Earnings Call
Brunswick Corp (BC)
Earnings Call Transcript - BC Q4 2021
Operator, Operator
Good morning and welcome to Brunswick Corporation's Fourth Quarter and Full Year 2021 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Brent Dahl, Vice President of Investor Relations.
Brent Dahl, Vice President of Investor Relations
Good morning and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick's CEO; and Ryan Gwillim, CFO. 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 in the reconciliation sections of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.
Dave Foulkes, CEO
Thanks, Brent and good morning, everyone. Our businesses executed extremely well against our operating and strategic priorities in 2021, demonstrating the strength and resilience of our marine-focused portfolio. We delivered record sales and earnings and, more importantly, set the foundation for growth across all our businesses in 2022 and for years to come. Our outstanding operational performance in a challenging environment continues to prove the strength and durability of our portfolio and earnings profile, with robust capital generation, enabling accelerated investments in our core businesses, including Propulsion, Parts and Accessories and Freedom Boat Club as well as critical ACES, digital and other technology programs, while also delivering strong shareholder returns. As you can see by our guidance, we anticipate delivering another record year in 2022 with net sales approaching $7 billion and adjusted EPS in the range of $10 a share. Before discussing our segment results, I wanted to share with you some new consumer insights gained through polling of Brunswick's Ripl online boater community, which includes more than 4,000 new and seasoned boaters. The intention of this survey was to update our understanding of the feelings and behaviors of newer boaters, both in terms of their level of satisfaction with their current boating experience and the anticipated longevity of their boating participation after the 2021 boating season. Of boat buyers in their second boating season, 90% of those surveyed rated their boating season as a 4-star or 5-star experience out of 5-stars, which means that the vast majority of boaters are very happy with their current boating experience. Equally as important, 93% of new boat buyers in 2021 expect to continue to own a boat five years from now, which speaks to the stickiness of new boaters and their excitement at the prospect of making boating a permanent part of their lifestyle. I'll now provide some highlights on the 2021 full-year performance of our segments. Our Propulsion business delivered another outstanding year, growing its top line by 33%, fueled by achieving 108% of its original production plan for the year. Mercury gained 160 basis points of U.S. retail market share in 2021, with more than 500 basis points of share gains in each horsepower category over 200 horsepower. We anticipate our previously announced significant additional investment in capacity for higher horsepower outboards will enable increased production for international, commercial, repower, and new OEM customers with full effect in the fourth quarter of 2022. Mercury also delivered V12 600 Verado engines to 47 different OEM customers in 2021 with more to come in 2022. Parts and Accessories also grew top line by 33% in 2021, with aftermarket channels across all businesses experiencing strong demand from increased boat usage and service needs. Strong demand from boat builders also elevated sales to OEM customers and rapidly grew our ASG Connect systems integration business which more than doubled in 2021, adding more than 30 new customers. Additionally, our Advanced Systems Group enjoyed its first full quarter with Navico, RELiON Battery, and SemahTronix in its portfolio, with each contributing to the strong results and Navico outpacing expectations. Finally, our Boat business delivered a 36% increase in revenues in a very challenging supply chain environment. We still saw 95% production attainment versus the original production plan for the year. Pipeline inventories remain at historically low levels, with just over 15 weeks on hand at the end of the year, as elevated levels of retail sold product and continued strong demand constrain our ability to build field inventory. Over the past 12 months, Freedom added 75 new locations and over 10,000 memberships network-wide and now operates a fleet of more than 4,000 boats with an increasing percentage of Brunswick boats and engines. Freedom was also busy on the M&A front in 2021, executing the acquisition of five franchise operations and their territories in the U.S. as well as the Fanautic Boat Club in Spain, one of Europe's largest boat clubs. Next, I would 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 year versus 2020, with Canada and Europe delivering strong sales growth in every business unit. Sales in Asia-Pacific grew slightly after achieving 40% sales growth in 2020, while Canada rebounded strongly after experiencing elongated shutdowns in 2020 due to the initial stages of the pandemic. Overall, international sales were up 30% versus the prior year and domestic sales grew 29%. This table provides more color on the recent performance of the U.S. marine retail market, comparing 2021 to 2020 and 2019. As we discussed during our third quarter earnings call, the industry experienced more pronounced supply chain disruptions than anticipated as 2021 progressed which, together with stronger fourth quarter retail sales than anticipated, has led to a more significant inventory-constrained retail environment. The results reported a 7% decline in main power boat retail unit sales for the full year 2021, but still an 8% increase over 2019. Brunswick's 2021 retail performance was ahead of the overall market, with market share gains in aluminum freshwater and saltwater fishing products. U.S. outboard engine unit registrations were down 7% in 2021 when compared with 2020, with Mercury significantly outperforming the industry. In higher horsepower categories, 200-horsepower