It's a Mystery - Brunswick - BC
On Thursday Brunswick - BC - $79 , one of my Top 20 model portfolio stocks, missed Q2 earnings badly and guided 2024 down from $7.00 to $5.00. Instead of the expected bloodbath, the stock rose 8% for the day.
Try to explain that. The stock was up before the conference call, and there was no new information on the call.
There is a really good reason that nobody has ever tried to write a blog like this one before. Sometimes you have to admit - I have no bleeping idea what is going on.
Let me try my best to guess what is going on. Always remember, when in doubt blame short sellers.
Two days earlier Polaris - PII reported a bad quarter and guided 2024 down from $8.00 to $3.00. PII has a small (15% of sales) segment that makes pontoon boats. Could the short sellers have jumped into BC in two days? Never underestimate the stupidity of short sellers. BC reports a short interest of about 8%, but there must be some lag in reporting that number.
Even more likely, is my guess that short sellers were using the state boat registration data, which seems to show that boat registrations are down 20%+. When BC reported unit sales down only 10%, it is very possible that was better than the short sellers expected. They bailed and covered in a hurry.
The lesson learned is - it is very difficult to be a short term trader.
Let’s take a moment to focus on BC’s longer-term issues:
BC said that by July 24th at least 75% of 2024 orders have already been booked. The company thinks they have “good visibility” on their new 2024 estimate of $5.00. Perhaps that is why the stock was up. Wall Street loves visibility.
BC said they have 75% market share in boats over 300 horsepower, compared to 48% overall. They said they have “pricing power” in the 300+ horsepower market. Don’t say that too loud when my imaginary girlfriend FTC chairwomen Lina Kahn is around.
BC said that 2/3 of their business is related to fishing, and those sales are almost flat. That is a big number, and should make BC less risky.
At their 2022 investor day, BC had a clear presentation that their “downside” earnings risk was $6.00 share. If 2024 is indeed BC’s down year, unit shipments will be down 10%, the BC estimate is pretty damn good.
The last big down boating year was 2010. Units sold dropped to 140,000, and BC lost $1.00 per share. 2024 boating industry unit sales are estimated at 140,000, and BC expects to make $5.00/share. BC is proving they are a different company than 15 tears ago.
Boating participation is actually up in 2024, it is just boat buying that is down. BC actually had increasing sales in its boat club business.
The balance sheet is sound. Interest coverage is 6x, and inventories are under control at the BC level and the dealer level.
I still think BC is a Top 20 model portfolio holding.