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Text: Please keep in mind that our actual results could differ materially from these expectations.
All of these documents are available on our website at brunswick.com.
Our businesses had another outstanding quarter.
We closed the first half of 2021 by delivering record results as a result of continuing strong retail demand, outstanding operational performance and success in mitigating material supply and labor challenges.
All of our businesses delivered exceptional growth during the quarter.
Our Propulsion business continued to realize strong outward market share gains, leveraging the strongest product lineup in the industry.
Our Parts and Accessories businesses continued to benefit from robust aftermarket demand, driven by elevated boating participation.
And our Boat business posted its second consecutive quarter of double-digit adjusted operating margins despite significant supply chain, transportation and labor challenges.
Robust retail demand for our products in the first half of the year has driven field inventory levels to the lowest level in decades at approximately nine weeks on hand.
And we are progressing our efforts to efficiently increase capacity across several of our facilities to satisfy orders from our global customer base and begin to replenish the pipeline.
As many of you know, we've also had a busy few months on the M&A front.
At the end of the quarter, our Advanced Systems Group significantly expanded its product and brand portfolio by announcing the signing of a definitive agreement to purchase Navico, an industry leader in marine electronics.
In addition, we announced in early July that Freedom has expanded into Spain through the acquisition of Fanautic Club.
I'll touch on both these exciting transactions later in our discussion.
Given the unique demand and inventory environment, together with continued strong boat usage through the prime season, which drives P&A sales, we have improved visibility on our ability to deliver against an extremely favorable outlook for the remainder of 2021.
And consequently, we have increased our 2021 guidance.
Before we discuss the results for the quarter, I wanted to share with you some updated demographic insights through the first half of 2021 and comparisons with the favorable trends we experienced in 2020 versus 2019 in the industry.
I'm happy to report that we are not seeing any change in the significant metrics we shared with you during our first quarter earnings call in April.
Brunswick's average boat buyer age continues to be two years younger than the industry average.
Additionally, Brunswick's first-time boat buyers continue to be younger than our overall boat buyer demographic and three years younger than the industry.
First-time boat buyers are trending more female than they did in 2020, and Brunswick over-indexes to the industry by approximately 800 basis points.
In Freedom Boat Club, the average Freedom member continues to be almost three years younger than our typical boat buying customer and female Freedom members make up approximately 35% of our member base.
We continue to outperform the industry in attracting younger and more diverse first-time boat buyers, positioning us for very strong growth in years to come.
These trends are an extremely important validation of our strategy to secure a healthy future for Brunswick and are also favorable for the entire marine industry.
I also wanted to share with you some awards that Brunswick received during the second quarter that provide more strategic proof points.
Brunswick received 6, 2021 boating industry top product awards, including for the Mercury Marine V12 600-horsepower Verado and the Sea Ray 370 Sundancer Outboard we highlighted recently, but also for our Bayliner Element M15 entry-level boat, BEP's Smart Battery Hub, Attwood's Sahara Mk2 automatic bilge pump, and MotorGuide's Xi3 Kayak Trolling Motor.
Brunswick has also been recognized by Forbes for the second year in a row as one of the best employers for women and ranked second overall in the engineering and manufacturing category.
The winners were chosen based on a survey of 50,000 US employees working for companies employing at least 1,000 people in their US operations and only 300 companies made the final list from the thousands of companies that were considered for the honor.
Finally, Brunswick recently had three employees and a Freedom Boat Club franchisee, Bev Rosella, honored with a Women Making Waves Award from Boating Industry Magazine.
We are very proud of these women leaders.
As you know, equal opportunity, inclusion and diversity are cornerstones of our culture.
I'll now provide some second quarter highlights on our segments and the overall marine market.
Our Propulsion business continues to gain significant retail market share in outboard engines, especially in the higher horsepower categories, where we have focused higher levels of investment in recent years.
For the first half of the year, Mercury has gained share in each horsepower category over 75-horsepower, with outsized gains in nodes in excess of 200-horsepower.
I'm also pleased to announce that we began shipping the new 600-horsepower V-12 Verado engine in late June, and as anticipated, demand has been extremely strong.
We're essentially sold out of the V-12 production slots for the remainder of 2021.
And we estimate that just during the back half of 2021, we will sell more outboard engines in this above 500-horsepower class that was sold in the entire prior history of the outboard industry.
Given the surging demand in the current environment and new product launches planned in the coming years, Mercury is accelerating additional capacity investments at its primary manufacturing center in Fond du Lac, Wisconsin, in order to maximize its ability to serve the market and capture further share.
Our Parts and Accessories businesses experienced significant topline and earnings growth and significantly overdrove expectations in the quarter due to outstanding execution, robust aftermarket demand driven by elevated boating participation and favorable weather conditions in many areas.
