賓士域 (BC) 2026 年第三季法說會：EPS 成長 63%，上調財測指引

重點摘要

• Brunswick Corporation (NYSE: BC) 公布 2026 財年第三季淨銷售額為 15 億美元，年增 7%，所有報告部門的銷售額均連續第五個季度實現成長。
• 調整後每股盈餘 (EPS) 成長 63% 至 1.58 美元。調整後營業利潤成長 38%，調整後營業利潤率擴張 230 個基點至 10.1%。
• 單季自由現金流成長 26% 至 1.4 億美元。Brunswick 今年以來累計回購 7,500 萬美元股票，並償還 1 億美元債務。
• 引擎零件與配件部門創下 2020 年以來最高的第三季銷售額。其調整後營業利潤率達到 24.6%，上升 190 個基點。
• 管理層將全年調整後每股盈餘目標從 4.55 美元上調至約 4.65 美元，同時維持 57 億至 58 億美元的營收目標，以及約 8% 的調整後營業利潤率目標。
• Brunswick 預計 Aine Denari 將於 1 月 1 日出任執行長，接替 David Foulkes。該公司表示，其策略、資本配置優先事項及長期投資人日目標均保持不變。

核心財務業績

銷售額增加、生產吸收改善、有利的產品組合、營運效率以及嚴格的成本管理支撐了獲利能力。這些因素足以抵消材料與勞動成本通膨，以及計畫中的產品與技術支出。

業務與營運表現

推進系統部門

推進系統銷售額成長 7%，其中舷外機成長 7%，控制系統、索具與螺旋槳成長 9%。調整後營業利潤成長 51%，調整後營業利潤率擴張 350 個基點至 12%。

管理層將利潤率改善歸因於銷售額增加、有利的產品組合、吸收率提高以及關稅壓力較去年同期減輕。Brunswick 維持了美國 46% 的舷外機零售市占率，並表示五個新舷外機計畫中有三個預計於 2027 年推出。

美國舷外機渠道庫存年減 3%，保持精簡。管理層還報告稱，在舊船換機和國際市場的市占率持續提升。

引擎零件與配件部門

在航海活動參與度提升和通路市占率擴大的支撐下，引擎零件與配件銷售額成長 5%。調整後營業利潤成長 14%，而調整後營業利潤率上升 190 個基點至 24.6%。

Brunswick 表示，該部門創下了自 2020 年以來最強勁的第三季銷售額。高毛利產品組合增加、先前的定價措施和成本控制支撐了這一結果，但部分被大宗商品和材料成本上升所抵消。

Navico 集團

Navico 集團銷售額成長 6%，三大業務線均實現成長。新產品拓展推動海洋 OEM 業務實現雙位數成長，而零售與售後市場通路則保持穩定。

調整後營業利潤成長 36%，調整後營業利潤率擴張 140 個基點至 6.1%。廠區整併、SKU 最佳化及其他成本控制措施，足以抵消記憶體和其他材料的通膨壓力。

管理層將新產品、單船裝備價值提升、OEM 拓展、售後市場成長、人工智慧和流程自動化列為未來的利潤率驅動力。

船艇部門與 Freedom Boat Club

船艇部門銷售額成長 9%，主要受鹹水釣魚艇成長 30%、淡水鋁合金船艇成長 13% 以及商業加速業務成長 14% 所帶動。調整後營業利潤翻倍，調整後營業利潤率上升 160 個基點至 3.6%。

該公司繼續減少平價導向產品的供應，同時強調高端和核心產品。管理層表示，這些產品貢獻了船艇集團約 90% 的利潤。

Freedom Boat Club 約占該部門銷售額的 13%。Brunswick 估計 Freedom 占據了北美船艇俱樂部市場 69% 的份額，上升了 4 個百分點。今年以來會員出航次數成長 3%。

管理層業績展望

新的調整後每股盈餘展望比 Brunswick 最初 2026 年預測中位數 4.10 美元高出約 13%，比 2025 年調整後每股盈餘 3.27 美元高出 42% 以上。

管理層預計全年推進系統部門利潤率擴張超過 100 個基點，Navico 集團利潤率擴張超過 200 個基點。

針對 2027 年，管理層重申了戰略計畫目標，即銷售額成長 5% 至 8%，營運槓桿率為 20% 至 25%。這些仍是公司目標而非已公布的財務業績。預期利多因素包括新 Mercury 舷外機、舊船換機與通路市占率成長、Navico 新產品推出、持續的批發與零售平衡，以及已完成的船艇集團工廠關閉所帶來的成本節省。

風險與關注領域

• 地緣政治不確定性、通膨和高借貸成本繼續施壓消費者信心與非必需支出，特別是在重視性價比的消費者群體中。
• 管理層指出了鋁、銅和記憶體的通膨壓力。預計近期大部分成本壓力將影響 2026 年下半年，但未來的商品價格走勢仍存在不確定性。
• Brunswick 維持其對 2026 年淨新增關稅成本約 4,000 萬美元的估算。關稅退款的時間仍不確定。
• 經銷商和 OEM 廠商的情緒保持穩定但謹慎，預計淡季期間的通路補貨將繼續保持克制。
• 截至 9 月，美國船艇產業零售銷售額下降約 4%。Brunswick 表示，在扣除停產的平價機型後，其調整後的美國內部零售表現與產業趨勢一致。
• 燃油價格仍處於高位，但管理層表示，尚未觀察到 Freedom Boat Club 出航次數下降或售後市場需求走弱的航海參與度下滑跡象。

