Why Brunswick Is Riding High From the Pandemic

Recreational products like RVs and sporting goods boomed during the pandemic, so it's not a surprise that boat-maker Brunswick Corporation (BC -0.89%) is also getting some tailwinds.

In this episode of "Beat and Raise" recorded on Jan. 28, Fool.com contributors Jason Hall and Brian Withers discuss Brunswick's latest quarter, why the company is expecting a strong 2022, and why management needs to be disciplined. 

Brian Withers: Awesome. Jason, I want to talk boats, buddy. This is the boat company and their smallest segment is boats.

Jason Hall: It's funny. Their smallest segment is boats, and their name is one that people are most familiar with for bowling.

Brian Withers: I was like, "Oh crap, is this a bowling company? [laughs]

Jason Hall: Used to be. We're talking Brunswick Corporation here. Let me get my screen-share open here. But that's the funny thing about it, they actually divested that unit some time ago and their biggest brands, now if anybody, if you're an avid boat person, then you're familiar with Mercury. Mercury is not the part of Ford. They used to make Ford cars. Mercury engines are some of the most popular, reliable engines for boats that you're going to find so Mercury is, I think that's their biggest business. They sell the OEMs it's about makers including themselves. They sell third-party rights. You want to to buy a motor for an old boat that you bought. They do a lot of repowering business. It's a big part of their business and parts and accessories is a really big part of their business. Then they also sell boats.

Brian Withers: They also sell boats. [laughs]

Jason Hall: Yeah, they also sell boats. So of course, the first thing off the bat, remember that that means it's a pretty cyclical business. But oh man, oh man is business really good.

Brian Withers: I never would've thought that this last quarter would've been a tremendous quarter for the company.

Jason Hall: It was wonderful. They went into the quarter, I think they had 10 weeks of inventory on lots, now they have 15 weeks of inventory coming out of it and that's way lower than it normally is, and it's something that they're working on. Just massive pent-up demand, even through all of the supply chain stuff, they've done really well. Revenue, $1.4 billion up 23 percent. Earnings-per-share was only up 7.4 percent again, because they are dealing with higher costs. They're dealing with delays. They're dealing with all of the supply chain stuff. This is definitely one of the kind of businesses that's affected. They said that it's not even just suppliers, they're dealing with it, but they're dealing with it and some of their own manufacturing. They're feeling those labor pinches and they are in their own business.

Adjusted earnings per share and revenue targets for next year. They're expecting continued growth. They finished the year with $5.85 billion in revenue, at the high end of next year, they're saying they could do $7 billion dollars in sales. You could see another great growth year. Adjusted earnings this year, while GAAP earnings this year actually were $7.59. On an adjusted basis in the high-end, they're saying they can earn $10.25 in 2022. Again, record sales and earnings this year was all the segments of propulsion, that's motors up 12 percent. Again accessories and parts were up 40 percent. The bottom line is that there's a lot of people that want a new boat but they can't afford it, or the boat they want's not around. That means a lot of money is flowing into parts and accessories. Then you just have the general increase in outdoor activity, that we've seen over the past year and a half. Then boat sales were up 14 percent. Because if there's a boat on the lot, people are going to buy it.

Looking at the go-forward situation. Again, I think the biggest one is going to be to navigate their supply chain pressures and also to continue to stay disciplined. It's really tempting for businesses like this in this part of the cycle to chase sales, to try to get, while the getting is good, and you run the risk of building your operation up too much, getting over-leveraged, getting out over your skis too much as they say in this case over your water skis, too much Brian, then the cycle turns, demand weakens, something happens, there's an economic shock and the first thing people do is decide to not buy a new boat. That can hurt this sort of business. I think as long as management continues to stay disciplined, which they've got a long track record of doing, I think it's going to work out well. It does definitely looks like 2022 is going to be a great year.

Brian Withers: They've been in this business long enough that I don't think they're going to pull a Peloton.