
Speaker Change: Yeah, just one other comment I think you're hearing this from from Dave a lot of these will be found in the gross margin line. So these are not all opex in fact, probably even weighted a little bit towards gross margin, which shouldn't be a surprise given all the opex you've already taken out.
Mike Swartz: And the efficiencies that we believe we can add back out on the gross margin.
Speaker Change: Our P&L line item.
Mike Swartz: Okay.
Mike Swartz: Helpful. And then maybe just another question on the guidance and the guidance range, it's a pretty wide range and I think you said your expectation is as retail flattish I would assume that that midpoint. So maybe you can just help us understand you know how how you would get to the low end of that range and maybe how you can get to the high end of that range as well.
Mike Swartz: Yeah, I'll take I'll start Mike and then Dave can follow up.
Mike Swartz: The high end of the range is relatively straightforward and I would say all things constant there would be a marketed outperforms flat, but it doesn't need to outperform materially if it got to a mid single digit.
Mike Swartz: I think that would be a good start it would probably also include FX that would be back to more normal normalized levels again, it doesn't mean to you.
Mike Swartz: Improved greatly the dollar doesn't need a weakened significantly but if it got back to something that we were in more 2022 2023, where the dollar is it kind of 110 versus you know low one to one five or below or that would that would certainly be a big chunk and then no incremental tariffs.
Mike Swartz: Outside of what we've already baked in which which are the continuation of the China 301 tariffs that we've been dealing with now for a number of years you have all those three things come through you definitely can get two to $5.
Mike Swartz: The $3 50 cases kind of the opposite it would be a market bets.
Mike Swartz: You know five down or worse, it's no improvement or even a worsening in the FX rates and it's potentially an or it's potentially more tariffs outside of China into places like Canada, and Mexico or are there. Other factors. So you know I know, it's a bit of a way.
Mike Swartz: The range than the folks who used to buy all the things that we can control.
Mike Swartz: Like we're very well suited them, but we're obviously dealing with a pretty uncertain time and and so most of the flexibility and the guidance around things that we're just gonna have to react to throughout the year.
Speaker Change: Hey, Thank you Oh, Yeah, I think on this subject also Mike on the subject of tariffs, we have already taken significant mitigating.
Speaker Change: Actions, including replacement of our inventory working with our supply base.
Speaker Change: There's a lot of optimization that's gone on ahead al.
Speaker Change:
Speaker Change: This uncertain environment to mitigate the impacts that suddenly in slide 25.
Speaker Change: Our next question is from Fred Wightman with Wolfe Research. Please proceed.
Fred Wightman: Hey, guys just one more on the guidance if we look at the sort of one Q numbers that you've put out there it's a bit below where consensus was I'm wondering if the cadence or the shape of the year has sort of changed versus where you thought it would've been a quarter or two given sort of the ongoing destock or if this is just sort of always to plan and it was sort of the the ramp into the back half was supposed to be.
Speaker Change: You penciled in.
Speaker Change: Yeah, I think I mean, it really is a lot of math.
Speaker Change: We're very confident in it I wouldn't say, it's a material change in our assumptions at the moment I think you know broadly.
Speaker Change: Yeah.
Speaker Change: Q1 boats.
Speaker Change: Early season boat shows.
Speaker Change: A positive, but that's not baked in anywhere if you think about Q1 last year, we were still you know.
We're running a business capable of supporting a 160000 unit a year market.
Incentives were much lower dealer confidence was relatively good retail actually was up at this point in the year and through.
Speaker Change: Most of the first quarter.
Speaker Change: So we have on the kind of margins side I think we have every reason to believe that we will just operate a lot more efficiently. During the course of this year, but we will take a bit of a hit in Q1 was certainly we have some good levers with topline growth this year.
Speaker Change: Even in a flat market, we expect growth from medical group from freedom for Mercury share gains.
Speaker Change: So and of course, we significantly under produce the market and we're at all at least sufficient.
Speaker Change: In Q3, and Q4 of last year as we took the pain of right sizing inventory. So we just expect to be operating much better more efficiently and to achieve some growth in select areas in the back half of the year.
Speaker Change: That makes sense and then just to shift gears a bit to share repurchases I mean, it's down a good bit from where you guys have been running the past few years can you just explain the thinking behind that it sounds like there could maybe be some upside to that $80 million, but how should we think about that.