分析師問答亮點

第四季展望：管理層表示，第三季獲利超出預期的部分中，約有一半已被納入調升後的全年 EPS 展望中。未轉移至未來的剩餘部分，主要反映了 7 月未預期到的材料通膨。管理層表示，商業需求和訂單假設並未發生重大變化。

2027 年通膨：Brunswick 認為其在 2026 年下半年吸收了近期大部分通膨壓力。該公司表示大宗商品狀況正在趨於穩定，而緩和措施包括避險、規模採購、價值工程和替代採購來源。

定價：2026 年各產品線的船艇價格上漲了約 3% 至 4%。根據當前的投入成本，管理層預計 2027 年將出現類似的漲幅。舷外機定價預計也將保持溫和。公司提醒，平均售價的提高也反映了向高端產品轉移的趨勢，而不單純是價格調整。

庫存與經銷商：管理層表示渠道庫存仍保持精簡，超過半數的經銷商擁有超過 50% 的可用信貸額度。Brunswick 預計 2027 年將從持續的批發與零售平衡中獲得一些收益。

產品組合最佳化：管理層預計將對平價導向的玻璃纖維船型進行適度的進一步精簡，同時增加對較高價值類別的投資，包括遠航艇和冒險艇。

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管理層陳述

Operator

Good morning, and welcome to Brunswick Corporation's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Stephen Weiland, Senior Vice President and Deputy CFO, Brunswick Corporation.

Stephen Weiland

Good morning, and thank you for joining us. With me on the call this morning are David Foulkes, Brunswick's Chairman and CEO; Ryan Gwillim, Brunswick's CFO and Chief Strategy Officer; and Aine Denari, President of Navico Group and Brunswick's Chief Technology Officer. Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations.

For details on the factors to consider, please refer to our recent SEC filings and today's press release. All of these documents are available on our website at brunswick.com. During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

David Foulkes

Thank you, Steve. Brunswick delivered another strong quarter, characterized by solid execution across the enterprise with financial performance ahead of expectations and year-over-year sales growth across all reporting segments for the fifth consecutive quarter. Headwinds from geopolitical uncertainty, inflation and higher borrowing costs are weighing on consumer confidence and discretionary spending, particularly for the value consumer. Our premium and core focus portfolio continues to be resilient and perform ahead of overall year-to-date SSI data. .

When adjusted for the impact of discontinued value models, our overall year-to-date U.S. retail is in line with the market. Boating participation remains healthy, supporting demand for parts aftermarket products and subscription boating, which together with distribution market share gains helped drive our strongest third quarter engine P&A sales since 2020. Marine OEM orders remain balanced, but with lean pipelines drove solid gains for Mercury Marine and Navico Group.

Bulten engine pipelines remained low and healthy with global boat pipelines down approximately 900 units versus the third quarter of last year, including a reduction of approximately 700 units in the U.S. Overall net sales of $1.5 billion increased 7% versus prior year, and adjusted operating earnings per share of $1.58 increased 63%, benefiting from business outperformance and a favorable adjusted effective tax rate and come in significantly ahead of expectations. Adjusted operating margin increased 230 basis points and expanded by 140 basis points or more across all segments, driven by leverage on higher sales and the lapping of last year's cap impacts offset by cost inflation and planned incremental product development spending. We generated $140 million of free cash flow in the quarter, up $29 million from prior year. with strong earnings helping overcome the increased product investment and reduce working capital benefit due to higher volumes.

Lastly, we've repurchased $75 million of shares year-to-date taking advantage of our strong cash flow and favorable market conditions and retired $100 million of debt, leaving us on track to meet or exceed our $160 million debt reduction target for the year. These actions demonstrate continued execution of our disciplined capital allocation strategy and our commitment to returning capital to shareholders while maintaining a strong balance sheet and our investment-grade credit rating.

Turning now to external conditions. As mentioned, geopolitical uncertainty, inflation and high interest rates continue to pressure discretionary spending and consumer confidence, especially for value consumers. However, strong capital markets and spending momentum amongst wealthier consumers continues to support the resilient performance of our premium and core brands and product lines. And while fuel prices are elevated, they do not appear to be abating enthusiasm for boating with solid boating participation driving our strong performance and increased Freedom boat club memberships.

The tariff environment continues to evolve, but we continue to be agile in driving mitigation. We are maintaining a net incremental tariff estimate at approximately $40 million for 2026. We recognized around $3 million of gross EPA refunds in the quarter and approximately $33 million year-to-date with approximately an additional $10 million reflected in full year guidance. Overall, we expect to recognize $60 million to $70 million in gross IEFA refunds with the majority of the balance expected in 2027.

