Hedge funds are buying these two big tech stocks while selling two rivals
Introduction & Market Context
Brunswick Corporation (NYSE:BC) reported its third quarter 2025 results on October 23, showing revenue growth across all business segments despite earnings pressure from variable compensation reinstatement and tariff impacts. The company's stock responded positively, rising 3.7% to $65 following the announcement, as investors focused on the company's strong free cash flow generation and improved guidance for the full year.
The marine industry leader delivered $1.4 billion in net sales, a 7% increase compared to Q3 2024, while adjusted earnings per share came in at $0.97, down 17% from the prior year but exceeding analyst expectations of $0.86 by 12.79%.
As shown in the following summary of key financial results from Brunswick's presentation:
Quarterly Performance Highlights
Brunswick achieved sales growth across all business segments in Q3 2025, despite challenging market conditions where the overall U.S. powerboat industry has seen retail sales decline approximately 9% year-to-date. The company's Q3 boat retail was flat year-over-year, representing an improvement from the first half performance.
The company's financial results demonstrate the impact of both operational improvements and external challenges. While sales increased across segments, operating margins faced pressure primarily from variable compensation reinstatement and tariff impacts.
The following chart details Brunswick's adjusted results for Q3 2025, highlighting the revenue growth and margin compression:
By segment, Brunswick's performance showed varied results:
1. Propulsion: Net sales increased 10% to $535.4 million, though adjusted operating margin decreased 250 basis points to 8.5% compared to Q3 2024.
2. Engine Parts & Accessories: Sales grew 8% to $363.7 million, with adjusted operating margin down 320 basis points to 22.7%.
3. Navico Group: The technology segment saw a 2% sales increase to $186.9 million, with adjusted operating margin slightly down by 20 basis points to 4.7%.
4. Boat: Sales increased 4% to $360.2 million, with adjusted operating margin improving by 80 basis points to 2.0%.
The following EPS bridge illustrates how various factors affected Brunswick's earnings performance in Q3 2025:
Free Cash Flow and Capital Strategy
A standout aspect of Brunswick's Q3 results was its exceptional free cash flow generation. The company reported $111 million in free cash flow for the quarter, a significant 166% increase from $42 million in Q3 2024.
Year-to-date free cash flow reached $355 million, compared to just $7 million in the same period of 2024, representing a dramatic improvement in the company's cash position. This strong performance has enabled Brunswick to increase its debt reduction target for 2025 to $200 million, up from the previous guidance of $175 million.
As illustrated in the following chart from Brunswick's presentation, the company has generated approximately $635 million in free cash flow over the last four quarters:
Strategic Initiatives
Brunswick announced a strategic consolidation of its fiberglass boat manufacturing operations, which includes:
1. Closing the Reynosa, Mexico facility and consolidating production to Vonore, Tennessee, and Merritt Island, Florida for Bayliner and Sea Ray brands.
2. Closing the Flagler Beach, Florida facility and consolidating to Edgewater, Florida for Boston Whaler.
The company expects these moves to create over 200 U.S. manufacturing jobs while eliminating excess capacity, reducing fixed costs, and increasing manufacturing absorption at receiving plants. The consolidation is projected to be complete by mid-2026 and deliver a steady-state benefit of over $10 million in annual operating earnings once fully implemented.
On the innovation front, Brunswick highlighted its SIMRAD AutoCaptain autonomous boating solution, which offers features such as autodocking, close-quarter maneuvering, and vessel stabilization at the dock:
Forward-Looking Statements
Brunswick updated its 2025 guidance, maintaining revenue expectations of approximately $5.2 billion and adjusted EPS of around $3.25, while increasing its free cash flow target to $425+ million, up from the previous $400+ million target.
The updated 2025 guidance reflects management's confidence in the company's operational execution despite ongoing challenges:
Looking ahead to 2026, Brunswick provided an initial outlook that assumes a flat to slightly up U.S. retail boat market and relative macroeconomic stability. The company projects mid-to-high single-digit percent revenue growth, 25%+ diluted EPS growth, and 125%+ free cash flow conversion in 2026.
Challenges and Opportunities
Brunswick faces significant headwinds from tariffs, with a total potential incremental enterprise tariff exposure of approximately $75 million in 2025. The company is actively working on mitigation efforts, noting that about 70% of its enterprise cost of goods sold are sourced from the United States, and approximately 85% of tariff exposure is in its Mercury division.
The following tariff update details the expected impact by region and Brunswick's mitigation strategy:
CEO David Foulkes expressed confidence in the company's positioning, stating during the earnings call, "We believe that we are well positioned to benefit from any industry recovery due to the operating leverage inherent in our businesses." He emphasized Brunswick's commitment to differentiated innovation, comparing their strategy to what they successfully implemented with Mercury Marine.
While the U.S. powerboat industry faces challenges with retail sales down year-to-date, Brunswick's flat Q3 retail performance suggests the company is outperforming the broader market. The company's strong free cash flow generation, strategic manufacturing consolidation, and continued innovation in autonomous boating technology position it to navigate current headwinds while preparing for potential industry recovery in 2026.
Full presentation:
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