Speaker Change: Yeah Fred were.
Fred Wightman: We're balancing all of our capital strategy needs and opportunities I think it's fair to say that <unk> as a baseline as you correctly point out yeah. We we want to watch our debt leverage obviously, we're cognizant that on a TTM basis. The first half of this year together with the back half of last year, it's probably.
Speaker Change: <unk> trough earnings are.
Speaker Change: But we kind of think they very much believe trough earnings and so just making sure we're smart about cash utilization here early in the year.
Speaker Change: Got a little bit of that that we've been smart on are paying off we flip some from fixed to floating to take advantage of the lowering rates and done some work on.
Speaker Change: USD to euro.
Speaker Change: Zero.
Speaker Change: Currency debt as well so some some swap action. So we're being smart about everything cash oriented I think if cash should continue to be strong and I can tell you.
Speaker Change: January actually continued the theme of the back half of last year and January cash came in significantly over kind of expectations and over 2020 for January and again still one month, but it's still a good side if that trend continues and I can assure that 80 will not be the.
Speaker Change: Final landing spot, we'd be able to do repurchases and continue to service our debt appropriately.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Yeah.
Speaker Change: Our next question is from James Hardiman with Citi. Please proceed.
James Hardiman: Hey, good morning.
So maybe asking what's already been asked in some slightly different ways.
James Hardiman: Versus three months ago, I think you seem pretty confident.
James Hardiman: Or at least then you seem pretty confident that 2025 earnings would grow versus 24.
James Hardiman: That's still certainly on the table at the high end, but the mid the mid point is maybe a little bit lower I guess I'm just trying to figure out.
James Hardiman: What has changed versus three months ago fourth quarter was better than expected.
James Hardiman: Maybe if I look at the bridge, which of those were already fully baked as of three months ago, and which of those are incremental.
James Hardiman: And then to the question about Q1, I guess I'm. Just curious are we still in an environment, where we're under shipping the channel for the foreseeable future just just trying to you know.
James Hardiman: Put together some of these pieces.
James Hardiman: Yeah, Hi, James Yeah. So I think probably if you wanted to isolate one thing that has changed most significantly at that affects.
James Hardiman: It really didn't change significantly over the past.
James Hardiman: Three months, so as we were planning our budgets for 2025 at the midpoint of guidance, we would not anticipate seeing that 40 cents of additional FX pet.
James Hardiman: Headwind, which would have put us as you mentioned are significantly above prior year EPS absent that as a midpoint.
James Hardiman: So that's the biggest change right that you wanted to yeah. James Good morning on your question on wholesale versus retail yes.
James Hardiman: The plan right now currently is in wholesale under shifts retail the first half of the year, and then that moderates and flips over in the back half of the year.
Speaker Change: Thing to remember for everyone.
Speaker Change: Reduction in wholesale and our primary boat and engine businesses in the back half.
Speaker Change: 2024 was historically low so we did we took action a purposeful actions to control inventory levels from the pipeline and the result was wholesale a at the boat and engine level in the back half of the year that was significantly below any second half in you know in years.
Speaker Change: And so if you roll that forward to the second half of 2025, we understand that our guidance and performance looks a little back half loaded, but the back half of this year as against a historically low back half of 'twenty four and if you look at back half of 'twenty five versus.
Speaker Change: Say any other year since 2018 or 2019, it actually still looks relatively.
Conservative and lower so we understand the shape of the year may give people pause, but you need to keep it in mind. After what we did in the back half of last year to really set us up.
Speaker Change: Got it and then maybe staying on that that wholesale versus retail conversation. So so under shipping during the first half of the year, where do you expect inventory to finish the year as the.
Speaker Change: Overall assumption that wholesale will equal retail in 2025, and then as I think about that weeks on hand number you've talked about how difficult. It is to keep that down when volumes are this low how should we think about that number sort of getting back to normal.
Speaker Change: <unk> levels in the in the years to come right, presumably you're going to maybe under grow the recovery a little bit to get those weeks in hand back where you want them to be.
Speaker Change: Yeah Youre right are our plan right now would be retail outpaces wholesale still on the phone side.
And certainly and even more so on the engine side.
Speaker Change: However, both of those still assume that wholesale units in boats and engines are greater than last year.
