Overview

Brunswick Corporation’s financial performance in the third quarter and first nine months of 2024 was impacted by several factors. Net sales decreased 20% in the third quarter and 19% in the first nine months compared to the prior year periods. This was driven by lower wholesale ordering by dealers and OEMs, as well as higher discounts in certain business segments, only partially offset by annual price increases and new product introductions.

The Propulsion segment saw a 32% decline in third quarter sales and 25% decline in the first nine months, as the impact of lower wholesale orders from boat manufacturers was only partially offset by market share gains. The Engine Parts and Accessories (Engine P&A) segment had a 2.5% sales decline in the third quarter and 2.9% decline in the first nine months, but maintained strong operating margins of 26% in the quarter. The Navico Group segment had a 13.7% sales decline in the third quarter and 15.8% decline in the first nine months, due to soft marine OEM orders and retailers delaying aftermarket orders. The Boat segment saw a 19.4% sales decline in the third quarter and 23% decline in the first nine months, as lower planned production levels and fewer manufacturing days impacted results.

Financial Performance

The table below summarizes Brunswick’s key financial metrics for the third quarter and first nine months of 2024 compared to the prior year periods:

The decline in net sales, gross margin, operating earnings, net earnings, and diluted EPS was driven by the factors mentioned in the overview. Gross margin contracted due to lower absorption from decreased production levels, partially offset by favorable material and labor costs. Selling, general and administrative expenses increased as a percentage of sales due to the lower sales volume.

The company recorded $12.2 million in restructuring, exit and impairment charges in the third quarter and $33.6 million year-to-date, which are expected to result in $20 million in annualized cost savings. Equity earnings improved compared to the prior year period, which had included an impairment charge related to the TN-BC Holdings LLC joint venture.

Segment Performance

Propulsion Segment

• Net sales decreased 32.3% in Q3 and 25.4% in the first nine months, due to lower production at OEM boat manufacturers.
• Operating earnings declined 61.2% in Q3 and 44.2% year-to-date, due to the sales decline and lower absorption.
• International sales were 37% of segment sales in Q3, decreasing 19% on a GAAP basis and 18% on a constant currency basis.

Engine P&A Segment

• Net sales declined 2.5% in Q3 and 2.9% in the first nine months, with slightly lower sales in both the Product and Distribution businesses.
• Operating earnings increased 15.1% in Q3 and 3.1% year-to-date, driven by efficient operations and cost control.
• International sales were 30% of segment sales in Q3, increasing 4% on both a GAAP and constant currency basis.

Navico Group Segment

• Net sales decreased 13.7% in Q3 and 15.8% in the first nine months, due to soft marine OEM orders and delayed aftermarket orders.
• Operating earnings declined in Q3 and the first nine months, as the sales decline was only partially offset by lower expenses.
• International sales were 42% of segment sales in Q3, increasing 2% on a GAAP basis and 1% on a constant currency basis.

Boat Segment

• Net sales fell 19.4% in Q3 and 23% in the first nine months, due to lower wholesale orders and higher discounts.
• Operating earnings declined in Q3 and the first nine months, as the sales decline and lower absorption from reduced production was only partially offset by pricing and cost control.
• International sales were 16% of segment sales in Q3, decreasing 34% on both a GAAP and constant currency basis.

Cash Flow and Liquidity

Brunswick generated $137.5 million in operating cash flow in the first nine months of 2024, compared to $458.1 million in the prior year period. The decrease was primarily due to lower net earnings and higher working capital usage. Free cash flow for the first nine months was $6.6 million, compared to $231.6 million in the prior year.

The company ended the third quarter with $284.9 million in cash, cash equivalents and marketable securities, down from $468.6 million at the end of 2023. Total debt stood at $2,571.9 million, resulting in a debt-to-capitalization ratio of 56%. Brunswick had $747.0 million of available borrowing capacity under its revolving credit facility as of September 28, 2024.

For the full year 2024, the company now anticipates capital expenditures of approximately $165 million and share repurchases of around $200 million.

Outlook and Analysis

Brunswick’s financial performance in 2024 has been impacted by a combination of macroeconomic headwinds, including lower wholesale demand from dealers and OEMs, as well as higher discounting in certain segments. The company’s diverse portfolio of marine, engine, and technology businesses has helped to partially offset these challenges, but the overall trend has been one of declining sales and profitability.

The Propulsion segment, which is heavily tied to OEM boat production, has been the hardest hit, with double-digit declines in both sales and operating earnings. The Engine P&A and Navico Group segments have also seen sales declines, though they have been able to maintain stronger profitability through operational efficiency and cost control measures.

The Boat segment has been impacted by lower wholesale orders from dealers, as they continue to order cautiously in the face of economic uncertainty. This has led to reduced production levels and lower absorption of fixed costs, putting pressure on the segment’s margins.

Looking ahead, Brunswick will need to continue to focus on managing costs, optimizing its manufacturing footprint, and introducing innovative new products to drive demand. The company’s strong liquidity position, with over $1 billion in total liquidity, provides a solid foundation to weather the current market challenges.

However, the macroeconomic environment remains uncertain, with rising interest rates, inflation, and potential recessionary pressures posing risks to consumer spending on discretionary items like boats and marine equipment. Brunswick will need to closely monitor these trends and be prepared to adjust its strategy accordingly.

Overall, Brunswick’s financial performance in 2024 has been disappointing, but the company’s diversified business model, operational discipline, and strong balance sheet should help it navigate the current challenges. Investors will be closely watching for signs of a turnaround in the coming quarters, as the company works to regain its momentum and deliver value to shareholders.