Welcome to the 44th annual Raymond James Institutional Investors Conference. I'm Joseph Altobello, a research analyst covering the leisure sector, and we are very pleased to kick off things this morning with Brunswick Corporation. Brunswick is a leader in the global marine industry with a portfolio that includes well-known boat brands such as Boston Whaler, Sea Ray, and Bayliner, just to name a few. In addition, its Mercury engine business has been gaining meaningful market share for several years and shows no signs of slowing down. While its parts and accessories business has also grown significantly, both organically and through a handful of very strategic acquisitions. With us today to tell us the story is CEO David Foulkes, CFO Ryan Gwillim, and Senior Vice President of Enterprise Finance, Neha Clark.
With that, let me hand things over to Dave.
Thank you. Thank you, Joe, very much. I apologize, my voice is a little hoarse this morning. Thank you for your interest in Brunswick. Thank you very much for joining us. I know many of you know the company very well. One thing some of you may know is we presented at the Consumer Electronics Show earlier this year and introduced a refresh to the Brunswick brand, including the new tagline, which is, "Next Never Rests." That is a reference to our sustained investments in innovation and new technology and new products and new business models, much of which I'll talk about this morning. Our materials contain certain forward-looking statements about future results. Actual results may differ materially. For the factors to consider, please see our SEC filings on brunswick.com.
We will be using certain non-GAAP financial measures. For reconciliation of GAAP to non-GAAP, see our 8-K filings also on brunswick.com. As Joe mentioned, we are by far the biggest company in the recreational marine industry. For those of you who don't know us well, here are a few kind of fast facts, if you like, that capture the business. Mercury Marine is part of Brunswick. About 50% of all of the engines in the recreational boat fleets in the US are powered by Mercury Marine engines. Mercury has market share in the US and Canada in the high 40% and has just become the market leader in Europe as well. We have 18 different boat brands covering a full spectrum of the boat segments.
They include three of the four most recognized brands in the U.S., Boston Whaler, Sea Ray, and Bayliner. We also own the world's biggest marine distribution parts and accessories businesses. Of course, we own now Freedom Boat Club, which actually just broke 380 locations. You may have seen this morning we announced the first location in Puerto Rico. Finally, we're a very innovative company with more than 590 patents granted in the last five years, which is a moat around the technology that we develop. Okay. To understand our business model, it is helpful to understand a bit about the U.S. recreational boat ecosystem, which is the biggest in the world by far, but is a really nice proxy as well for Europe, which is the second, and Australia and New Zealand, which is the third.
I will start in the lower right of this chart. There are about 2,000, roughly 200,000 new boats sold every year in the U.S. It's been plus or minus that for a while. We participate in new boat sales through, obviously, Mercury Marine, through our boat brands, but also via the parts and accessories that are first fit with a large number of OEMs who sell boats into this marketplace. There are about 52 million fishermen in the U.S. who over-index to boating. About half of the boats sold in the U.S. are fishing related, and we have the leading brands of both salt and freshwater fishing.
I mentioned earlier, these 200,000 new boats that get sold every year are sold into a U.S. fleet of about 10 million registered recreational boats, about half of them powered by Mercury engines. That is the source of the tremendous annuity we have in parts, accessories, replacement parts, consumables, et cetera. The really big number on this slide, the 140 million, that is roughly the number of Americans who participate in some way in boating every year. It is a huge number. There are only 10 million boats, 140 million people are not on their own boat. They're on a family's boat or a friend's boat, or increasingly on a shared access boat like a Freedom Boat. Freedom is important to accessing more of that 140 million.
We have four operating divisions, all designed with sustained secular growth in mind. Joe already mentioned Mercury Marine, the leader in propulsion technology and new product, gaining market share, just added additional capacity in high horsepower engines that I will talk about some more. Also just introduced its first line of electric outboard motors, which I'll also describe a little bit later. Our Navico Group, some of the leading technology in the marine industry and beyond, are able to provide complete system solutions to OEMs, both in marine and outside that, fully integrated systems. Also building on its two lithium-ion battery businesses, Mastervolt and RELiON. That is an increasingly important technology in marine and beyond. Our Boat Group has been growing significantly over the past several years, focusing on launching new products and on making itself much more efficient and productive.
As you'll see later, that has come through in operating margins. Finally, Business Acceleration is the home of Freedom Boat Club. Which I mentioned earlier, along with other service businesses, and it is building out Freedom and the ecosystem around it, which I'll describe a little bit later. Across the top again, you see our four operating divisions, Mercury Marine, Navico Group, Boat Group, and Business Acceleration. Along the bottom here, our reporting segments. You see an incredible stable of industry-leading brands in each of our divisions, but it is not a static list. On the left, lower left, you see the Mercury Avator. That is our new line of electric outboards introduced this year. In Navico Group, of course, you see the brands that we've acquired recently, Lowrance, Simrad, B&G, all leaders in their spaces.
