Brunswick Strikes Gold Down in Florida

Illinois-based boat maker Brunswick (BC) attended the 2022 Fort Lauderdale International Boat Show from October 26-30. The boat show is considered the unofficial kick-off to the U.S. fall boat show calendar. 

If you own shares in Brunswick, the company’s report on how it fared should be music to your ears. If its Oct. 31 press release is taken at face value, it wiped the floor at this year’s show. 

The highlight for Brunswick’s four days at the show was the performance of its Sea Ray brand, which reported a 33% increase in revenue (17% increase in units) from the show compared to 2021.

“Once again, Brunswick had an incredible show, setting multiple records and gaining market share, which is a testament to the power of our brands,” said Dave Foulkes, Brunswick Corporation CEO. 

Brunswick’s business is doing very well, yet its share price is down more than 27% year-to-date. Value investors ought to be all over Brunswick shares at this point. 

Here are a couple of reasons why. 

Brunswick Q3 2022 Earnings Were Lights Out Good

Brunswick reported its third-quarter results on Oct. 27. They were exceptional.

On the top line, its revenue was $1.70 billion, 19.0% higher than a year earlier. Its adjusted operating profit was 26.1% higher than Q3 2021 at $278.8 million, with a 26.1% operating margin.  

“We executed an exceptional third quarter as our new products, strategic investments, continued operational efficiency, and prudent cost control in a challenging macro-economic environment, together with a resilient marine market, resulted in record sales, operating margins, and earnings for any third quarter in our history,” said Brunswick Chief Executive Officer David Foulkes.

It seems odd that a company selling expensive boats is doing well at a time when average Americans are having a tough time putting food on the table. However, it indicates that the doom-and-gloom crowd isn’t everywhere in America.

Some businesses, like Brunswick, are figuring out how to generate strong results despite all the uncertainty. 

Brunswick has three operating segments: Boat (28% of sales), Parts and Accessories (32%), and Propulsion (40%), which includes the Mercury and MerCruiser engine brands. All three segments achieved double-digit sales and operating earnings growth during the quarter. 

As a result of solid earnings, Brunswick announced that it would generate net sales of $6.9 billion in 2022 with adjusted earnings per share of at least $10. The company expects its 2022 full-year results to be a company record.

Jefferies analyst Anna Glaessgen has a full-year earnings estimate of $10.01 a share in 2022 and $11.10 in 2023. Based on its current share price, it’s trading at just 6.5x 2023 earnings.

That’s cheaper than at any time in the past decade.

Freedom Boat Club Drives Stable Growth

In 2019, Brunswick acquired Florida-based Freedom Boat Club, the country’s largest and oldest boat club, for $64.1 million. 

When Brunswick acquired the boat club franchise, Freedom had approximately 20,000 members in the U.S., Canada, and Europe, who could reserve more than 2,000 boats at 185 locations in North America. Members pay a one-time fee, an ongoing monthly fee, and the fuel used for each trip out. 

Today, Freedom has more than 50,000 members and 5,000 boats available. As 10 new members join, the club owners aim to add a new boat to keep the members-to-boat ratio reasonable.

In Q2 2022, Brunswick acquired the Tampa Bay franchise of Freedom for approximately $96 million. The Tampa Bay franchise is the largest in the Freedom network, with 30 locations in the Tampa area. The locations are next door to 50 sites in Florida that are already owned by Brunswick.        

“The acquisition of the Tampa Bay business and territory presents a tremendous opportunity to expand our corporate footprint and accelerate growth in one of the fastest growing regions in the United States,” stated Freedom Boat Club Network President Cecil Cohn in the press release announcing the acquisition.

While the Freedom Boat Club’s annual revenues aren’t a material amount for Brunswick, the public relations and marketing generated by the club network make it a valuable asset in the years ahead. 

Younger professionals who don’t want to buy a boat because of the cost and upkeep but like having one available from time to time will continue to join Freedom in the years ahead. 

By owning the brand, Brunswick controls the narrative. It wasn’t the company’s biggest acquisition — not by a longshot — but it just might turn out to be one of its most important. 

The Bottom Line on BC Stock

Understandably, investors are leery of investing in Brunswick right now. 

While the job market is robust, inflation and higher interest rates appear ready to ruin the party. S&P 500 consumer discretionary stocks are down more than 30% year-to-date with no relief in sight. 

The long-term prognosis for Brunswick’s business, however, is good. If you’re a buy-and-hold investor, current prices are attractive. I’d consider buying more on weakness. 

 

 

 

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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.

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