Dealer and OEM sentiment remains stable but cautious. However, dealer finances are healthy and benefiting from low pipeline inventories. The majority of our dealer partners have more than 50% of their credit capacity available, leaving them well positioned for retail acceleration. The expected balanced pipeline dynamic we discussed at the beginning of the year is playing out with Brunswick and our OEM customers and partners closely aligning wholesale with retail. All segments delivered sales growth over the prior year period for the fifth consecutive quarter, and all segments expanded adjusted operating margin in the quarter on higher sales with the Propulsion segment lapping its first half incremental tariff burden and delivering 350 basis points of increase, fueled by higher volumes and strong high horsepower outboard sales, which attract higher margins.

We maintained our market-leading U.S. outboard retail share of 46%, with strong wholesale share gains year-to-date. and also saw gains in repower as we execute the repower expansion plan shared at our Investor Day. Internationally, Mercury continues to gain share through dealer, OEM and retail partnerships. Mercury share of boat shows remained strong, as highlighted by our recent performance at the CAN show where Mercury achieved 67% overall outward share and 82% share at the Viewport location. That features larger, more premium boats. Our 5 new outboard programs remain on track with 3 launching next year, and we anticipate these programs will continue to fuel global market share gains. and further accelerate financial performance.

Engine pipelines remain lean with U.S. outboard pipelines down 3% in the quarter versus prior year. Our Engine Parts and Accessories segment delivered its highest third quarter sales since 2020 as a result of robust boating participation and continued distribution share gains. A richer mix of higher-margin products, along with the impact of prior pricing actions drove operating margin expansion of 190 basis points to an outstanding 24.6%, one of the highest operating margins on record.

The team worked effectively to mitigate higher input costs with multiple operational efficiency actions. Just 1 example of Brunswick's ongoing enterprise-wide continuous improvement programs. Lance's rolling 12-month distribution share increased 120 basis points. and the business outperformed available industry benchmarks on profitability, workforce productivity and cash conversion. Navico Group delivered another quarter of continued performance improvement reflecting the team's focused execution and the leadership of its current President and incoming Brunswick CEO on Itinere.

Sales rose 6% in the quarter, with growth in all business lines fueled by OEM wins and well-received new product launches. Structural operating cost reductions also assisted in expanding operating margin by 140 basis points. despite significant input cost pressures, including from higher memory and commodity costs. During the quarter, we were excited to partner with Saks store on the debut of Simrad auto captain in its product line. Saks Store is the first independent and international OEM to integrate the system, but others are following quickly.

Our Boat segment grew both sales and operating margins with solid contributions from both Boat Group and Business Acceleration. Oak Group benefited from the resilience of its premium and core brands. pricing and mix, continued cost reduction actions and rationalization of the value product portfolio. Combined, these actions contributed to operating margin expansion of 160 basis points. despite the headwinds of inefficiencies associated with the closing of 2 production facilities, which will become a significant structural operating cost tailwind beginning in 2027.

Our third quarter and year-to-date global premium fiberglass and core best brand retail sales were flat to prior year, with weaker performance in value product lines. The latest SSI data for September year-to-date shows U.S. boat industry retail down approximately 4%, with Brunswick U.S. internal retail in line with the industry when adjusted for the rationalized value models, We continue to launch new boat models across our brands and our fast-growing Novan brand launched its latest model with C38 in the expanding global adventure category at the CAN show taking multiple orders at the event.

Lastly, the business acceleration portfolio continues to deliver growth and expanding margins led by Freedom Boat Club. Freedom captured an estimated 69% of the North American boat club market, up 4 percentage points as a number of its competitors faltered. Freedom's increasing global scale and analytics are also enabling significant structural efficiencies to be realized in its operations. Member trips were up 3% year-to-date, again highlighting the continued strong boating participation trends.

Moving now to our guidance. We thought it would be helpful to put our full year adjusted EPS guidance in perspective by reviewing how our outlook has progressed through the year. We started in January with full year EPS guidance midpoint of $4.10 compared with full year adjusted EPS of $3.27 in 2025. We raised the midpoint to $4.25 in April and again to $4.55 in July despite the tough economic and market conditions, and we're raising it again today to $4.65. That's approximately 13% above our initial outlook and an increase of more than 42% versus 2025.

Our Q3 overperformance was led by stronger gross margins which were driven by a larger mix towards premium products and higher-margin engine P&A products, together with improved operating efficiency and productivity as well as a slightly better effective tax rate. There was no material IEPA benefits in the quarter. The latest Tencent increase in our full year reflects our Q3 overperformance partially offset by anticipated headwinds and uncertainty in the fourth quarter.

Amongst the Q4 factors partially offsetting the Q3 overperformance, our additional material inflation versus our July expectations continued channel stocking caution as we enter the off season, some remaining uncertainty on IEPA refunds as well as continued high levels of economic trade and political uncertainty. We remain extremely excited about and committed to finishing the year strong, while maintaining the disciplined approach to guidance we've taken throughout the year. I'll now hand the call over to Ryan for additional detail on our financial performance.

Ryan Gwillim

Thank you, Dave, and good morning, everyone. Brunswick's third quarter performance came in ahead of expectations. with sales and earnings growth in each of our segments versus the third quarter of 2025. On a consolidated basis, sales were up 7%, reflecting steady OEM demand across the portfolio, pricing actions taken in previous periods, continued share gains and solid boating participation supporting our P&A and aftermarket businesses. Adjusted operating earnings were up 38% with adjusted operating margins of 10.1% expanding 230 basis points as the stronger sales, operational strength and efficiency across the enterprise; improved absorption on higher production, favorable mix and disciplined cost management, together with the lapping of last year's tariff impacts more than offset material and labor inflation and planned spending on product and technology initiatives. .