The Advanced Systems Group, which has a larger OEM component to its business and also serves certain non-marine segments, benefited from prior year comparisons as a result of Q2 2020 customer COVID-related plant shutdowns.
As a result, ASG realized significant growth across all product categories and delivered strong operating margins that were accretive to the overall segment.
Finally, as I mentioned earlier, in late June, our Advanced Systems Group strengthened its product and brand portfolio and significantly expanded its scale and capabilities by announcing the signing of a definitive agreement to purchase Navico.
This action will further accelerate our ACES strategy and will enhance our ability to provide complete innovative digital solutions to our consumers and comprehensive integrated systems offerings to our OEM customers.
We believe this transaction will close in the second half of 2021.
Our Boat segment had another outstanding quarter, posting its second consecutive quarter of double-digit adjusted operating margins despite significant supply chain uncertainty, while delivering output consistent with our production plans for the year.
We ended the second quarter with historically low pipeline inventory levels due to consistent strong retail demand for our products.
Given the continued robust retail demand and our dealers' continued desire to take all available product, our 2021 production slots are now sold out for the calendar year, with five brands completely sold out through the 2022 model year.
In fact, the sum of our wholesale orders for 2022 model year product is already roughly equal to our projected 2021 full year wholesale Boat Group revenue.
We continue to hire additional new production employees at most facilities to maintain production consistent with our stated plan.
We remain on track with our plans to ramp up and staff the Palm Coast facility and expand our operations at Reynosa and Portugal.
Additionally, we've identified capital-efficient investment options to further raise capacity to approximately 50,000 annual production units by 2023, should this volume of product be required.
Freedom Boat Club also continues to exceed our expectations, growing both organically and through acquisition with a young and diverse customer base.
With the recently announced acquisition of Fanautic Club and expansion into Spain, Freedom now has 314 locations and 44,000 memberships networkwide, and is closing in on 4,000 votes in the overall Freedom fleet, with an increasing percentage of Brunswick product.
The outstanding operational and financial performance I've been discussing has not been without some external challenges that our businesses continue to manage and mitigate sometimes on a daily basis.
Our supply chain teams in particular, have performed extremely well.
Winter storms in late first quarter and resulting power outages in Central and Southern United States disrupted the supply of oil-based resin and foam products throughout the second quarter, while tight semiconductor supply, raw material shortages and transportation disruption and resulting cost increases continued to present challenges, which we are actively managing.
As a result, our businesses have implemented price increases that are higher than normal, but we believe are generally at the lower end of those implemented across the industry.
The global reach of our supply network and our unique scale in the marine industry, together with our purposeful vertical integration, have so far enabled us to mitigate these challenges and keep our enabled us to mitigate these challenges and keep our production plans on track for 2021.
Finally, labor conditions remained tight in many locations in which we manufacture product.
But our talent acquisition teams have been working hard and successfully to add manufacturing and other talent to our teams, as we increase production.
Next, I'd like to review the sales performance of our business by region on a constant currency basis, excluding acquisitions.
As expected, all regions posted significant sales growth in the quarter versus both, 2020 and 2019.
Domestic sales grew 55%, with international sales up 49%, versus prior year.
We are seeing strong performance across all international regions, with Asia Pacific still growing despite an extremely strong comparison in 2020.
We continue to experience robust demand around the globe, especially for propulsion products.
And we'll be working through backlogs in certain product categories through the remainder of 2021 and into 2022.
This table provides more color on the recent performance of the U.S. marine retail market, comparing the first half of 2021 to same periods in 2020 and 2019.
As is usual for this time of year, there's significant noise in the month-to-month SSI data, but the positive market trends continue.
All boat categories reported retail gains in the first half of 2021 and continuing the momentum from 2020.
Despite more difficult year-over-year comparisons in May and June, the main powerboat segments are still up 17% in the first half of 2021 versus 2020 and up 13% versus 2019.
Brunswick's year-to-date unit retail performance is generally in line with market growth rates with strength in outboard boat categories.
Outboard engine unit registrations were up 5% in the first half of 2021, when compared with the same time period in 2020.
With Mercury's first half growth more than doubling the market growth rate, resulting in significant market share gains, as I discussed earlier.
As we enter the second half of the year, U.S. lead generation, dealer sentiment and other leading indicators all remain very positive.
Approximately 40% of the boats leaving our manufacturing facilities are retail sold, which is approximately three times historical averages.
In addition, five of our brands, including Whaler, have all model year 2022 production slots already sold.
All these factors give us high confidence in the continuing retail strength as we complete the 2021 selling season and move into 2022.
I'm pleased to share with you the results from another fantastic quarter.
To provide perspective in the slides that follow, we have included comparisons in certain places to both the second quarters of 2020 and 2019 in order to highlight the outstanding performance in each of our businesses over the past few years.
