Brunswick Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024, compared with the three months ended April 1, 2023. Brunswick operates in seasonal marine markets; interim results may not indicate full-year performance. Amounts below are in millions except per-share data and percentages.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $1,365.0 | $1,743.6 | (21.7)% |
| Gross margin | $373.6; 27.4% | $505.6; 29.0% | Down 160 bps |
| Operating earnings | $110.6; 8.1% margin | $236.1; 13.5% margin | (53.2)% |
| Adjusted operating earnings (non-GAAP) | $141.5; 10.4% margin | $262.4; 15.0% margin | Down 46.1% |
| Net earnings from continuing operations | $68.4 | $112.4 | (39.1)% |
| Diluted EPS from continuing operations | $1.00 GAAP; $1.35 adjusted | $1.56 GAAP; $2.57 adjusted | Adjusted figures are non-GAAP |
| Operating cash flow, continuing operations | $(148.1) | $(14.5) | Greater cash use |
| Free cash flow (non-GAAP) | $(204.5) | $(103.6) | Greater cash use |
Net earnings were $68.0, including a $0.4 net loss from discontinued operations. Net interest expense increased modestly as average daily debt outstanding rose. The effective tax rate was 21.4%, versus 46.8%, primarily because Q1 2023 included tax expense related to an intercompany intellectual-property sale and had higher pretax income in high-tax jurisdictions.
Segment results
| Segment | Sales | Operating earnings (loss) | Year-over-year sales change |
|---|---|---|---|
| Propulsion | $578.2 | $82.8 | (23.1)% |
| Engine P&A | $262.4 | $33.2 | (9.1)% |
| Navico Group | $210.9 | $(2.4) | (23.9)% |
| Boat | $425.7 | $29.4 | (26.0)% |
Liquidity, debt and capital
- Cash and cash equivalents were $548.4; cash, cash equivalents and short-term marketable securities totaled $549.2.
- Total liquidity, including $741.7 of available revolving-credit capacity, was $1,290.9. The company reported no revolving-credit borrowings at quarter-end and said it was in compliance with debt covenants.
- Total debt was $2,827.3, up from $2,430.4 at December 31, 2023; debt-to-capitalization was 58%, versus 54% at year-end.
- In March, Brunswick issued $400.0 of 5.850% senior notes due 2029, receiving $396.9 in net proceeds. Proceeds are for general corporate purposes, potentially including repayment or repurchase of other securities.
- Operating cash use reflected working-capital needs: receivables rose $130.4, inventory rose $104.8, and accounts payable and accrued expenses declined. Cash from financing activities was $294.1, primarily from the debt issuance, partly offset by $63.6 of share repurchases and $28.6 of dividends.
Material changes, outlook and risks
- Management attributed the sales decline mainly to lower wholesale volume as boat manufacturers and dealers moderated orders and managed inventories ahead of the retail season and model-year changeover. Volume reduced consolidated sales by 23.3%; pricing and product mix partly offset the decline. Propulsion gained 200 basis points of U.S. outboard-engine market share year over year.
- Gross margin declined due to manufacturing-cost absorption, material and labor inflation, foreign-exchange effects and depreciation, partly offset by sales-related factors and acquisitions. Lower sales and production also pressured segment earnings; Navico Group recorded an operating loss.
- Management expects approximately $12 million of annualized cost savings from Q1 restructuring actions. Restructuring charges were $13.5, versus $9.5 a year earlier; accrued Q1 charges of $9.9 were expected to be paid within 12 months.
- For full-year 2024, management continued to anticipate capital expenditures of approximately $225 million and share repurchases of approximately $250 million, with expected average diluted shares of 68 million. The filing provides no clear full-year sales or earnings guidance.
- Management cited consumer discretionary spending and interest rates, foreign exchange, competitive pricing, supply and transportation disruption, dealer inventory and financing, production absorption, weather, cybersecurity, product liability and warranty claims, and execution of restructuring and growth plans among risks. The filing reported no material change to previously disclosed risk factors.
- Q1 2024 included $0.3 of costs related to the 2023 IT security incident. Adjusted results exclude restructuring, purchase-accounting amortization, acquisition/integration/IT costs and other specified items; Q1 2023 adjusted EPS also excluded a special tax item.
Investor verification checklist
- Track dealer and manufacturer ordering, retail demand, and whether seasonal inventory normalization supports a sales recovery.
- Verify working-capital conversion and the timing of receivable collections and inventory reductions, given the increase in operating cash use.
- Monitor debt, interest costs, covenant headroom and the use of proceeds from the 2029 notes, including any repayment of 2024 notes.
- Assess delivery of the projected restructuring savings and the planned capital expenditures and repurchases against cash generation.
- Compare GAAP results with adjusted measures and review the reconciliation items when evaluating earnings trends.