This resulted in adjusted EPS of $1.58, up 63% over last year, another outstanding result. Lastly, we generated $140 million of free cash flow in the quarter up 26% versus the third quarter of 2025, driven by the higher sales and prudent working capital management across the enterprise. On a year-to-date basis, sales were up 9%, driven by the same factors supporting the third quarter, while year-to-date adjusted operating earnings are up 25%. Adjusted operating margins expanded 100 basis points to 8.6%, and adjusted EPS was up 42% versus the first 9 months of 2025.

Free cash flow of $301 million is down versus prior year, due solely to the roughly $100 million year-over-year impact of the restatement of variable compensation. Absent that item, year-to-date free cash flow is well ahead of 2025, consistent with the sales growth we previously discussed. Moving to our segments. Propulsion delivered another strong quarter with sales up 7% versus the prior year on steady OEM demand in a low pipeline environment. Outboard engine sales were up 7%. And controls, rigging and propellers grew 9%.

Adjusted operating earnings were up 51% and margins expanded 350 basis points to 12%, showing the expected margin inflection we've been anticipating. This improvement resulted from the leverage on higher sales, favorable mix, improved absorption and reduced year-over-year tariff pressure offsetting continued planned product development investment and ongoing material frank and labor inflation.

We remain on track for full year propulsion margin expansion of more than 100 basis points. Turning to engine parts and accessories. Our aftermarket high-margin recurring revenue business delivered another quarter of growth with sales up 5% versus the prior year behind solid contributions from both products and distribution. Sustained for participation through the back half of the season, continued share gains in our global distribution business and disciplined commercial execution, drove broad-based growth across essentially all of our global retails.

Adjusted operating earnings were up 14% with adjusted operating margin of 24.6%, up 190 basis points versus prior year. That improvement reflects margin expansion from the leverage on higher sales and cost discipline, partially offset by higher commodity and other material input costs. Over to Navico Group, which delivered yet another quarter of sales growth and margin expansion. Sales were up 6%, with all 3 business lines contributing. OEM demand was the key driver as new product wins supported double-digit marine OEM growth, while retail and aftermarket channels remain steady.

Adjusted operating earnings rose 36% with adjusted operating margin expanding 140 basis points to 6.1%, resulting from the higher sales plus the cost actions we have been executing all year. Footprint consolidation and SKU rationalization continue to drive gross margin improvement with the resulting benefits more than offsetting memory and other material cost inflation. We continue to see encouraging traction from recent product launches and our second phase of enzymatic capacity came online in early October to support that demand.

With a strengthening OEM pipeline heading into model year '27, Navico Group remains on track to deliver full year adjusted operating margin expansion in excess of 200 basis points. Finally, our Boat segment delivered a 9% sales increase over the prior year, with growth in both boat sales and the business acceleration portfolio. Saltwater fishing led the went up 30%, with aluminum freshwater up 13% and business acceleration up 14%, more than offsetting a planned reduction in value offerings as part of our model rationalization plan.

Freedom Boat Club continued its growth journey contributing roughly 13% of segment sales. Segment adjusted operating earnings doubled with adjusted operating margin expanding 160 basis points to 3.6%. This improvement reflects the higher sales and favorable mix, together with ongoing manufacturing and sourcing cost savings programs, which continue to pay ahead of plan and are flowing through into better gross margins across the portfolio. As Dave said earlier, the even quarter, and we responded with targeted retail programs and additional cost discipline on head count -- and discretionary spending. Importantly, we maintained wholesale discipline. The dealer pipelines ended the quarter healthy and lean with mostly current model your product. which well positions the segment as we move into the fourth quarter and next year's currently sailing season.

My last slide shows our full year guidance. We are maintaining revenue guidance of $5.7 billion to $5.8 billion and adjusted operating margin guidance of approximately 8%, As Dave discussed earlier, we are raising adjusted EPS to approximately $4.65 as despite the dynamic operating environment -- we remain confident in our ability to drive sales and earnings growth to close out the year.

Our continued strong cash flow performance will enable us to meet our debt retirement target and progress our goal of lowering our net debt leverage to under 2x during the next year. Following recent Brunswick share price dislocation, we are increasing our repurchase target to exceed $80 million of repurchases for the full year with $75 million of those repurchases already complete. I will now pass the call back to Dave for concluding remarks.

David Foulkes

Thanks, Ryan. During the Q2 earnings call, we highlighted the record 15 boating industry top product awards we had recently received. But next never rest, and as we wrap up, I want to highlight some of our product launches, events and technology introductions from the third quarter. We had a strong presence at all the major European boat shows, including CAN, inTobo and Genoa, all of which serve to highlight the continued strength of our brands.

In addition to the introduction of the all-new Devan C38, we continue to build out our premium aluminum boat portfolio in the quarter. With the new lung tie, Harris Summit twin engine models and Princecraft Platinum 220. As always, these new models are powered by Mercury engines and equipped with Navico Group technology, another demonstration of the power of our enterprise synergies. Mercury also continued its rapid pace of innovation, adding the Dock feature to its joystick system, which makes holding position against the dock simpler and more intuitive and the new Revvick 16-inch right in Propeller model that extends our propeller offering for high horsepower applications.