RELiON, the second lithium-ion battery business that we recently acquired. Under our list of Boat Group brands, you now see Veer, our new boat brand designed for electrification. As technology changes, our brand stable, brand portfolio changes. Under Business Acceleration, you see Freedom, our service brands, and now Boateka, our online pre-owned boat sales platform. Which takes product out of Freedom and sells it into the pre-owned market. To support our strategic growth, we've expanded our capacity and made our supply chain more resilient, but in a very smart way. I'll talk in a second about the high horsepower outboard manufacturing capacity expansion in Fond du Lac. We have also expanded our boat production capability, but at our 2 lowest cost manufacturing plants, one in Mexico and one in Portugal, both of which now manufacture multiple brands for our businesses.
We opened a new P&A distribution center in Brownsburg, Indiana, which is very centrally located. It's state-of-the-art. It will allow us to deliver P&A more efficiently and quickly to all of our customers. Finally, we've begun to insource more electronics manufacturing that might have been done previously in Southeast Asia, which makes us more robust and more capable and easier to do new product development. We've also invested in supply chain resilience, including insourcing a number of components and subsystems that have been problematic for us. We're one of the few people in the industry that can do that because we have the scale. We're also able, because of our scale, to have multi-year contracts with major suppliers, which you may have seen has made our business continuity much better than some other people over the last couple of years.
This is a bit more detail on the investment in a high horsepower outboard engine manufacturing in Wisconsin. We invested about $200 million over the last year or so. That is essentially now complete and ready to ramp up additional production to satisfy existing customers and bring on board new customers who are waiting in the wings. This is a great photo. I love this photo. This is our V-series family of engines. There is nothing else like it in the industry. V6, V8, V10, or V12, all off a common platform, going from 175 horsepower to 600 horsepower. Remember, our nearest competition tops out at about 450 horsepower. All the same platform, which means that new capacity can flexibly manufacture any one of those engines depending on customer demand. We've launched, Let me just go back a second.
Not sure what's going on. Just give me a second. Oh, did it go? All right. You will see that we're introducing a lot of new products. I mentioned some of them, the Mercury Avator electric outboard series. Sea Ray and many of our other brands are accelerating their introduction of new boats. There's a new SLX 320. Veer is our new electric boat brand. Navico is introducing a lot of industry leading products, including this HDS Pro, which is the best sonar system on the market today, and the Fathom system that replaces internal combustion engine generators on many boats. Our businesses are important separately and together because of the synergies. This is a great example. This is a Sea Ray Sundancer 370, a 37-foot cruiser. We don't just sell the boat.
You see it's powered by two Mercury 600 horsepower engines, controlled by a Mercury joystick and autopilot system. All of the electronic and electrical systems on the boat are controlled by these CZone digital switching, which we own. That creates a single, very intuitive user interface, which is displayed on a Simrad display, which we own, and mirrored onto an app via CZone. It uses a Simrad radar and sonar system. As I mentioned, the combustion engine that would normally power on the onboard systems is replaced here by a Fathom lithium-ion system made of components all from us.
We're doing this not just on this boat, but on every boat we make, and on behalf of a number of other manufacturers. What that means is that on every U.S. Brunswick boat, on average, there is about $25,000 worth of Mercury and Navico Group content. The margin on that content goes back to Mercury and back to Navico Group, but it's not just about selling the boat, it's about selling a boat packed with our content, whether it's our boat or somebody else's boat. A lot of the new products that we introduced are derived from our ACES strategy. ACES stands for Autonomous, Connected, Electrified, and Shared. You will have seen those themes across multiple verticals, automotive, aviation, et cetera, but we're doing exactly that in marine.
In terms of autonomy and assistance, we have been introducing a lot of new technology to make controlling a boat more intuitive and simpler, joystick control, autopilots on all kinds of boats, and now we're going towards auto docking. We have the broadest suite of connectivity solutions in the industry that allows you to remotely diagnose a boat, control some functions, do security monitoring. I mentioned electrification. Our new Avator outboard engine platform is electric, as is the Fathom e-Power system that replaces that internal combustion engine generator. Finally, shared access. Shared access also, obviously based around our Freedom Boat Club, with now 5,000 boats in it, with increasing numbers of Mercury engines and Brunswick boats. We are innovating not just in terms of technology, but in terms of synergies and business models. Let me move on, quickly talk about financial results.
