When you hear the name Brunswick Corporation (BC 0.12%), you would be forgiven for not immediately thinking of boating. For many years, Brunswick was best-known for billiards and bowling. After many years of operating in various industries, Brunswick's current management team has sold off everything but the boating segment, and the more focused business that has resulted is putting up impressive results.
In fact, over the past three years, Brunswick's total return of 73% has easily outpaced the S&P 500's 47% gain. The company saw increased interest in boating over the pandemic and this demand has remained, resulting in strong performance for the company. Combine that with its shareholder-friendly use of capital, and there are several compelling reasons to add Brunswick to your portfolio.
Interest in boating remains elevated
During the pandemic, boating was seen by many as an attractive activity considering the limited options available. Money saved for travel could be allocated to a boat purchase, and boating is a great activity for remaining socially distant. This interest led to all-time lows of boat inventory, resulting in demand outpacing supply.
NYSE: BC
Key Data Points
Interest in boating has remained elevated, and according to Brunswick's management, inventory levels remain 55% lower than before the pandemic, while boating participation has changed very little from its pandemic-boosted highs.
This has led to several strong quarters of growth for Brunswick. In the recently reported second quarter of 2022, revenue was up 18% while earnings per share (EPS) increased 14%, both record results for the company. Operating income for the quarter also grew 12%, although operating margin slipped by 0.9%.
Each of Brunswick's segments saw revenue growth, and two of the three also posted operating income increases in the quarter year over year (YOY).
|
Segment |
Revenue Growth YOY |
Operating Income Growth YOY |
|---|---|---|
|
Propulsion |
13% |
16% |
|
Parts & Accessories |
19% |
-5.4% |
|
Boats |
27% |
33% |
Data source: Brunswick Corporation.
These results were in spite of some macroeconomic headwinds such as supply chain issues, inflationary pressures, and higher fuel prices.
Subscription boating
One of the more interesting parts of Brunswick's business is its Freedom Boat Club (FBC). For those who enjoy boating but may not have the means or the desire to own a boat, an initial fee and monthly dues paid to FBC allow members to access the fleet of boats at their local club as well as enjoy benefits at other locations around the world.
This part of the business also helps the rest of Brunswick's segments as it strives to get its own boats into the FBC fleets at all of its global locations. This, in turn, drives sales in propulsion and parts and accessories as well. On the conference call, management stated that low inventory levels are the only factor preventing the company from achieving its goal of having the Brunswick portion of the FBC fleet reach 75%.
As of the end of Q2, there were more than 350 FBC locations globally, serving approximately 80,000 members with a fleet size of nearly 5,000 boats. Revenue from FBC is part of the boats segment; it contributed 6% of segment revenue in Q2, up from 3% in the year-ago quarter.
Shareholder-friendly management
In addition to the strong business performance and capital appreciation, Brunswick shareholders also benefit from a growing dividend and increasing share repurchases.
BC Shares Outstanding data by YCharts
In Q2, the company made share repurchases of $140 million and raised the annual repurchase target to $400 million. When combined with the dividend, Brunswick expects to return a record $500 million to shareholders in 2022.
Adding Brunswick to your portfolio
Brunswick might be under the radar for most investors, but it offers a lot of benefits. With its combination of growth and shareholder-friendly capital allocation, I think it makes a good addition to any portfolio.
Further making the case is the fact that Brunswick currently trades for a price-to-sales multiple of 0.9, below its 10-year average of 1.2. Now may be a great time to take advantage of the lower valuation to start or add to a position.