And finally, Navico Group introduced the ECS 900, a light commercial and professional vessel applications and the new AI intelligent boating assistant highlighted at our recent investor and media events. We've now surpassed 100 enterprise awards for the fifth consecutive year, and we got there faster than ever before. which speaks to our momentum and the exceptional nature of our people, products and innovation.

A few highlights include Newsweek again naming Brunswick, 1 of America's most trustworthy companies. Having 7 of our female leaders received women making waves awards, which recognize women shaping the future of the marine industry and being recognized in the Ibex Innovation Awards new EPIC award category. Thank you again to all our talented Brunswick employees whose dedication makes this recognition possible. Before we turn to questions, I'd like to say a few words on the leadership transition we announced last month.

Leading Brunswick has been the greatest privilege of my professional life. I'm grateful to our employees, leadership team, Board and shareholders for your support and very proud of the marine powerhouse we built together. Preparing a successor is a central responsibility of the Brunswick Board and myself as Chairman and CEO, and we're extremely confident that Aine is the right leader for Brunswick's next chapter.

Aine brings 30 years of operating experience across marine, automotive and industrial businesses, with technical, financial, commercial depth game to Brunswick, ZF, TRW, Ingersoll Rand and Ford. Her McKenzie and Bain strategy experience or service of Mason wheels, Kellogg MVA and engineering degrees complements a record of delivering results and leading teams in multiple complex environments. Since joining Brunswick in 2020, Aine has turned strategy and technology into financial results. She led Boat Group through changing market conditions, launching new models and delivering strong performance.

As Navico Group President and Chief Technology Officer, She's broadened her enterprise perspective while driving market share gains, product innovation and operating improvements, leading to revenue growth and margin expansion. Our strategy, capital allocation priorities on long-term Investor Day targets remain unchanged. Aine and the team will continue to execute that strategy with a continued focus on driving shareholder returns. I'll work closely with Aine through year-end, ahead of a January effective data CEO, and we'll be on the road together in fourth quarter, meeting many of our shareholders.

As you will have seen, we've also already announced the appointment of talented experiences for the open roles on the leadership team created by One's appointment. I'm very excited about what Aine and the Brunswick can achieve in the future. That's the end of our prepared remarks. Note that Aine is present today in her current role as Navico Group President, to answer any of your questions on Navico Group but she will not take questions on other topics today. We'll now turn it back over to the operator to open the line for questions.

Operator

[Operator Instructions] Our first question comes from Anna Glaessgen at B. Riley Securities. And you may now your line and ask your question.

分析師問答

Anna Glaessgen

First, I'd like to ask for a little bit more perspective on the material inflation we've seen over the past few months. Any perspective you can share on the movement to 4Q earnings in light of that versus internal expectations and perspective into 2027?

David Foulkes

Thank you for the question. Yes, we called out commodity inflation and kind of aluminum and copper, as you might expect, and also memory inflation. And obviously, we have a different effect in the P&L depending on when it rolls off the balance sheet versus what the exact spot price is. So we saw some significant increases through the year, and that will still roll off the balance sheet in Q4, but we are seeing stabilization now.

So we do anticipate a more stable environment as we can roll into 2027, which I think will be helpful for the first quarter of the year and hopefully, the full year. We've taken a lot of mitigation actions. Our scale really helps with that, hedging programs, we have a bigger buy on some of those areas that can help with getting good pricing. I think memory was called out by some other companies, but the reality for us is it only represents something like 2% of our COGS. So it's a pretty small portion of our COGS, but nevertheless, we have seen inflation. Aine, you might want to comment a bit more on that.

Aine Denari

Yes. No, that's right. It is about 2% of COGS for Navico. And we should also mention that, that is an inflationary fracture that we have had throughout the year this year. So it does not represent a headwind for us as we move into next year. And we, of course, are taking all the mitigation actions that Dave mentioned that includes value engineering, looking for alternate supply sources as well as taking other actions. So we're feeling pretty good about the vision we're in as we round out this year and move into next year.

Anna Glaessgen

Great. And I guess, one, while we have you here with Bob some more perspective on Navico transformation over the past few years and where it stands today. particularly, you mentioned on the call or it was mentioned that it benefited from some cost cutting this quarter. maybe share some perspective on the margin opportunity going ahead? Are there more cost cuts? Or is it mostly driven from gross margin expansion ahead.

Unknown Executive

Yes. No. And of course, you saw the strategic plan targets that we laid out in our Investor Day, and those certainly remain true. We certainly have a pretty good confidence in the about to continue to deliver those. I would say what's really driving things for Navico is a combination of the top line and bottom line. A lot of it really, honestly, is a top line and efficiency gains as we think about market share gains, new product launches, increasing content per vessel as we think about more complicated integrated systems that we are delivering.

We're also continue to conquest new OEMs, which is very helpful, both in the initial phase as well as then from an ongoing kind of stickiness phase and flow through to the aftermarket. So those are all things that are really driving the top line growth as well as the margin expansion. As you know, Navico Group, in particular, has some pretty strong leverage. On the efficiency side, we certainly have delivered a lot of operations efficiency gains. We have done several footprint consolidations over the last several years.