Speaker Change: And we would end the year on a comp plan in weeks on hand, lower than the end of 2024 and really a normalized weeks on hand, historically than the 35 weeks range.
Speaker Change: $36 eight for 2024, it was really an over achievement versus.
Speaker Change: You know, where we might have been if we had taken some significant action in Q4, so and remember on a unit basis, we are still really historically low and suddenly.
Speaker Change: While fiberglass pipelines are very very low on a unit basis.
Speaker Change: That's great color thanks, guys.
Speaker Change: Our next question is from Mega Claps with Morgan Stanley. Please proceed.
Speaker Change: Hi, Thanks, so much just a couple of follow up clarification from me so on that.
Speaker Change: Answer you just gave to James on wholesale versus retail.
Speaker Change: Based on what you just said could imply the back half up you know maybe mid teens and can you just help US unpack you know bridge from the flat retail expectations and I think when we talked back in October you had previously talked about a base case of a mid single digit volume tailwind is that still whats in.
Speaker Change: Got it in the full year guide or is there something more than that now.
Speaker Change: No. It maybe just to be real clear. So retail we believe it's going to be flat in the U S that that is our well I should say our plan is based on flat retail in the U S. I think there's some real reasons to think it could be better than that but we think flat is a good basis.
Speaker Change: On top of that we think wholesale in boats will be up mid to high single digits on units and wholesale engines will be up low to mid single digits over last year. So that is those are the wholesale unit.
Speaker Change: Bedded in the plan on a flat market environment.
Speaker Change: Okay very clear. Thank you and then on the tariffs I think you mentioned at the low end of the range. The 350, there is some incremental tariffs embedded there.
Speaker Change: Any possibility you can share with us what you're embedding at $3 50 in and if not maybe you can you just remind us on exposure to Mexico, and Canada, and maybe put some parameters around what that could look like.
Speaker Change: Sure I'm going to do the latter not the former.
Speaker Change: Trying to guess what tariff rates and things could be out there obviously is a fool's errand.
Speaker Change: But we've I think we've covered China, while so I will I will move past current year, China impact. If you look at speculative tariffs Oh, just over about 20% of our Cogs, So under $900 million actually originates from outside the U S and comes.
Speaker Change: Into our U S operations.
Speaker Change: Of that China is less than 5%, Canada is a couple of points and Mexico is at or about 10%. Even if you include the full value attributable to our three Mckee is we havent makiya and and our boat group in our Mercury segment and in an NAV.
Speaker Change: So you know you you're still at a pretty small.
Speaker Change: Out of Cogs that could potentially be.
Speaker Change: Implicit in tariffs.
Speaker Change: Without giving any specific number you could see at the $3 50, EPS that the tariff impact doubled for the full year, something and something in that area, but again, the worst cases hard to consider because we're taking so many actions to prevent the worst case from happening.
Dave: As Dave covered earlier.
Dave: It would be hard to speculate so again, we are a primarily a U S manufacturer selling U S products in the U S and where we sell internationally in many places we produce in that location or in that region.
Dave: So yes tariffs continue to be something we monitor and we're being smart about making decisions around them, but you know and until a new new worlds come into play. The best we can do is consider mitigation and and continue operating our business as best of our ability.
Speaker Change: Okay. That's helpful. Thanks, Brian.
Speaker Change: Our next question is from Joe Sabella with Raymond James. Please proceed.
Joe Sabella: Thanks, Hey, guys. Good morning, just wanted to ask about the industry outlook for 'twenty five you mentioned flattish.
Speaker Change: I'm not overly heroic obviously awesome.
Speaker Change: <unk> here, but you did mentioned.
Speaker Change: Interest rates as a potential tailwind.
And it looks like at least on the consumer side rates have not come down at all and this is the first started cutting rates. So what sort of rate environment are you baking into that flattish industry outlook.
Speaker Change: Yeah, Hi, Joe actually you don't even know mortgage rates are going to be elevated but loan rates have not.
Speaker Change: So if you look at the environment that we're in.
Speaker Change: I'm kind of going through the <unk>.
Speaker Change: And at the end of the third quarter of last year, most people were paying nine.
Speaker Change: Nine maybe nine 5%.
Speaker Change: With reasonable credit on a boat loan that is now seven and a half maybe are above 757 99, something like that.