and above which represents roughly 30% of the market, Mercury experienced a 17% retail unit growth, while the remainder of the industry saw declines. Additionally, when comparing outboard engine unit registration growth rates from 2019 to 2021, Mercury's unit growth rate is twice as high as the rest of the industry, resulting in significant market share gains we alluded to earlier in the call. It's important to note that retail declines are being driven by product availability and are not a result of declining consumer demand. U.S. lead generation, dealer sentiment, and other leading indicators all remain very positive. For example, all of our 2022 model year and more than 90% of our 2022 calendar year production slots are already sold out and we continue to see a significant percentage of boats leaving our manufacturing facilities already retail sold. All these factors give us high confidence in the continuing retail strength as we enter 2022. This slide provides some perspective on the impact of inflation on our businesses, together with our ability to take price increases to mitigate the net impact. As we look back on 2021, our pricing actions taken throughout the year slightly exceeded the overall material, labor, and freight inflation faced by our businesses. However, inflation increases in the second half of the year accelerated and our ability to cover the increase in cost was challenging. As a result, each of our business units has implemented certain price increases in the first quarter of 2022, ahead of usual midyear pricing actions that will be implemented concurrent with our model year changeover and historical price increase timing. The net impact of these actions means that we anticipate price to cover the increased input costs from inflationary pressures for the first quarter as well as the full year. However, we will continue to monitor the inflationary environment and adjust pricing as necessary to ensure our operating margins are not negatively impacted as the year progresses while still keeping a keen eye on the overall product price to the end-use consumer, so as not to price out the new boaters that we've worked so hard to gain. Lastly, we have strong and necessary spending planned on many growth initiatives related to capacity, ACES, sales and marketing, and Freedom Boat Club and we plan to execute against those plans. However, we remain keenly focused on not adding unnecessary costs into the system and will meet our spending where appropriate throughout the year to ensure continued margin growth. We successfully executed our capital strategy in 2021 with strong cash flow generation, allowing us to meet or exceed our capital objectives. We ended the year with $368 million of cash and generated $321 million of free cash flow. We deployed $267 million for capital expenditures on exciting new products and capacity projects across our businesses which will form the bedrock of our future revenue and earnings growth. We also completed 9 acquisitions, totaling $1.2 billion during 2021 that will further grow the recurring revenue base in our Parts and Accessories and Freedom shared access businesses. In addition, we completed approximately $120 million of share repurchases and increased our dividend for the ninth consecutive year. The retirement of $128 million of debt kept our leverage at 1.8x on a gross basis even after financing the acquisition of Navico. Our investment-grade credit remains strong with our year-end cash balances, cash flow generation capabilities, and total liquidity affording continued flexibility. I'll now turn the call over to Ryan for additional comments on our financial performance.
Ryan Gwillim, CFO
Thanks, Dave and good morning, everyone. Brunswick delivered yet another fantastic quarter as we closed out a record 2021. When compared to the prior year, fourth quarter net sales were up 23% with adjusted operating margins of 10.9%. Operating earnings on an as-adjusted basis increased by 7% and adjusted EPS of $1.44 was our highest fourth quarter EPS on record. Sales and earnings in each segment benefited from increased volume due to continued strong global demand for marine products, market share gains and higher pricing, with earnings also impacted by increased input costs and higher spending on growth initiatives. Our outstanding full-year results also speak for themselves, with 2021 net sales up 34% when compared to 2020 and adjusted operating margins of 15.2%, a 190 basis-point improvement from 2020. This resulted in adjusted EPS for the year of $8.28 and a very robust operating leverage of 21%. We generated $321 million of free cash flow in the year which is a very strong result considering the incremental working capital needed to satisfy increased inventory needs as we elevate production levels, the $85 million increase in capital spending when compared to the prior year period and the $40 million of cash used for acquisition costs and planned operating activities of Navico during our first quarter of ownership. Despite these elevated levels of investment and higher working capital needs, we have delivered a free cash flow conversion of 98% since the start of 2020. Turning to our segments; our Propulsion business delivered yet another quarter of strong top line and earnings growth. Revenue increased 12% versus the fourth quarter of 2020 and was up 49% versus Q4 2019. Strong demand for all product categories, together with market share gains drove higher sales which continue to be enabled by increased production levels. Operating margins were lower by 30 basis points in the fourth quarter versus 2020 but were up 250 basis points versus Q4 2019 as pricing, favorable absorption, and benefits from a more favorable customer mix were more than offset by higher manufacturing costs, primarily caused by material inflation. Our Parts and Accessories businesses leveraged favorable late-season weather conditions in many areas which drove continued robust aftermarket demand and enabled top line and earnings growth in the quarter. In addition, as Dave mentioned