I think we're in a pretty good stable place there as it relates to our footprint. We have also done a lot of work on refining the org structure, refining the teams and we have been embedding AI and robotic process automation across the board to drive further efficiency. So that is how big drive the margin expansion, and we expect to see that to continue to drive the margin expansion as we move forward throughout the remaining stock on period.

Operator

Our next question comes from James Hardiman at Citi.

James Hardiman

First, I wanted to say Dave congrats on retirement. Thanks for all the time and the engagement with the investment community over the years. It's been a blast. And Aine, congrats on the CEO appointment. I'm excited to work more with you. Absolutely. So let's talk 4Q a little bit. Obviously, sizable beaten through, a lot of that we're giving back in 4Q. We talked about how the retail environment softened a little bit over the course of the quarter, maybe bridge sort of where you were in terms of fourth quarter thinking and where you are today?

How much of the implied 4Q reflects dealer ordering assumptions? How much of that is sort of inflation specific to that quarter. And then I don't know if there's any sort of tariff timing that we need to be considering in the context of 4Q.

Ryan Gwillim

James, it's Ryan. I'll start with this 1 and then Dave can follow through. So if you think about Q3, $0.20, maybe a little bit more of a beat, we passed half of it through. I would say the other half really is the majority of that is just material inflation that arose in the quarter that we didn't anticipate when we gave July guidance. I think Dave talked about the puts and takes there a second ago, so I won't repeat them. I think the fourth quarter is a relatively small quarter. And so as we think about ordering patterns that this could be a little variability there.

But all in all, the real change, the only real change from a numbers perspective, it is this material inflation. Otherwise, I think the commercial side will come in as we anticipated, the ordering side will be fine. And we can continue to see very good steadiness from all of our aftermarket business. So P&A from Aine's aftermarket and retail businesses as well, continue to be nice and steady. So I think that gives us some support on the bottom end with just a little bit of inflation kind of coming at us. Otherwise, really nothing has changed from a fundamental operation performance perspective, and I think we're going to end the year strong.

David Foulkes

Yes, I agree. And I wouldn't -- I don't think the softening of brand referred to is significantly going to be reflected in Q4. As softening continues to be in the value segment. 90% of our group profit is from our premium and core products, and they continue to hold up extremely well. And we're all -- a number of us adding to the Fort Lauderdale show right after this call. And just a heads up, Mercury share is up again and pretty significantly. So we're excited to be able to report that out a little bit later. .

So even in the fall shows, which obviously run through early Q4, we're seeing some nice early indicators. So I think we're seeing solid ordering from our OEM customers. This is the off-season, so it's more about stocking and certainly in the seasonal markets. But really, we're not seeing a lot of changes in wholesale ordering assets.

James Hardiman

Got it. And then as I think about 2026 coming into the year, 1 of the biggest sort of cards that you had to play that you had in your back pocket was that you had under ship channel pretty meaningfully in 2025. And so when you lap that, that was going to create or unleash a good amount of sort of hidden earnings power. I don't know that the setup is quite as beneficial from that perspective in 2027. And so how should we think about the setup for next year? Any breadcrumbs that you could give us that would help us understand obviously, the market is going to do what the market's going to do. It's volatile, but sort of what types of earnings tailwinds do you think that you can sort of lever to offset declines in the industry if we see that or sort of enhance your earnings power in, let's say, a flat demand environment.

David Foulkes

Yes, good question, James. I think 1 of the things we've continued to see on Exhibit really is a lot of discipline in pipelines. So we have, even through this year, continued to undership across pretty much every part of our business. Obviously, we noted that put pipelines are down, again, engine pipelines are down again and down pretty significantly over the past couple of years. So we still have some of the wholesale retail rebalancing. That will be a tailwind for us as we enter 2027. .

But we do have a lot of exciting other tailwinds. If you think on the product side, we have 3 new Mercury outboards launching, continue to gain repower share. We continued to gain share in wholesale distribution. Navico Group is launching some very exciting new products at the end of this year and into early next year. So on the product momentum side, we have a lot going for us and then on the cost side, we have some other tailwinds, for example, the headwind that our book groups saw this year from the footprint consolidation will reverse as we go into '27 and be a nice tailwind for us.

So I think we have a continued -- some continued benefit from the restocking cycle, a lot of product-related market share gain opportunities as well as some pretty significant and material and realizable cost efficiencies again going into the year. And it's been really nice to see that our premium and core brands are really holding up very well. Mercury's share is strong. I mentioned upflows. It was -- when you think about where we are in terms of market position, on work propulsion, on marine distribution, now we have Freedom Boat Club with a commanding share of the boat club market, 70% of the market. I mean I think the franchise is pretty good shape for 2027.

James Hardiman

And just to clarify, you do or don't think that this inflation that we've seen in the last couple of months is going to be a meaningful headwind for 2027?

David Foulkes

Well, of course, you never exactly now, but I would say that we think that we have taken a lot of the pain in the second half of 2026. And so as we look at on a kind of 2026 second half into 2027 first half, we think we've taken the bulk of the pain on that basis. .