Another record year in 2022, we grew net sales by 16.5% to $6.8 billion. First time we hit double digits for our earnings per share, $10.03, up 21%. Despite FX headwinds, despite inflation and everything else, we still grew operating margins 20 basis points to 15.4%. As I mentioned earlier, for the first time, our Boat Group hit double-digit operating margins, up 110 basis points in the face of a number of headwinds versus last year to 10.2%. We think about or we calculate about 37% of our revenue is recurring revenue. That is how we count essentially the aftermarket component of our P&A sales and our propulsion sales and the subscription revenue for our Freedom business.
Essentially recurring, doesn't depend as much on new boat sales. Then after being very aggressive on M&A in 2021, and to some extent early 2022, we based on share price and the market, we pivoted to aggressive share repurchases. We went into the year assuming roughly $150 million, and we ended up with $450 million. Just to note that since I've been CEO since 2019, we have returned about 66% of all of our earnings to shareholders in the form of share repurchases or dividends. Let's click forward to 2023. We have a lot of momentum in the business across the whole business, but of course, there are macro headwinds that you and I don't fully understand yet.
We are still biased towards growth, full year revenue, $6.8 billion-$7.2 billion, roughly flat operating margin. EPS, again biased to growth, $9.50-$11.00. Free cash flow significantly in excess of 2022. We generated about $200 million last year. We expect more than $375 million this year. Just over a year ago, we established a vision for 2025, the first time we'd really set out a four-year strategy. Obviously we're just one year into it. Some comments. I would say a couple of things. One is that the strategy did not depend in any way on market growth. It was really based on levers that we fully control. Obviously, since then, we've seen some macro headwinds.
I would say if you look across our businesses, propulsion is probably ahead of where we expected to be at this point in the strategy. Boats are about online. I think P&A is probably lagging a little bit due to some unique market conditions around inventory restocking. Broadly, we're in pretty good shape. I think if you think about $10 billion in revenue from the $7 billion we are right now, that was $2 billion organic and $1 billion of M&A. That $1 billion of M&A, we will continue to evaluate whether share repurchases or more M&A are optimal for our business. One, of course, will benefit the EPS more, and the other will benefit the revenue more. Whatever the strategy is, we always put shareholders first. We will always do the right thing.
We will do a more comprehensive update to this strategy at our investor meeting in the fall of this year. I think it's September of this year. I just wanna close with this slide. We picked a period here, which is the fourth quarter of 2019 to today to look at total shareholder return. It's not arbitrary. The reason we picked it is that is the period in which we've been essentially a pure marine business. Prior to that, we also had our fitness business. In the period since we've been a pure marine business, our TSR has been very strong compared with a number of benchmarks, and our EPS growth has also been very strong. Portion coming from core EBIT growth, which has been substantial, and another portion coming from our capital strategy, including share repurchases, dividends, et cetera.
Strong returns and that, shareholders remain at the center of our thoughts as we are developing and executing the strategy. All right. That is the end of my prepared remarks. Joe, I think we're gonna take some questions.
We have about 10 minutes. I have one quick one. You know, your guidance this year for the market and again, the boat industry is down modestly. The SSI data, I don't have to tell you.
Yeah.
Not been so great. Help us, help us get comfortable, I guess, with that outlook versus what we've seen so far in the data. When do you expect to see that inflection in terms of growth again?
Yeah. The market is down versus 2022, but roughly flat versus 2019, which is the kind of pre-COVID year. We think some of the unique factors around 2022 are gonna revert to more typical seasonal behavior this year. If you think of Q1 of 2022, really we had not seen the high inflation, we had not seen the high interest rates. FX was still roughly in line with historical norms. In terms of market behavior, inventory levels right now are very good. They are roughly where we would like to be historically in value product and somewhat lean in premium product. In the beginning of 2022, inventory was very lean, so people were buying boats out of season.
Normally people buy boats a few months before they want to use them, but because of lack of availability, they were buying them in October, November, December, January to use later in the year. It is not a surprise to us that we see early retail sales lagging 2022 and more in line with 2019. One other fact to bear in mind is January and February combined is about 10% of total annual sales. As it turns out, 2019 in a full year basis was a better year than 2022. 2022 tailed off towards the end. 2019 had the more normal seasonal pattern. We did expect the early part of the year to be a different character to last year.
Hopefully, as we get into more of the selling season, which is really April plus, we'll see hopefully more normal characteristics.
It's more seasonality than any-.
Say again?
It's more seasonality than.
I would say it's more normal seasonal behavior than the abnormal behavior we saw in 2022. Yeah.
One more on electric. You mentioned the new electric engine. You mentioned Veer. Talk about the commitment to electrification, I guess, for lack of a better term. How quickly do you expect the marine industry to adopt electrification?
