BMO Capital Markets analyst Gerrick Johnson recently hosted meetings with Brunswick CEO David Foulkes and provided Powersports Business with a research note with takeaways.
“Yesterday, we hosted meetings with Brunswick's (BC) CEO, David Foulkes. True to form, Mr. Foulkes was upbeat and optimistic about the marine industry and confident in his business. Retail demand is said to still be strong, with any pockets of weakness in northern markets explained by poor (mostly cold) weather. BC remains wholesale sold out for the year (and beyond for some models) with a good portion of boats already retail sold. Inventory is still extremely lean, with pipelines in the same range they were at the end of 1Q.
“BC management claims that it has seen no order cancellations nor any discounting. Retail demand continues to only be constrained by depressed channel inventory (down about -40% vs. historical levels). ‘All we hear from dealers is that they want more boats,’ said Mr. Foulkes, ‘and there's no indication they can't sell them.’
“Mr. Foulkes is still concerned about the overall health of the consumer, inflation, economic uncertainty, and choppiness in the stock market. But given current demand and channel fill opportunity, he called these 2023 issues, not 2022 headwinds. Rising gas prices and interest rates were not seen as significant headwinds to demand, either.
“BC's output has not been adversely impacted by new supply-chain challenges, per se, with the company producing at close to rates originally established at the beginning of the model year. However, constraints have decreased efficiency, with out-of-sequence work causing more labor hours and rework.
“Pricing was brought up several times by investors concerned about consumers being priced out of the market. Management acknowledged that wholesale pricing is up 25% over two years, but with BC's broad array of boats, they note that there was still something for everyone in a variety of price points.
“Mr. Foulkes was consistently asked the same question by investors; ‘what is the market getting wrong?’ He responded by saying that BC is not the same company it was 20 years ago and has eliminated a lot of fixed cost over the years. While now singularly focused on the marine market, it has diversified into more recurring streams of revenue from parts and accessories products, distribution, and Freedom Boat Club.
“In terms of capital allocation, management expects to keep prioritizing buying back stock with opportunistic M&A focused on technology (including electric) and businesses with recurring revenue streams in the marine sector.”