Speaker Change: We have retained a material reduction in their rates over that period and have not seen any reversion. Unlike.
Speaker Change: What it's been seen in in in some of the loan rate as some of the.
Speaker Change: The applications like in mortgages.
Speaker Change: We expect that to probably edged down some more oh the time.
Speaker Change: So that's the rate that we're really looking at I think one of the things that's interesting as we go into the year is and it was an interesting dynamic. It early season boat shows that were a lot of people who had stayed on the sidelines for a year or two years looking at these kind of the store.
Speaker Change: Likely high interest rates, who saw the combination of lower interest rates, maybe a bit more.
Speaker Change: Bullishness, but certainly in small business.
Speaker Change: Along with some of the promotions and discounts available is there opportunity to get back in.
Speaker Change: And I think it's those combination of factors that we're looking at is a tailwind.
Speaker Change: Real rates have Oh in terms of our boat loans really reduce probably you know a point and a half versus where they were in the at the end of Q3 of last year, but I see that as the effect of combined with the tailwind for us.
Speaker Change: Got it very helpful. Maybe just switching over to the E. P S.
Speaker Change: Bridge for 'twenty five the bond piece 25 cents.
Speaker Change: That assumes a flat market does it also assume your your market shares are flat.
Speaker Change: Anticipating additional share gains between engines.
Speaker Change: No we'd be anticipating share gains at Mercury for sure and then continued share gains on our premium boat brands.
Speaker Change: Okay.
Joe Sabella: Hey, Joe Remember, there's also there's other yeah.
Joe Sabella: Bridge like this it's always dangerous you could put many many other categories in here.
Joe Sabella: There's things like price that will overcome a material and labor inflation and other things. So there is a big category other than that kind of nets out.
Joe Sabella: Market share being one of them, but yes, we fully anticipate on mercury continuing to.
Joe Sabella: Gained market share.
Joe Sabella: Is it safe to assume we're going to bring in like this every year right.
Joe Sabella: It was just would've done.
Joe Sabella: That's one of the last few but yes.
Joe Sabella: Do like we feel like our EPS bridges.
Joe Sabella: So you should look out for a press release. This morning that came out from a finish.
Joe Sabella: Buildup fed master.
Joe Sabella: Announced.
Joe Sabella: Yes, they switched from.
Joe Sabella: A competitive upward manufacturer to mercury.
Joe Sabella: Oh, it's pretty interesting.
Joe Sabella: Got it okay. Thank you guys.
Joe Sabella: Our next question is from Douglas Satkin with Keybanc capital markets. Please proceed.
Douglas Satkin: Alright, Thanks for taking my questions, maybe just a couple on an NAV of co.
Douglas Satkin: Obviously, you know on a percentage year over year basis, its a fairly large range in the guide. So just trying to you know think about what needs to go right for you guys to have growth there and come in towards the higher end of that range. This year and somewhat relatedly I noticed there was a fairly large restructuring.
<unk> charge in the fourth quarter. So I'm wondering you know how many more quarters you would expect of maybe those types of charges and when we can kind of move past. This thanks.
Douglas Satkin: Yeah. So good question I think.
Douglas Satkin: I think to look back at 2024 and.
Douglas Satkin: And then David Coast performance.
Douglas Satkin: It was interesting to see you know on a full year basis up P&A was.
Douglas Satkin: It was down about 3% in top line.
Douglas Satkin:
Douglas Satkin: Boat and propulsion businesses were down in the 20% to 25% range.
Douglas Satkin: And never coal was down 12%.
Douglas Satkin: M, which is.
Douglas Satkin: What you'd expect from a company that is 40% OEM and 60% aftermarket.
Douglas Satkin: Is really beginning to show as we get through all of the noise of inventory Rebase flying and other things that it is essentially on the topline performing.
Douglas Satkin: As you would expect that mix to perform you know our P&A business is probably more.
Douglas Satkin: More than 80% off the market.
Douglas Satkin: Now that goes kind of 60 40.
Douglas Satkin: It was a nice validation of how we would expect that business to perform on the top line. We did and we will continue to invest a lot in new products and now the coal and new product development takes some time to make its way to the market is commercialized products, which is why we emphasize though I emphasized in my.
Douglas Satkin: <unk> section of the deck that the new products that are coming to market.