earlier, this segment benefited from Advanced Systems Group's acquisition activity with Navico in particular, driving strong results in the quarter. Revenues increased 40% and operating earnings increased 9%. Excluding the impact of acquisitions and on a constant currency basis, organic P&A revenues grew by 4% versus the fourth quarter of 2020 and 31% versus the fourth quarter of 2019. Adjusted operating margins of 12.2% were down 340 basis points when compared to the prior year quarter and as expected, were affected by acquisitions and increased input costs. Full year operating margin growth, excluding the impact of acquisitions, was in line with our previous guidance, with our third-party distribution business delivering a record 10% operating margin for the year. Our Boat segment delivered strong top line growth and earnings stability despite continued supply chain disruption, cost inflation, and labor constraints at times during the quarter. Sales were up 14% and adjusted operating margins were down 130 basis points when compared to the fourth quarter of 2020. When compared with the fourth quarter of 2019, sales were up 37% and adjusted operating margins were up 60 basis points. For the year, the Boat business delivered an adjusted operating margin of 9.1%, a 310-basis point increase over 2020, with seven of our brands exceeding 10% operating margins for the full year. Sales increases in the quarter were led by particular strength at aluminum freshwater, including our pontoon businesses. Increased sales volume and pricing, together with lower retail discount levels were offset by material inflation, higher costs due to manufacturing inefficiencies and unfavorable changes in sales mix, resulting in slightly lower segment operating earnings for the quarter. Freedom Boat Club had one of its busiest quarters on record, continuing its acquisition activity and membership growth while attracting a younger and increasingly diverse customer base. Freedom Boat Club which is included in Business Acceleration, contributed more than 3% of the Boat segment's revenue at a margin profile that continues to be accretive to the segment. Turning to pipelines, we produced 95% of our original boat production plan for 2021, a remarkable achievement given the current supply-constrained environment. Supply chain challenges, including delays in receiving certain components continue to result in the deferral of shipping certain nearly completed boats to subsequent quarters. Despite the production headwinds, we still wholesale sold approximately 8,300 boats during the fourth quarter which was greater than the number of units wholesale sold in the third quarter of 2021 or the fourth quarter of 2020. Despite slightly stronger retail sales in the quarter, we added approximately 4,000 units to dealer pipelines resulting in just over 15 weeks of boats on hand measured on a trailing 12-month basis. However, units available for sale in dealer inventories remain at historically low levels with 20% fewer units versus the same time last year and 52% fewer units than at the end of 2019. We believe that 2022 is going to be another outstanding year for Brunswick. Although we continue navigating certain headwinds, including the effects of COVID-19 and elevated supply chain, labor and freight costs, we remain extremely focused on executing our Next Wave strategy and are confident that we will continue to lead the marine industry in growth and innovation. Assuming no major pandemic-related business continuity issues and given the clarity on our ability to drive growth in the upcoming year, we're providing the following guidance for 2022. U.S. marine industry retail unit growth will remain supply constrained but will be up low single digit for the year versus 2021. We anticipate revenue of between $6.7 billion and $7 billion, adjusted operating margin growth of between 20 and 60 basis points with operating margin expansion in each segment. Operating expenses as a percent of sale to be up 50 to 80 basis points with elevated spending on ACES and other growth initiatives. We anticipate adjusted diluted EPS in the range of $9.60 to $10.25 with EPS growth anticipated in each quarter. And lastly, free cash flow generation to be in excess of $350 million which is materially impacted by the planned capital spending of more than $375 million for the year. We're also providing directional guidance regarding the first quarter, where we anticipate revenue growth of approximately 15% over the first quarter of 2021 with low to mid-single-digit EPS growth. Moving to our outlook by segment. We believe 2022 is setting up to be a fantastic year for all our businesses. For our Propulsion segment, we anticipate net sales growth for the year to be in the low double-digit percent range with operating margins slightly up versus 2021, driven by increased market share and new product introductions, partially offset by higher input costs, unfavorable sales mix and increased spending on capacity, products, technology, and other strategic priorities. In our Parts and Accessories segment, we anticipate net sales growth in the high 20s percent or mid- to high-single digits on a comparable basis by excluding the impact of acquisitions completed in 2021. We expect margins to grow slightly as acquisition cost synergies are realized and pricing actions to mitigate the impact of higher material costs are also implemented. Finally, our Boat segment is expected to see top line growth of low double-digit percent as this business continues to fulfill demand and refill pipelines in a very robust retail environment. We anticipate operating margins to exceed 10% as the Boat businesses focus on improving operational performance throughout the year, with disruptions associated with supply chain inefficiencies expected to improve in the latter half of the year. Additionally, we are anticipating margin accretion from the continued growth of Freedom Boat Club. I will conclude with an update on certain items that will impact our P&L and cash flow for 2022. We anticipate continuing to use working