00:00Brunswick reporting earnings yesterday and the shares are higher because the boatmaker beat expectations and raised its outlook.
00:08But higher fuel costs are starting to hit boaters.
00:11So we want to ask more about this tension.
00:15Who better to ask than the CEO of Brunswick.
00:18Dave Fulks joins us.
00:19So, Dave, I mean, pretty exciting as we get into better weather, at least for us here in the northeast,
00:26to think more about boating.
00:28And obviously that shows through in your earnings and your outlook.
00:33At the same time, you know, these things are gas guzzlers to some extent.
00:40So how does that affect demand?
00:44Yeah, great to be with you, Matt.
00:46Thank you for having me on.
00:47Yeah, we had a great quarter, as you said earlier, beat top and bottom lines.
00:52Obviously, gas prices are a talking point at the moment, but they're still really within historical bounds.
00:58And, you know, we don't make mega yachts.
01:01We make boats in the 20 to 40 feet range.
01:04And what's maybe not well understood is that those boats use in a year about 25 percent of the fuel
01:13of an average passenger vehicle.
01:14So the fuel is a relatively small component of the running costs of a boat.
01:19In fact, for a lot of boats, it's less than 10 percent.
01:22So although it's a talking point, it really isn't deterring new boat sales or boats of participation at the moment.
01:29And I know in the markets where there is really direct exposure, be it the Middle East or Asia, where
01:35oil supplies are tighter.
01:37Again, it's small in terms of your overall business.
01:39But, Dave, what are you seeing in those markets?
01:41How are clients in the Middle East and Asia behaving?
01:45Yeah, as you said, Danny, you know, we're about a five and a half billion dollar company.
01:49Our exposure in the Middle East is less than 100 million.
01:53So it is a small portion of our revenue, but a good market for us.
01:57And actually, somewhat surprisingly, demand is still good.
02:01Actually getting the boats there, the logistics, boats and engines, is a bit more troublesome at the moment.
02:06But demand is still good.
02:08So we expect to see maybe a modest impact on revenue from the region, but not very substantial at the
02:14moment.
02:15We were just down in Miami, and I imagine that must be one of your hottest markets, you know, for
02:20a sea ray especially.
02:23You have brands that I grew up with, like Boston Whaler.
02:27Like, you know, Mercury is pretty much synonymous with boat engines.
02:32What are the hottest markets for you around the U.S. right now?
02:35And where do you see the most growth?
02:37Well, you're right, Matt.
02:39You know, Miami, that whole, Florida is a strong market for us, particularly for our premium product lines.
02:44You mentioned Sea Ray, Boston Whaler, high horsepower Mercury.
02:49If you looked at the Miami boat show recently, Mercury had 60 percent of all the outboards there, more than
02:5580 percent of the outboards on the water.
02:58Sales of Mercury and Sea Ray and Boston Whaler were up.
03:03If you looked at the Palm Beach show, which was just a few months ago, we had really strong share
03:09again and revenue up 40 percent year over year.
03:13So those premium markets are really strong for our premium products at the moment.
03:17Have you seen a pickup there, Dave, as, you know, Wall Street moves south, you know, as the guys from
03:24Citadel get their bonuses and think, like, why don't I have a ski boat?
03:29Have you seen real growth down there?
03:32Yeah, it continues to be a very strong market.
03:35You know, we said in the first quarter that unit sales were about flat year over year.
03:40But beneath that, you see premium much stronger than value.
03:45And, of course, Florida is mainly a premium saltwater market.
03:48So I don't know if we can directly correlate those specific moves of individuals out of New York to Florida.
03:54But I would say Florida continues to be very strong for the premium boats.
03:58I'm trying to build a narrative here, Dave.
03:59You know, I'm trying to.
04:00And I feel like campaign for yourself to be in Miami to get one of these boats.
04:04I mean, you know, the whole industry moving down there, this is real money.
04:08And, you know, if you have a free Saturday or Sunday, which many of them, to be fair, don't, you
04:14want to be out on the water.
04:15And the weather's always nice.
04:17Dave, I was interested, though, what you were saying, the difference between premium and value.
04:20Why is value lagging behind at this moment?
04:23I think it's a little bit of the K-shaped economy phenomena, Danny.
04:28What we do see, actually, is you can even split value up a bit.
04:34Value aluminum boats, fishing boats, are pretty strong.
04:37In fact, in the first quarter, our sale of aluminum boats is up 17 percent, so pretty strong.
04:44Where we see a bit more weakness is in the value fiberglass boat, the runabout-type boat.
04:50That is a boater probably a little bit more cautious at the moment due to the economic situation.
04:57But for those kind of boaters, as you know, we have Freedom Boat Club, our shared access boating model that
05:03allows people to get on the water without purchasing a boat through a subscription model.
05:08So we're trying to make sure that we get as many people into boating from across the demographic spectrum as
05:14possible in a way that suits them.
05:16I only use those runabouts, you know, in duck season, right, because I need to get out on the sound.
05:20Of course.
05:22To shoot those birds.
05:23Dave, I wonder about the infrastructure question.
05:26I'm thinking about this, again, after, you know, being in Miami, talking to all these professionals moving down there.
05:33They need not just nice weather and a place to live, but homes to buy, schools where their kids can
05:40go.
05:41And for your business, they need, obviously, to have a dock.
05:46You know, they need to have a marina to some extent.
05:49How important is that to you, and what kind of marina growth do you see in this country?
05:55Yeah, interest in marinas, Matt, is very strong at the moment.
05:59There are a number of investors buying marinas and expanding marinas.
06:04But the U.S. overall, you know, has a wealth of marina infrastructure.
06:09There are about 10,000 marinas in the U.S.
06:12It is very well served.
06:15So, although there are, you know, sometimes an individual might struggle to get into a particular marina,
06:20there's a lot of investment going in, which is very supportive for our business,
06:25very supportive for boat sales, but also for Freedom Boat Club,
06:27because we rent those marina slips for our boat club purposes.
Comments