We expect marine industry to adopt electrification, but mainly in some specific segments. If you look even at the U.S. government's roadmap for sustainability, they show high potential for electrification in light duty passenger vehicles, lower potential in things like marine and aviation. The reason is that boats and airplanes are very weight sensitive. They require more power to push them forward. They don't have brakes to regenerate energy like a road vehicle does. We expect that electrification will penetrate more slowly into core marine segments, and that things like sustainable fuels will likely be a bigger player in those areas, just like they are in aviation. Where we are focused is smaller horsepower, smaller boats. Those are 48 volt systems. We think that there's a.
In fact, we know that there is a market there that is substantial. It's mainly in Europe, it's mainly small horsepower. If you think about in Europe, about 90% of all of the electric outboards currently sold are 5-10 horsepower. They're pretty small horsepower. That's a real market with real revenue and real profit. We expect to lead in that market just like we do in every other part of the market. I would say electrification will penetrate marine more slowly and in specific subcategories versus broadly.
Super. With that, let me open this up to the audience if anyone has a question. I'll ask for Dave, if you could, to repeat the question for people who are listening on the webcast.
Oh, yeah. Okay. Sure. The question was about the profitability model for Freedom Boat Club. I just mentioned 380 locations. Freedom is accretive to the boat segment, but if you look at the mature Freedom locations, just on a standalone basis, they are in the high teens operating margins. As we stretch into new territories, we add some fixed costs, and so we need revenue to build around memberships. Essentially, on a steady state basis, the standalone operating margin should be in the high teens. That doesn't take into account the huge synergy benefits that we get from introducing our own boats and our own engines and our P&A streams into the Freedom market. On an aggregate basis, the profit stack is extremely large and very accretive to the business.
Can I ask you a question on P&A? You mentioned that it's probably tracking a little bit below what you thought.
Yeah.
On your 25 targets. You mentioned inventory destocking. How much visibility do you have there, and how confident are you that it is a destocking issue rather than people using their boats less, for example?
Yeah, I think it depends on the part of the business, but we do have strong visibility to, you know, Amazon, Walmart, Bass Pro, those kind of big stores. We understand what the sell-in and the and the POS sales to customers are, where they are on inventory levels. This is not in any way unique to us. This is a situation in which the major online and big box retailers essentially build too much inventory because of supply chain disruptions and are now broadly destocking across product lines. We are seeing, though, some, I would say, I don't know if it's an inflection yet, but definitely an improving trend in the relationship between sell-in and retail sales. Hopefully we'll get to a more normalized situation.
I would say there is another factor on top of that. Obviously, we do sell some product into the recreational vehicle industry. That industry is essentially more or less been at a stop for a couple of months now. As the wholesaling in that industry picks up, we expect it to also benefit in our P&A sales.
Just going back to Freedom for a second. You guys do report Freedom numbers, but you don't give the whole picture because like you said.
Yeah.
There is an ecosystem, right?
There is.
You sell engines and P&A. Can you give us a sense for the size of that ecosystem today and how big it could be eventually?
The total Freedom earnings plus ecosystem is in the $200 million-ish range right now. That has grown very, very substantially and very quickly. Bear in mind that at the moment, in that 5,000 unit fleet, about a third is our boats, and we expect that to become 75-ish% over time. The synergy will grow and we continue to grow the number of locations quickly. We just announced Puerto Rico. Today we announced Australia, Sydney, Australia, we announced Scotland on Loch Lomond recently. As those clubs build in scale, revenues will continue to build as well. In our plan, we had the Freedom ecosystem at $375 million plus in 2025, and we're probably, if anything, slightly ahead of that.
Today you're at 380 locations. Is there a number that you have in your head that you could get to at some point?
I think we were planning about 500 by 2025.
Okay.
We're well on track to that.
Got it. Any questions from the audience?
The question was, are we working on any hydrofoil boats? The answer is not really. We've experimented with various hydrofoil boats, but there are some significant considerations. There's really only one manufacturer that makes it. It's low volume. Hydrofoils essentially lift the boat out of the water to reduce drag, so you can use more electric motors, but they need to be extremely light, which means they're made of carbon fiber, which means that they're very expensive. The boat is about a 20-something foot boat. It costs $300,000. The other consideration is that hydrofoils can only operate in certain wave states. As soon as the waves become too substantial, the boat needs to sink down because it starts to get unstable.
You can be in a situation where you go out and the wave conditions are fine, and you wanna come back and the wave conditions are not fine, and you're using a lot more electric power. The concept is very interesting on certain bodies of water, but the boats are very expensive and the application is somewhat limited. I don't say that there isn't potential there, but it's not something we're very actively working on. There is another class of boats which is called hydrofoil assist, which essentially doesn't raise the boat completely out of the water, and that's probably got more broad potential.
Thanks, Dave, and thanks everybody. Enjoy the rest of the conference.
You're welcome. Thank you.