capital during the first half of the year as we build inventory ahead of the prime retail season and protect against supply chain disruptions. This trend should partially reverse in the second half of the year, resulting in a full year working capital usage of between $140 million and $180 million. Depreciation and amortization are expected to be slightly higher than 2021, reflecting the increased capital spend in recent years and acquisition amortization is expected to be higher as well due to the M&A activity in 2021. On taxes and assuming no material changes to the federal tax legislation, we anticipate a federal effective tax rate of approximately 22% with a slightly lower cash tax rate. We expect to execute a very balanced capital strategy in 2022, leveraging our strong cash position. We have planned increases in our capital expenditure budget for 2022, resulting in between $375 million and $425 million of CapEx spend for the year, primarily to complete recently announced capacity expansion projects as well as fund spending for new product investments and cost reduction automation projects in all of our businesses. We plan to spend between $100 million and $150 million in share repurchases but have the ability to spend up to $200 million or even more should market conditions or our share price create opportunities to be more aggressive. I will note that given the market correction in January, we have already purchased almost $30 million of shares this month. We plan to retire approximately $100 million of our long-term debt obligations with our interest expense estimated to be approximately $70 million for the year. Lastly, and similar to 2021, we'll continue to focus on M&A activity, primarily in our Parts and Accessories and Business Acceleration business units, including expanding Freedom Boat Club. Consistent with our past approach, our 2022 guidance does not assume the completion of any transactions but we fully expect M&A to provide opportunities throughout the year. I will now turn the call back over to Dave to continue our outlook comments.
Dave Foulkes, CEO
Thanks, Ryan. Very solid operational execution by our businesses in 2021 has allowed us to quickly transition our focus to the operating and strategic priorities we've laid out for 2022. Our top priority for the Propulsion segment continues to be satisfying outboard engine demand from new and existing OEM customers and expanding market share. We are continuing to invest heavily in new products and industry-leading propulsion solutions that we project will enable top line and earnings growth far into the future. And 2022 and '23 will again be big years for innovative new Mercury product introductions that we will discuss in more detail at our upcoming Investor Day. Our accelerated incremental capacity projects remain on track for completion in the second half of 2022. And we believe this will allow us to gain additional customers who have already expressed their desire to be supplied by Mercury. Our Parts and Accessories segment remains focused on optimizing its global operating model to leverage its global distribution and position of strength in the areas of advanced battery technology, digital systems and connected products in support of our ACES strategy. We are keenly focused on integration activities for Navico, RELiON and SemahTronix and are continuing to focus our M&A lens on higher technology systems and Parts and Accessories businesses as we review additional opportunities to build out this increasingly large, high-margin recurring revenue portion of our business. The Boat segment will continue to focus on expanding operating margins, launching new products, executing its capacity expansion plans, increasing its efforts to become more vertically integrated to help mitigate future supply chain issues and refilling pipelines in the very robust retail environment. Finally, Freedom will continue to expand rapidly through organic means and M&A with its membership now approaching 50,000 members worldwide and with an increasing share of Brunswick products in the Freedom fleet. Before we close out our comments this morning, I wanted to leave you with a few more updates. We began the new year by participating virtually in CES 2022 to showcase our Next Wave strategy, including our award-winning products and progress with our ACES strategy. We were delighted that Mercury's innovative new V12 outboard received a CES Innovation Award. Last week, we announced the launch of a new Joystick Piloting system for pontoon boats powered by single Mercury outboards. The new system provides the confidence of precise 360 control for docking and other close-quarter maneuvers. This innovative new product supports Mercury's strategy of finding ways to cascade advanced technology, introduced initially on more premium products to bring intuitive boating experiences to all boaters. In early January, we announced that Brunswick entered into a virtual power purchase agreement with Vesper Energy which will offset the majority of the projected electrical power needs of our global operations through clean solar energy. This multiyear agreement will deliver an estimated 57 megawatts of renewable energy to the North American power grid and is targeted to be fully operational by the end of 2023. In December, we announced that Mercury Marine will open a purpose-built distribution center to meet record demand for P&A products. The new 512,000 square foot facility will be located in Indianapolis, Indiana, a strategic location that will improve delivery and service to Mercury's global customers while adding much-needed capacity for scale and reduced logistics costs. Mercury's current distribution facility in Fond du Lac, Wisconsin will be repurposed to support the engine manufacturing capacity expansion plans we discussed earlier. Mercury Marine's Fond du Lac's footprint will soon total over 3 million square feet. We also held a groundbreaking ceremony in early December on a large site expansion to increase boat manufacturing capacity at our Reynosa, Mexico facility which manufactures Bayliner, Heyday, Sea Ray, and Lund fiberglass boats. This project will increase capacity by approximately 60% and create an additional 260 jobs. Boats manufactured at the Reynosa facility are in the core categories needed for the rapidly expanding Freedom Boat Club fleet. And in mid-December, we announced the acquisition of the Freedom Boat Club of Rhode Island's franchise operation and territory to complement and create operating synergies with other Freedom acquisitions in the Northeast earlier in 2021. 