Douglas Satkin: Okay into market in 2024 in the fourth quarter, which were mostly aftermarket type products, but are coming to market in 2025 with a bit more of an OEM.
Douglas Satkin: So we continue to invest and that is.
Douglas Satkin: We could do we could operate never go differently for the short term in and show a big margin improvement, but that's not the right thing for the longer term, but.
Douglas Satkin: But in 2025, we will expect now that coke topline growth and margin expansion.
Douglas Satkin: While we continue to invest.
Douglas Satkin: Invest in the business to make sure we have competitive product lines everywhere I think that is beginning to.
Speaker Change: Show up Orion can talk about the one time right yeah, yeah. It is a impairment of goodwill.
Speaker Change: That we took in the quarter and really the fundamental change was the risk free rate going from.
Speaker Change: Low fours to almost five which changed.
Speaker Change: Discount rates that we have to use in the calculation of the DCF calculation, so long long way to go.
Speaker Change: Got it yeah, there's no change in what our views of the outward years of that business to be which again, we're very confident in.
Speaker Change: But the technical goodwill valuation tests that we undergo each quarter, but certainly at the end of the year.
Speaker Change: That change in the discount rate put it into an impairment situation.
Speaker Change: The charge.
Speaker Change: Obviously impossible to predict the future but.
Speaker Change: But we do have a risk for me I'm included in that discount rate, which helps us capture of a forecast risk moving forward. So I think our view is we're rightly value right now and hopefully you don't have to take additional charges anytime soon.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from Shan Shan <unk> with BNP Paribas. Please proceed.
Speaker Change: Hi, guys. Thanks for the question could you remind us where global weeks on hand are to end the year anything we should think about in terms of international dealer levels versus U S and where that could go over the course of the year.
Speaker Change: Yes.
Speaker Change: While European as being one of the other meaningful one which would be up in the 40.
Speaker Change: Plus we're at 41 weeks is European.
Speaker Change: So combined that's probably a nice 30, so I would think someone like that but yeah. So European weeks on hand is always higher mainly because of the logistics of the European market and also because.
Speaker Change: The Oh, the fact that we typically are not shipping boats with engines, we shipped boats and engine separately, which means that there's additional stock required at the dealers.
Speaker Change: To combine the two together so it's really.
Speaker Change: A bit fundamental to the marketplace. We manufacture we are pretty distributed manufacturing in the U S. But we manufacture all of all boats for Europe, either in Portugal or in Poland. So if we're shipping up to Scandinavian markets. For example, in Italy, we just need more inventory.
Speaker Change: And maybe that's why are just dorf results, whereas such a good sign.
Speaker Change: The Dusseldorf show, where quick silver our European brand.
Speaker Change: Did so well versus last year and even versus prior years together.
Speaker Change: Together with sea Ray doing doing a kind of a record performance you know seeing that European customer come back, especially at the value and we will take those pipelines down very quickly again the pipeline as a T T M.
Speaker Change: Is one thing, but when you look at raw units, it's actually a pretty small number so retail goodness there can change that a weeks on hand number very quickly.
Speaker Change: Got it that's super helpful. And then maybe on price price and mix it sounds like you're taking some modest price increases kind of offset that inflation.
Speaker Change: How do you think about like affordability and if that kind of still holding people back do you think like promotions needs to stay elevated in 'twenty five.
Speaker Change: Yeah, well I think affordability is I mean, if you look at transaction prices affordability is definitely significantly improved over the past couple of years.
Speaker Change: We continued to moderate significantly moderate price increases so over time, even the.
Speaker Change: Kind of MSRP or advertised pricing is moderates it in terms of CAGR over a five to six year period kind of evening out the high price increases that we had to take during the supply chain crisis.
Speaker Change: But on a transaction basis with the promotions I think there's deflation in transaction prices.
Speaker Change: We went into the year assuming that.
Speaker Change: Promotional.
Speaker Change: Rates or.
Speaker Change: Total promotional rates would be similar to the back half of 2020.
Speaker Change: Or.
Speaker Change: During the course of the year, we will continue to moderate as we see how the.
Speaker Change: Market develops I do think though that if you look on a full year basis promotions and discounts will probably be on average lower.
Speaker Change: And the reason is that with just some of them.
Speaker Change: But there was just a need to clear out inventory in the back half of the year, certainly not necessarily with Brunswick brands, but in other brands that that.