When compared with 2020, second quarter net sales were up 57%, while operating earnings on an as-adjusted basis increased by 126%.
Adjusted operating margins were 17.1% and adjusted earnings per share was $2.52, once again setting new all-time highs for any quarter for which we have available records.
Sales and earnings in each segment benefited from strong global demand for marine products, with earnings also positively impacted by favorable factory absorption from increased production and favorable changes in foreign currency exchange rates, partially offset by higher variable compensation costs and increased spending in sales and marketing and ACES and other growth initiatives.
Finally, we had free cash flow of $268 million in the second quarter, with a free cash flow conversion of 135%.
First half comparisons are equally as favorable.
Net sales through the first half of 2021 were up 53% when compared with the first half of 2020, and operating margins of 17% or a 520 basis point improvement from 2020.
This resulted in first half earnings per share of $4.76 and a very robust operating leverage of 27%.
Turning to our segments, revenue in the Propulsion business increased 64% versus the second quarter of 2020 as each product category experienced strong demand and market share gains.
Consistent with the theme from the first quarter, boat manufacturers continue to ramp up production in the second quarter and our increased capacity enabled continued elevated sales to the independent OEM and international channels.
Sales growth was also strong across all product categories when compared to the second quarter of 2019.
Operating margins and operating earnings were up significantly in the quarter, benefiting from the factors positively affecting all of our businesses.
In our Parts and Accessories segment, revenues increased 42% and adjusted operating earnings were 46% up versus the second quarter of 2020, due to strong sales growth across all product categories.
Adjusted operating margins of 23.2% were 60 basis points better than prior year quarter, with significant sales increases driving the robust increase in adjusted operating earnings.
Sales growth was also very strong across all product categories when compared to the second quarter of 2019.
This aftermarket-driven annuity-based business continues to benefit from more boaters on the water, which is being augmented by flexible work schedules allowing for more leisure time, with the OEM component of the business, leveraging investments in technology to take advantage of increased demand from both builders as they continue to increase production.
As anticipated, our Boat segment results benefited the most when compared with the second quarter of 2020 due to last year's COVID-related plant shutdowns and production ramp-up.
Sales were up 80% and operating margins were 10.5% for the quarter, the second straight quarter this segment has delivered double-digit margins.
Each brand had strong operational performance, executed their aggressive production plan and contributed to the overall segment's success in the quarter.
When compared to the second quarter of 2019, sales were up 22%, and operating margins were up 160 basis points, further illustrating the foundational improvements that have been made in this business.
Operating earnings were also positively impacted by the increased sales and the lower retail discount levels versus 2020.
Freedom Boat Club, which is included in business acceleration, contributed approximately 3% of the segment's revenue and a margin profile that continues to be accretive to the segment.
Turning to pipelines, our boat production continues to ramp consistent with our plans to produce approximately 38,000 units during the year.
Despite producing almost 10,000 units in the quarter, which is up 5% from the first quarter, retail outsold wholesale replenishment by more than 7,000 units, bringing dealer inventories to an all-time low of approximately 7,400 units.
Our boat brands ended June with under 10 weeks of boats on hand, measured on a trailing 12-month basis, with units in the field lower by 50% versus same time last year.
Given our view that the industry retail market will be up high single-digit percent for the year, we believe that retail will outpace our production targets resulting in our year-end weeks on hand to be lower than year-end 2020 by several weeks.
We continue to work with our brands to unlock additional near-term capacity through automation, labor and select capital initiatives, including the capacity actions announced earlier in the year related to our Palm Coast, Reynosa and Portugal facilities, which will begin providing benefits by the end of the year.
2021 is shaping up to be another year of robust earnings and shareholder returns, with pronounced margin increases and substantial free cash flow generation resulting from our outstanding operating performance in a healthy marine market.
Given the enhanced clarity on our ability to drive growth in upcoming periods, we are providing the following updated guidance for full year 2021.
Without including the potential benefits from the Navico acquisition, we anticipate the US marine industry retail unit demand to grow high single-digit percent versus 2020; net sales of between $5.65 billion and $5.75 billion; adjusted operating margin growth between 150 and 180 basis points; operating expenses as a percent of sales to remain lower than 2020; free cash flow in excess of $450 million; and adjusted diluted earnings per share of approximately $8.
We're also providing directional guidance regarding the third quarter, where we anticipate revenue growth of mid-teens percent and earnings per share growth of high single-digit percent.
Note that we believe that the Navico transaction, once closed, will be earnings neutral to 2021 as we anticipate Navico's post-closing earnings to offset the incremental interest incurred as a result of the deal.
Next, I'd like to provide some perspective on our 2021 performance against 2020 and 2019 by looking at first half and second half results.
The revenue cadence for 2021 will look more like 2019 and 2018 than it did in 2020.
The first half of every year has additional production days as the second half includes model changeover and holiday shutdowns.