2021 was a year in which Brunswick received a record number of awards for our products, services, and culture. These included multiple awards as one of the best places to work in the states in which we operate and on a national level as the best place to work for women, for veterans, and for diversity. In total, we received six major national awards for our commitments and actions on ESG and DEI. As I noted earlier, we won a second consecutive Consumer Electronics Show Innovation Award and many additional innovation awards from around the world. We also won many awards for our designs, our new products, our safety, and, of course, our great leaders and teams. In fact, in 2021, we averaged more than one major award per week and we are on track to meet or exceed that in 2022 with 15 nominations for innovation awards at early-season boat shows. As always, I want to offer heartfelt thanks to our global employee population for their dedication, effort, and sacrifices during what is still a challenging time for many families and communities. Through their efforts, we remain very confident in our ability to successfully execute our strategic plan while also ensuring that we prioritize the health and welfare of our employees. Before we take questions, I'd like to remind everyone that we are hosting our 2022 Investor Day virtually on Monday, March 7. The prerecorded format will be similar to our 2021 Investor Day. I look forward to reflecting on the many exciting new products we will launch at the upcoming Miami Boat Show in February, which will demonstrate the power of our technology and our business and acquisition synergies, and sharing an overall update on Brunswick's Next Wave strategy, including our exciting longer-term growth projections and our vision to deliver annual revenues of $10 billion by 2025. Thank you. We'll now open the line for questions.
Operator, Operator
Our first question comes from Brett Andress with KeyBanc. Please go ahead.
Brett Andress, Analyst
Good morning, guys. So basically, all of your existing capacity at Mercury is being used to, I think, fulfill existing customer orders. But is there any way to frame up or put some numbers around the backlog of new or expanded OEM customers that you have, I guess, waiting at this point to be supplied by Mercury?
Dave Foulkes, CEO
Yes, Brett, thanks for the question. We recently, of course, added, I think, somewhere in the range of 80 or 90 customers over the last 18 months or so. And the backlog runs into several tens of customers. I don't know if I'd be specific about it but it is a substantial additional group of customers that are waiting to come on board. I think you'll see onboarding rates that will be over a couple of year period, probably similar to the ones that we've recently seen. So yes, we have a significant backlog. Also, we have just elevated backlogs for existing customers as well. So I think that capacity will be very well utilized.
Brett Andress, Analyst
Got it, okay. And then, it sounds like you're trying to be thoughtful about price and not pricing out new boaters. But can you help us put some numbers on the price increases? I mean how much price did you end up passing in 2021 in boats? I think my math is like high single digits. But how much did you pass in engines? And then also, how much do you kind of expect to pass here in 2022?
Dave Foulkes, CEO
Yes, you're correct about the overall situation with Boats. For Propulsion, the numbers were significantly lower, roughly in the low to mid-single digits. We managed to perform well, particularly in Propulsion. The last price increase for Propulsion was implemented in October of the previous year, and we likely won’t consider another increase until around Q2, aligning more closely with regular schedules. However, we did initiate some price increases in our P&A businesses and certain Boat sectors at the beginning of this year. As noted in the presentation, we believe we have a good handle on inflation, although it remains elevated. We took some early price adjustments in 2021, generally around the mid-single-digit range. At this point, it's too early to determine what actions we'll need to take by midyear; we'll observe how inflationary pressures evolve and respond accordingly. We're striving for a balanced approach to ensure we don't act prematurely or fall too far behind since the inflationary landscape is constantly changing. The process of evaluating these factors is relatively complex, primarily driven by pricing dynamics. Considering we work with thousands of suppliers, even for a single boat, assessing the aggregate impact of any price increases involves negotiations and potential deferrals. This makes it challenging to predict the overall consequences within a given month or quarter. We'll proceed carefully, but we are clearly aiming to offset our cost increases with prices in both Q1 and throughout the year 2022.
Brett Andress, Analyst
Got it. Helpful, thank you.
Operator, Operator
Thank you. Our next question comes from Mike Swartz with Truist Securities. Please state your question.
Mike Swartz, Analyst
Hey guys, good morning. I just wanted to touch on the commentary and guidance around OpEx. I think you said your OpEx as a percentage of sales will be up 50 to 80 basis points on a pretty large revenue increase. I think it works out to something like $160 million to $190 million year-over-year. So maybe of that amount, could you just break out what's kind of base business growth versus what's kind of incremental investment into the business this year?