Speaker Change: But necessitated some more significant promotions or the kind of prior buddleia type basis.
Speaker Change: As we go into this year with production much more steady and balanced.
Speaker Change: We have more than 80% of our inventory less than a year old I just don't see the same need for additional incremental discounting on prior model year.
Speaker Change: And I don't see the same dynamic of having to.
Speaker Change: Clear out pipelines and the labeling and the wholesale interest component will be down.
Speaker Change: There's a sofa going down to the point.
Speaker Change: Great Super helpful.
Speaker Change: Our next question is from Jamie Katz with Morningstar. Please proceed.
Jamie Katz: Hi, Good morning, you know, we talked a lot about operating expenses on this call, but I'd be curious to hear your thought on like a long time capital intensity.
Speaker Change: No program looks like it looks like given that the size of the businesses, maybe at a new run rate.
Speaker Change: Is it right to think about capex closer to 3% of sales going forward rather than make it a question of 4% of people are looking at them.
Speaker Change: Ask the person is growing.
Speaker Change: Absolutely. Thanks.
Speaker Change: Yeah. Good morning, Jamie Yeah, you're right you know we went through a period pre COVID-19 and even after Covid, where capex is pretty elevated as we get a lot of capacity projects at Mercury, We opened a second whaler facility.
Speaker Change: So that was pretty capital intensive we're certainly now in harvest phase, where we can still invest in our products invest in our capital.
Speaker Change: Our in our facilities and our people.
Speaker Change: Well, probably keep that number I would say between three and 4% we were running for a number of years, 5% to 6% through a lot of those programs, but yeah. I think we're at a point now where we are harvesting some of the spending that we did we've got plenty of capacity and moving forward I think we will be at a bit.
Speaker Change: Lower.
Speaker Change: But as we move through at least the next two or three years.
Speaker Change: Okay. That's helpful and lastly, I guess, we havent talked about potential opportunities and I'm wondering.
Speaker Change: Maybe it would be helpful.
Speaker Change: Describe sort of what volume of other companies have been coming to you that during this period of distress that may be.
Speaker Change:
Speaker Change: Interesting vertical integration opportunity is not so much specific spot has the cadence of that picks up.
Speaker Change: Are there other companies looking for strategic alternatives for themselves. Thank you.
Speaker Change: Yeah.
Speaker Change: We continue to feel quite a lot of incoming I think we're very judicious about how we handle that.
Speaker Change: We've been pretty public school, we've continued to expand freedom boat club.
Speaker Change: Notably <unk>, but I would say you know as Ryan mentioned earlier.
Speaker Change: As we see really strong cash flow generation and we see our share price at $70 share repurchases have got to be a continued priority for us in terms of.
Speaker Change: Where we deploy cash.
Speaker Change: We will continue to look.
Speaker Change:
Speaker Change: But broadly I think we're pretty comfortable with our portfolio.
Speaker Change: Moment.
Speaker Change: And we need to continue to invest organically certainly not nearly as much in capacity, which we've essentially done but we need to continue to keep our products fresh which is always a priority for us.
Speaker Change: We have made.
Dave: A question and answer session I would like to turn the conference back over to Dave for closing remarks.
Speaker Change: Well. Thank you all for your great questions I think given the market conditions, we think we've used our controllable levers.
Speaker Change: To come close to maximizing the potential of our business in 2024 and positioned us really well in terms of boat and engine inventory levels fresh lineup of new products and really solid operating efficiency as we go into 2025 strong free cash flow was the real highlight took a lot of effort, but the benefits really flowed in Q4.
Speaker Change: And continue to flow in Q1.
Speaker Change: As we've discussed 2025 early season boat shows have also been encouraging with sales up significantly in premium and core and value segments, which is really exciting to see.
Speaker Change: Buyers across the spectrum, showing increase and of course mercury share gains I mean being.
Speaker Change: Being up seven points of share it to the major shows early in the season on top of the share gains from 2024 was pretty spectacular performance.
Speaker Change: Anyway, we are very much looking forward to hosting many of you at the upcoming Miami boat show in just a few weeks' time for its sort of exhibits and our exciting new products and for our investor and analyst event.
Speaker Change: And so on and have a great day.
Speaker Change: Thank you. This will conclude today's program and you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
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