Unknown Executive

Yes. And James, just to put it very finely. We don't see any reason sitting here today that '27 doesn't track the sales and operating leverage targets that we just laid out in the strategic plan. So sales growth in the 5% to 8%, operating leverage of 20% to 25%. We are very confident we can deliver that. And we also have benefits from the capital strategy work that we've done this year, both on continuing to buy our shares and being more aggressive on that in the third quarter and paying down debt. So more to come in January, but folks should not be surprised that '27 is going to continue the glide path of the strategic plan that we just laid out.

Operator

Our next question comes from Scott Stember at ROTH MKN.

Scott Stember

Last quarter, you gave some data which suggested that the -- you're not seeing any meaningful impact from fuel costs going up, notably on the usage side. And obviously, we saw that in the strong results in Engine P&A. Did you see anything in the quarter as it accelerated that changed that narrative?

David Foulkes

No, Scott, we don't. We continue to see -- obviously, we're entering a period where the seasonal markets are going to be shut down over the next couple of months. But in the nonseasonal markets, we don't really see any evidence of fuel prices affecting the kind of proxies that we have for boating participation things like Freedom, Boat club trips. I think the interesting thing I've said before but interesting -- if you could design and experiment to isolate the impact of fuel prices on boats, and it would be freedom boat club because other than the dining payment and monthly cues, it's basically the only variable and we don't see it affecting year-over-year trips..

In fact, year-over-year, trips are up. And certainly, as a proxy, our P&A performance, distribution and products continues to be extremely strong. Obviously, we had a really strong Q3 here. So the answer is no. We don't see any evidence of abatements or slowdown in participation.

Scott Stember

Got it. And then my next question was on Freedom. Are you seeing any folks that have been members over the last few years that have decided to trade up and become official boat members buying a Brunswick boat? Or is right now really proving the worth of freedom where people just -- the ease and the lower cost really proves its worth.

David Foulkes

Yes. I think generally, that is the case that I think Freedom attracts people coming into boating and people who would exit both ownership if they didn't have an alternative like Freedom available, I do think it's very interesting to see if you provide despite whatever trends you look at in new boat sales, if you provide people with a really compelling, convenient value proposition they will go through. And I think that is what Freedom is but operating something like Freedom is not just about providing a compelling proposition like that.

It's also being extremely operationally efficient. How do you think about customer lifetime value, how do you think about boat lifetime value and what you see with Freedom for us is not only a compelling consumer proposition, but also an extremely well-oiled machine behind it, that is expanding margins, not just domestically but globally. And what we're seeing is we're growing share because we provide the best experience. And the other smaller participants in the market who are generally not doing as well and some are honestly not doing well at all, don't have our scale, don't have our analytics, don't provide a consistent value proposition for the consumer.

So we're very excited about Freedom. We did actually put in place some programs that allow people to use a portion of the entrance speed to Freedom as a credit to enter boating. We have seen some uptake in that. So we are experimenting a bit with and a cross-sell, upsell between Freedom and our boat brands, but I would say predominantly people are pretty comfortable in Freedom.

Operator

Our next question comes from Tristan Thomas Martin at BMO Capital Markets.

Tristan Thomas-Martin

Just a question a different way. How are you -- how does like-for-like pricing going to be on the boat side and also on the upward engine side next year?

David Foulkes

I think our pricing on the boat side this year I would say we took moderate pricing. I don't know -- I think we were in the 3% to 4% typically across product line. One of the things that has really helped us, I think, is our ability to absorb commodity costs, some of our competitors, particularly on the aluminum side to larger pricing actions, which is certainly helpful for us. I don't know exactly, but based on the input costs, discussion that we recently had, I would expect similar levels of price increases next year.

On the outboard engine side, we just took a couple of points of pricing really, the competition is not taking a lot of pricing. either. So I think given our market position, and the benefits we have from premium pricing and increased absorption. I think we have some flexibility, but I would imagine modest pricing on the output side as well.

Unknown Executive

And maybe just 2 things. If you see ASPs growing, a big component of that is just the mix shift to premium and less sales of value products. So don't treat or think about that as pure price. The other thing to remind yourself of is we continue to support our dealer networks with discounting and our discounting at the retail level to ensure the pipeline remains lean and fresh. And so the price that is actually being paid by our consumer may be even less than that it increased just because we are opting them along the way. And that's something that we had anticipated discounting to be actually down this year.

But in actuality, it's flat, slightly up and a bit of that is related to the wholesale finance that we use and help our dealers with on the floor plan side, but a chunk of that is still retail support that we're getting our dealers.

Tristan Thomas-Martin

Okay. And then just a quick follow-up. You mentioned mix. Is there a further value both rationalization next year?

David Foulkes

I think there's some more to be done. and we continue to evaluate the portfolio in that regard. And I think kind of prudently reshape it towards the biggest value pools. It's not as simple as he's premium and he's value and trim value. There are some parts of the market that we're really going after like the expedition of venture category, which is more on the premium side. So you'll see of new products in that space. But yes, I would expect to see modest additional rationalization of the value part of the portfolio. really on the fiber side obviously.

Operator

Our next question comes from Craig Kennison at Baird.