However, first half of 2020 was materially impacted by the COVID-related plant shutdowns.
This resulted in the first half of 2021 comparing very favorably to 2020 in all of our businesses due to higher production volumes, with additional earnings tailwinds from improved absorption, favorable foreign currency comparisons and favorable changes in customer mix in our Propulsion business.
These factors far outweighed the headwinds from supply chain challenges, inflationary pressures and higher variable compensation expenses experienced during the first six months of this year.
Our first half performance this year also exceeded 2019 in every metric.
As we head into the second half of 2021, we will face more difficult comps to 2020 as the company recorded record-high earnings per share over the same period last year, and we will continue to be challenged with supply chain constraints and increasing input and freight costs.
Although, we are taking price increases across our businesses, we also anticipate moderated sales mix with propulsion sales trending more toward core OEM customers, more typical seasonality in the P&A business and a higher percentage of overall growth in the Boat business; increased spending on ACEs and other growth initiatives; smaller benefits from currency and absorption; and a higher tariff impact.
However, despite more challenging second half comparisons, this continues to be a growth story.
We anticipate expanding top-line in the second half by double-digit percent versus the second half of 2020, which will be more than 40% greater than 2019 with higher earnings as well.
I will conclude with an update on certain items that will impact our P&L and cash flow for the remainder of the year.
The only meaningful update relates to our effective tax rate for the year.
Due to some fantastic branch restructuring work by our tax team and business units, we now believe our effective tax rate for 2021 will be approximately 22%, which is slightly lower than our estimate from our April call.
Similarly, and putting aside the financing related to the Navico transaction, our capital strategy assumptions have not materially changed.
In the past few weeks, however, we have taken several steps to strengthen our overall liquidity and shareholder return profile.
We extended and expanded our revolving credit agreement, which is now in effect through July of 2026, which now provides for $500 million of borrowing capacity, an increase of $100 million.
In addition, our Board of Directors increased our share repurchase authorization earlier this month, and we now have over $400 million approved for repurchases, which we plan to systematically deploy consistent with our capital strategy.
These moves follow our substantial 24% dividend increase approved in April as we continue to balance desired increases in shareholder return and investment in growth initiatives.
We now anticipate spending $270 million to $300 million on capital expenditures in the year to support and in some cases, accelerate growth initiatives throughout our organization.
This slightly increased planned spending is primarily related to the Mercury capacity expansion that Dave discussed earlier.
At our April call, we felt that 2021 was setting up to be an outstanding year for all of our businesses.
And the combination of continued robust retail demand during the first half of the year and solid operational execution by our businesses has us squarely on track to deliver against our operating and strategic priorities.
Our top priority for the Propulsion segment continues to be satisfying outboard engine demand from new and existing OEM customers and expanding market share, especially in dealer, saltwater, repower and international channels.
We are continuing to invest heavily in new product introductions and industry-leading propulsion solutions that we project will enable top line and earnings growth far into the future.
And we've also recently taken the decision to accelerate the introduction of incremental capacity.
Our Parts and Accessories segment remains focused on optimizing its global operating model, to leverage its distribution and position of strength in areas of battery technology, digital systems and connected products in support of our ACES strategy.
We look forward to closing the Navico deal and beginning thoughtful integration into the ASG business.
We will continue to focus M&A activity in parts and Accessories, as we look for opportunities to further build out our technology and systems portfolio.
The Boat segment will build on its first half successes, by continuing to focus on operational excellence, improving operating margins, launching new products, executing capacity expansion plans and refilling pipelines, in the very robust retail environment.
In addition to the Navico and Freedom Boat Club transactions, and the start of shipments of the V-12 600-horsepower outboard, which I've already discussed, proof points in the quarter included, the launch of the My Whaler and Sea Ray+ apps for Apple and Android users, which advances the ACES Connectivity strategy by improving the boat ownership experience, reducing friction across the entire ownership journey.
The initial reception of these products is extremely promising, with more than 2,000 accounts created in the first few weeks and a star rating of 4.9 out of five.
And the launch of the Heyday H22 Wake boat, a new leading-edge, wake-surf model, signaling a doubling down on this fast-growing brand appealing to a younger demographic.
This model is already sold out through mid-2022.
We're tracking well against all our Next Wave strategic goals, including the electrification initiatives outlined in May.
Your hard work has enabled us to seamlessly execute our strategic plan and significantly outpace our initial growth and profit expectations.

user
brunswick corporation releases second quarter 2021 earnings.
for q2 of 2021, reported consolidated net sales of $1,554.8 million, up $567.0 million from q2 of 2020.
q2 gaap diluted earnings per share of $2.29 and as adjusted diluted earnings per share of $2.52.
sees 2021 net sales between $5.65 billion and $5.75 billion.
sees 2021 free cash flow in excess of $450 million.

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