Ryan Gwillim, CFO
Yes, Ryan here. I'll take that one. So first of all, a big chunk of it is obviously the addition of Navico. And so obviously, that's going to inflate the raw number and simply put Navico is a little bit heavier on the OpEx line than the rest of our businesses which we will obviously work on as we integrate Navico into the rest of ASG. The rest of the full year is very heavy on kind of, I think, R&D, sales and marketing, and increasing our digital footprint. We spent a lot of time reaching the customers on our digital assets is becoming more and more crucial. And so we're spending a little bit more money there. Where we're not adding a whole lot is kind of your typical SG&A kind of back office type stuff. That's what we're being very conscious of after the work we did in '19 and '20 to take cost out of the system, we're pretty hesitant to add it back in. So it's really focused on growth. And it's in the areas that you would expect, given all of our strategic objectives.
Dave Foulkes, CEO
I think relative prices.
Ryan Gwillim, CFO
Yes, Navico is stable as a percentage of sales.
Mike Swartz, Analyst
Okay. That's helpful. Sorry about the barking dog in the background. Regarding the guidance for the Boat business in 2022, I believe you mentioned it would be up over 10%. Could you provide us with some insight into the production volume for the upcoming year? I think you've shared that information pretty consistently each quarter. How should we approach that?
Ryan Gwillim, CFO
Yes. Our story is really the same which is a really good testament to the Boat Group folks. They've done a fantastic job of keeping their production plans on schedule. This year, you want to think about production and wholesale of about 40,000 units which is kind of right in line with what we talked about when we announced the capacity initiatives. And then we think, obviously, retail, if you roll forward, retail from this year, that's also about 40,000 units. And so we are anticipating about a 10-ish percent increase in units and then obviously, ASP and other things on top of that to get to an overall revenue guidance for the Boat segment.
Mike Swartz, Analyst
Okay, that's very helpful. Thank you.
Operator, Operator
Thank you. Our next question comes from Scott Stember with CL King. Please state your question.
Scott Stember, Analyst
Hi, good morning, guys. And thanks for taking my question.
Dave Foulkes, CEO
Good morning.
Scott Stember, Analyst
I'm wondering, as we look ahead to the middle of next year, if we need to implement additional price increases and they end up pushing customers out of the market, who will be the first to handle that? Would it be the dealer group initially, and then potentially the OEMs later on if needed?
Dave Foulkes, CEO
Yes. First of all, we see no indication that anyone is being priced out of the market. We are pleased with the new customers we have attracted and the market share we are gaining, and we are being careful with our price increases. We generally try to share the burden rather than passing on full price increases to retail sold products, and we haven't done so significantly. This means we can support our channel partners well. Additionally, with the lack of substantial discounting, our channel partners can remain healthy. Overall, we see no signs of anyone exiting the market and do not expect that in the near future. From our earlier statistics on boating participation, it remains strong and people are satisfied. We will continue to share this success with our channel, particularly regarding retail sold units.
Scott Stember, Analyst
Got it. And then just on the interest rate narrative that's going around. Your business obviously has really not been super impacted when we've seen pretty big movements in rates. But what are you building into your guidance for next year? And what would you expect any impact to be if the Fed goes along the path that is telegraphing right now?
Ryan Gwillim, CFO
Yes, Scott, it's actually very, very immaterial for us. We have very little term debt that's variable. And most of our debt, as you know, is kind of locked into really preferential rates. So it is almost a nonfactor. In fact, it may actually be a slight positive given the cash we have. So no issues. From a consumer standpoint, just a reminder, most people, when they finance their product, they finance for 7, 10 or even more years, 15 years. It looks more like a mortgage than it does a car loan. So even bumps in the prime rate, if you would, really don't start to impact our end consumer too much. You're talking literally $5, $10 a month on a normal ASP product. So all in all, still a pretty productive environment.
Scott Stember, Analyst
Got it. That's all I have. Thank you.
Ryan Gwillim, CFO
Thank you.
Operator, Operator
Our next question comes from Craig Kennison with Baird. Please go ahead.
Craig Kennison, Analyst
Hey, thanks for taking my questions. Many of the channel related questions have been asked. So I wanted, Dave, to ask you about the Navico acquisition and sort of early on, what sort of opportunities you see now that that organization is part of Brunswick?
Dave Foulkes, CEO
Thank you for the question. We are very pleased with the acquisition; it perfectly aligns with our goals of expanding our portfolio and providing more integration opportunities. Our initial experience has been very positive, and the Navico team is excited to be part of Brunswick. The early financial performance is strong. One of the highlights we discussed earlier is our ASG Connect business, which is growing rapidly. This is our systems integration business that added over 30 customers in the past year across Marine and RV segments. Now, we can incorporate all the systems from Navico, including radar and sonar, into that integrated solution. Earlier today, there was a press announcement about Aviara boats, a significant Mercury customer, choosing Navico's Simrad product exclusively for its displays. This reflects our systems integration business and shows that customers with whom we already have commercial relationships are eager to adopt the new product lines from Navico. We are also making significant progress on integrating operations and finding synergies. I couldn't be happier about the acquisition; it is progressing exceptionally well for us both commercially and operationally.