Unknown Analyst

Sorry about that. I'm Noel dog with the new trade here. Can you hear me? I just want to echo James' comments to you and also to you on now. It's going to be a pleasure to work with you as well. I guess I wanted to ask about Navico and to me, it feels like 1 of the biggest opportunities you have that's still within your control to expand margin and then drive better profitability. And I wonder if you just maybe size the top 2 or 3 drivers to the margin expansion that you see? And help us understand the cadence of that as well. .

Aine Denari

Yes. So I think a good chunk of the margin expansion here is really around kind of the new product vitality. So as we launch new products, they typically are launching with higher margin profiles. And as you know, especially in the electronics space, the life cycle is quite short. And so the cadence of new product refreshes and new product launches is quite quick. And so that helps drive the margin expansion. Another key element would be this increasing content per vessel concept. So as we're launching more complicated integrated systems, that, by nature, drives up the -- our share of wallet on every boat that we sell.

And then I would probably also call out the increasing aftermarket component. The more we're penetrated on the OEM side, the more that flows through to increasing aftermarket sales and over the life of the vessel. And of course, people will upgrade their electronics and their paramount systems for many times over the life of a vessel hull and that helps drive up our margin profile as well. and of course, operational efficiency. And as I mentioned earlier, the role of artificial intelligence as we think about things like our supply chain and our customer service processes are also certainly enabling us to increase efficiency and drive down the cost structure growth, which helps improve the margin profile also.

Unknown Executive

And I think, Greg, Aine has done a fantastic job. I would -- we talked a bit earlier about the physical footprint consolidation, but that is a precursor to digital operations consolidation as well. So you'll see a big emphasis in that area that can yield efficiency and I know it's kind of incumbent on everybody to say something about AI in a call. But I would tell you, it is really yielding some significant efficiencies for us now, and we have moved from kind of targeted use cases, low-hanging fruit, if you like, to fundamentally reshaping a lot of our end-to-end processes, and that is going to yield significant benefits for Navico Group and the Hall enterprise. So we really are very excited about that possibility as well.

Operator

next question comes from Joseph Altobello at Raymond James.

Joseph Altobello

Dave, best of luck. Congratulations Aine, saying to you, looking forward to working with you as well. So question on the industry. Given the downturn or the duration of this downturn we've experienced, just curious how your OEM and dealer partners are thinking about the year ahead? Are they generally taking a wait-and-see approach on retail given we've had some optimism. It seems like every January for the last 5 years, and it hasn't panned out. So I'm just curious how they're thinking about 2027. .

David Foulkes

Yes, I would say that the dealers are in pretty good spirits. We mentioned in on -- in the slide deck and possibly in the release as well that more than 50% of our dealers have more than 50% of the credit line still available. So clearly, we are seeing no distress in amongst our dealers. I think they are behaving fractionally. I think that they have learned over time. You mentioned it's -- it's been a period for us to kind of rethink how we approach pipelines and balance and make sure we don't try and kind of take profit over the short term at the expense of the long term.

So I think they're generally behaving extremely well. I think they're very comfortable with that. I think the other thing, Joe, is thinking about -- I know it's important because there's an industry data point, but the overall unit sale -- retail sales is really a very broad and measure of new boat sales and does not reflect where the real profit pools are over time, and we are reshaping towards those profit pool. It's almost like Ferrari's performance is not reflected in whether we -- the U.S. industry is 16 million units or 15 million units.

You have to go to where the profit pools are and growing those pools and whether it's engines or premium and coal boats or electronics or even shared access, we are finding and commanding the major profit pools. So this is a bit of a morphing of -- and to some extent, a bit of decoupling, I think, of our business performance over the long term from that single number unit sales, I think you'll see that continue over time.

Operator

Thank you. This completes the allotted time for questions. I will now turn the call back over to Dave for any closing remarks. .

Unknown Executive

Well, before we go back to Dave, I did want to take a moment to recognize and thank Dave for his outstanding tenure at Brunswick, 19 years in total, the last 8 years as our CEO. And Dave, this is our 26th earnings call together, and I want to thank you for the outstanding leadership, partnership in front that you have provided to me, the rest of the Brunswick leadership team, and the over 14,000 Brunswick global employees, you have supported and led during your tenure. Congratulations on your retirement. You will be missed, but your legacy will continue. And lastly, congratulations to Aine Denari, who will assume the CEO role starting January 1, Aine, we all look forward to working with you to execute our strategic plans while continuing to deliver strong shareholder value.

And I personally look forward to our first call together in Jan. Congrats again.

David Foulkes

Thank you very much, Brian. That was very meaningful. Thank you very much. Thank you to Ryan. Thank you to Steve Will. Thanks to Profit and their teams who have done a fantastic job referring for this call and in previous calls, and I'll follow-up on investor calls and analyst calls that you guys work on, you do a fantastic job. Thank you. I am pleased that my final call as a beat and race call that -- we've got a few of those in recent history, but it's always nice to see that. It's nice to lead the business with such strong momentum. and in the hands of such an exceptional leadership team, congrats Aine. I am looking forward to Brunswick's success in the future. Thank you all very much, indeed.

Operator

Thank you for joining the Brunswick's Corporation's Third Quarter 2026 Earnings Call. This concludes today's conference call. You may now disconnect. Thank you.