Craig Kennison, Analyst
And then also related to strategy, could you update us on your electrification strategy, especially in the context of the GM decision to enter the market?
Dave Foulkes, CEO
Yes, sure. Our strategy essentially remains as we previously stated. A couple of interesting things, I think. There are a lot of people who have said that they're entering the market but the actual participation and units and other things is small. I think some bigger players like GM who've had a history of being in marine, they still sell V8s into trying to work out how their electrification narrative measures with that. Generally, I think companies in the earlier stages of this, some of the automotive OEMs are a lot more narrative than reality at the moment. Just on our own electrification strategy, just in 2021, we installed about 1,000 of our generator replacement units in Marine applications and RV. So we're building a lot of materiality around the genset replacement side of the business. That's replacing gensets with large capacity lithium-ion batteries. And at our Investor Day and, in fact, at Miami, you'll see something more on the electric propulsion side for us which will be very exciting, kind of the tip of the spear, if you like, as we begin to enter the electric propulsion business. So look out for that at Miami and also at our Investor Day.
Craig Kennison, Analyst
Great. Thank you.
Operator, Operator
Thank you. Our next question comes from Xian Siew with BNP Paribas Exane. Please go ahead with your question.
Xian Siew, Analyst
Hi guys, thanks for the question. I just wanted to ask on dealer inventory levels. You mentioned there are still very lean. It doesn't sound like you're going to make much progress in 2022 to kind of restock that. So how are you thinking about the opportunity? Is it through '23? And how do you think about, I guess, what the right level for dealer inventory levels are? I mean, I don't think you need to get back to 2019 levels anywhere you've been operating with pretty lean inventories there or the dealers have been. So how are you thinking about that?
Dave Foulkes, CEO
We do not anticipate making significant progress with inventory rebuilds throughout 2022 on a full-year basis. We will likely finish 2022 with only a slight increase, if any. It is important to note that our reported weeks on hand is a global figure; in the U.S., inventories are around 12 weeks, which is even leaner. We expect both retailing and wholesaling to remain steady throughout 2022. As we increase capacity, we hope to be in a better position to rebuild inventories going into 2023 and beyond. It is possible that we may not return to historical inventory levels due to the current unusual environment where inventory is low. However, once it becomes feasible to hold inventory, we believe inventories will begin to grow, and there will be a push to stock dealer stores. We want dealers to focus on keeping high-demand models and options in inventory, and we can provide them with analytics to understand market trends regarding which models and options are selling well. Our goal is to shift inventory towards those high-demand models, and I believe that over time, inventories will build significantly, potentially reaching around 30 weeks on hand.
Ryan Gwillim, CFO
And the other factor there is the ability to satisfy Freedom Boat Club and the sales that they continue to grow. They could take many more Brunswick boats this coming year if we had the capability to produce them. And so this capacity that's going in will also enable those sales as well.
Dave Foulkes, CEO
I think that by 2025, Freedom will be the largest customer of Brunswick Boats on a unit basis, with the fleet likely in the 8,000 unit range.
Xian Siew, Analyst
Got it, that's helpful. Regarding retail sales, you indicated that the industry's expectation is for low single-digit growth for the year. I was curious if you could clarify the cadence, specifically how you view the first half compared to the second half. Do you anticipate being flat in the first half, or is there a possibility of a decline? How are you approaching that?
Dave Foulkes, CEO
I could tell you that retail demand is very strong as we enter the market. So there's no indication of any pullback in raw consumer demand. I think the year will play out really based on the supply chain to some extent. I think we feel we're in a solid position as we go into the year. Obviously, we have challenges. But I think there's a general belief that supply chain may improve more kind of holistically towards the back half which could mean more growth in the back half. But I think it's too early in the year to say at the moment.
Xian Siew, Analyst
Okay, thank you.
Operator, Operator
Our next question comes from Kevin Heenan with JPMorgan. Please state your question.
Kevin Heenan, Analyst
Hi, good morning guys. Thanks for taking my question.
Dave Foulkes, CEO
Good morning.
Kevin Heenan, Analyst
Regarding the long-term revenue target you mentioned today of around $10 billion, I'm curious about how you plan to bridge the gap between this figure and your 2022 outlook, which suggests a compounded annual growth rate in the low double-digit to low-teen range. What gives you confidence in maintaining this growth over multiple years? Additionally, in comparison to the targets set during your February 2020 event, which segments do you see the biggest changes?
Dave Foulkes, CEO
Yes, I want to be cautious not to dampen the excitement for our Investor Day, but I believe that the majority of our growth by 2025 will come from organic sources or from previously completed acquisitions, along with some targeted acquisitions. The growth is broad-based across all of our segments. We are experiencing significant growth in our Mercury share. Currently, we are well-positioned, particularly as we expand our capacity while others may not be doing so. We will be launching new products at a pace that others cannot match. In the Parts & Accessories sector, we've made acquisitions that will yield full benefits in due time, and we will continue to achieve organic growth through our Integrated Systems and strong distribution business, which is performing exceptionally well. In our Boat segment, we are making substantial operational improvements and are preparing to launch an exciting portfolio of new products. Additionally, we have a multi-year plan for inventory rebuilding. The Freedom Boat Club is increasingly being populated with Brunswick Boats, and the growth of the Freedom Boat Club, if we can significantly increase our boat presence there, is actually outpacing market growth. We have effectively gained some control over aspects like demand for retail boats that were previously thought to be beyond our influence. Business Acceleration is rapidly growing, and we expect to share exciting developments from that area this year, which we will preview at the Investor Day. We are seeing trends that are not entirely reliant on market conditions, with strong secular trends across all business segments, which we will elaborate on at the Investor Day.
Kevin Heenan, Analyst
Great. And just as a brief follow-up. You guys have historically targeted, I think, on the operating leverage line, high teens to low 20s. Is there any material change to that as you ramp some of these investments?
Dave Foulkes, CEO
There is not.
Kevin Heenan, Analyst
Thanks very much.
Operator, Operator
Thank you. And our next question comes from Joe Altobello with Raymond James. Please state your question.
Joe Altobello, Analyst
Thanks. Hey guys, good morning.
Dave Foulkes, CEO
Good morning.
Joe Altobello, Analyst
If we examine the Freedom ecosystem, including the sale of boats, engines, and parts and accessories to the franchisees, how large is that business currently? And what potential growth do you see in the future?
Dave Foulkes, CEO
We currently report direct Freedom revenues as a percentage of the Boat segment, but the overall impact of Freedom, including synergies, is likely around double that figure at this time. The growth rate is remarkable. As we continue to develop the Freedom ecosystem, such as the Boateka digital platform for pre-owned boat sales, we will provide more details at Investor Day. We see significant potential in this business. When considering Freedom as part of our ACES strategy, we anticipate that by 2025, it will be a substantial contributor alongside the overall ACES performance. The growth rate is strong, and while synergies are still in the early stages, we believe this will grow rapidly and become a major part of our business by 2025.
Joe Altobello, Analyst
Okay, understood. And maybe on Mercury, obviously, you guys have done a great job of taking share there in the last couple of years. I guess, there are sort of two schools of thought here. One is that you've gotten a lot of the low-hanging fruit from a market share perspective already. But on the flip side, capacity expansion is going to help. So how should we think about the pace of market share gains at Mercury going forward?
Dave Foulkes, CEO
We previously mentioned that our market share in the U.S. is in the high 40s, and we believe the growth momentum should remain strong going forward. We have been gaining share even while operating at nearly full capacity, and increasing our capacity in 2022, along with introducing new products like the 600, will significantly benefit us. It's important to consider Mercury on a global scale. While our overall share in the U.S. is in the high 40s, our share in the saltwater segment is still in the mid-30s, indicating there is ample opportunity for growth, especially with products tailored for that market. Internationally, we have been increasing our share by about 360 basis points over recent years, but the absolute figures in many global markets are still around the mid-30s. This suggests substantial growth potential both domestically and internationally. Some of the customers we are adding are also from international markets, and we believe there is significant room for further growth with Mercury, and no indications suggest that our recent share gains will decline.
Joe Altobello, Analyst
Thank you.
Operator, Operator
That concludes our question-and-answer session for the day. I'll now turn the call back over to Dave Foulkes for some concluding remarks. Thank you.
Dave Foulkes, CEO
Well, thank you all for joining us and for the great questions. We really appreciate them. Obviously you've seen, we're looking forward to another fantastic year in 2022, strong top line growth, earnings growth and once again, margin expansion across all of our segments. Although we've replaced our planned in-person Miami Investor Day with a virtual event this year, I can assure you, it will be very engaging. I do hope that we may see some of you at the Miami show, though. We will be launching multiple new products across all of our segments that really demonstrate the power of our technology, our integrated solutions, our synergies. You will see so many things coming together in Miami and of course, advancing our ACES strategy, including electrification. So as I mentioned, in early March, we also have our Investor Day. We'll update you on the Next Wave strategy and some of those secular long-term growth vectors that we just described that are allowing us to target revenues of $10 billion in 2025. Thank you all very much.
Operator, Operator
Thank you. That concludes today's conference and all parties may now disconnect. Have a great day.