Brunswick Corporation

Good morning, and welcome to the Brunswick Corporation's fourth quarter and full year 2018 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ryan Gillum, Vice President, Investor Relations.

Good morning. Thank you for joining us. On the call this morning are Dave Falk, Brunswick CEO, and Bill Metzger, 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 the 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'LL BE REFERRING TO CERTAIN NON-GAP FINANCIAL INFORMATION. RECONCILIATIONS OF GAP TO NON-GAP FINANCIAL MEASURES ARE PROVIDED IN THE APPENDIX TO THIS PRESENTATION AND THE RECONCILIATION SECTIONS OF THE CONSOLIDATED FINANCIAL STATEMENTS ACCOMPANYING TODAY'S RESULTS. AS A REMINDER, THE RESULTS OF THE ENTIRE C-RAY BUSINESS ARE AGAIN BEING REPORTED IN CONTINUING OPERATIONS FOR GAP PURPOSES. HOWEVER, As adjusted, non-GAAP results exclude the SeaRay sport yacht and yacht operations that have been round down. Therefore, for all periods presented in this presentation, all figures and outlook statements incorporate these changes unless otherwise noted. I would now like to turn the call over to Dave.

Thank you, Ryan, and good morning, everyone. Our strong fourth quarter performance was a fitting end to a very ambitious 2018. which delivered record earnings and our ninth consecutive year of adjusted EPS growth to our shareholders. Our marine business continues to succeed in a steady global marine market, with our outstanding financial results reflecting the successful execution of our marine strategy. Our capital strategy accomplishments included funding important investments to support organic growth and leveraging our strong balance sheet to fund the power products acquisition. We also funded our legacy pension obligations as we prepared to exit our remaining plans in 2019 and increased our dividend for the seventh year in a row. Finally, we continued to prepare for the separation of the fitness business from the portfolio, with the process progressing as planned. I'd like to share some perspectives on our segments and the marine market. The engine segment had a record sales and earnings in 2018, with strong contributions from both propulsion and parts and accessories. The second half performance of this business accelerated due to both top line expansion and margin improvement. The growth in propulsion was led by the new 175 to 300 horsepower V6 and V8 outboard engine platform introduced earlier in 2018, along with growth in other high horsepower product, which continues to be in high demand as customers migrate to larger boats with more content. Enabled by planned capacity expansion, outboard engine sales increased over 17% for the year. additional capital projects are underway which will further enhance our engine production capabilities starting in late 2019. The parts and accessories business strengthened its leading market position by purchasing power products, which in addition to growing its already formidable aftermarket business, provides opportunities for Mercury to leverage relationships with VotoEMs to provide an even broader portfolio of offerings. The result is full-year revenue growth of 14%, operating margin accretion of 70 basis points, and 22% operating leverage. All outstanding achievements. The boat segment also performed well in 2018, with solid increases in net sales and operating margins resulting from contributions across the product portfolio. I think it's important to note that the boat segment delivered $100 million of operating earnings in 2018, which last occurred in 2006 when the segment reported $2.9 billion in revenue. With each of our brands contributing to the profitability of the segment, operating margins reached 7% for the year, which is already at the bottom end of our 2020 target range. The boat group continues to be led by its premium aspirational brands, including Boston Whaler, Lund, and a revitalized Sea Ray, while steady improvement from Harris Pontoons augmented the segment's overall performance. Sea Ray's sport boat and cruiser business has performed well since the decision was made to keep it in the portfolio, and there is favorable momentum looking forward for this market-leading brand, with very encouraging results from recent boat shows. Looking at our combined marine segments, global revenue grew by 12%, with 8% growth achieved on a constant currency X acquisitions basis. Revenue growth was strongest in the U.S., as each segment recorded strong gains. The engine segment performed well across all regions, with growth around the globe in both propulsion and P&A. The boat business also delivered solid results, but was affected by certain regional factors. In Europe, revenue growth was influenced by colder weather early in the selling season, tariffs on product imported from the US, and supply constraints resulting from a capacity reduction in a contract manufacturing arrangement. In Canada, boat sales were also dampened in the second half of the year as dealers limited off-season orders due to retaliatory tariffs on product imported from the U.S., which comprise more than half of our boat sales in Canada. Note that earlier in 2019, we announced a dealer program to cover a portion of the tariff impact, with the goal of prompting wholesale orders in time for boat shows and the start of the retail selling season. The U.S. marine market performed in line with expectations in 2018 with industry unit growth of 3%. Outboard boats and engines continue to drive industry growth with increases in aluminum fishing boats and pontoons outpacing overall industry performance. The fourth quarter, which represents less than 10% of annual retail sales, was softer against a very strong Q4 of 2017. although the outboard engine market continued to grow with Mercury picking up share in all categories 75 horsepower and above. Looking at our internal retail data for boats based on pipeline inventory activity, our U.S. retail boat registrations in the fourth quarter were up 1%, while global unit sales declined by 3% versus a very strong fourth quarter of 2017. If you exclude the impact of low on these results, as this brand continues to be influenced by Bass Pro's acquisition of Cabela's, which we've discussed throughout the year, retail registrations were up 10% in the U.S. and 2% globally for the quarter. For the full year, excluding the impact of low, registrations increased by 3% in the U.S. and by 2% globally. These figures are generally in line with industry growth rates and our initial expectations for 2018. Looking ahead to 2019, we remain confident in the steady growth of the marine market and anticipate retail unit growth in the U.S. in line with 2018 growth, which was towards the bottom of our 3% to 5% targeted range. Global growth will trend lower as international demand is influenced by tariffs and trade policy. Early feedback from boat shows has been supportive of our market view, with premium categories including Sea Ray and Boston Whaler performing better than value products and pontoons. Our 2019 unit growth figures will no longer be affected by the year-over-year comparability issues involving Cabela's. as Lowe has been actively reestablishing distribution. Lowe is also benefiting from signing many new dealers, transitioning from an aluminum boat brand recently acquired by a competing engine manufacturer. Turning to the fitness segment, our attention remains firmly on completing the separation of this business from the portfolio by the end of the first quarter, or as promptly thereafter as practicable, while maximizing value to our shareholders. The SPIN process is on track with a Form 10 filed in November, and we continue to work with our advisors to evaluate other options, including an outright sale of the business. Fitness's fourth quarter was mostly consistent with our expectations. For the year, revenue was flat against 2017. Sales to Planet Fitness declined in the fourth quarter as projected, and although gross margins remained steady sequentially, comparisons versus the previous year continue to be challenged due to the factors we've discussed throughout the year, including freight and the launch of our new cardio products. The new leadership team, with oversight from the dedicated board committee, is executing against a refocused strategy to position this business for strong and long-term success. Now I'll turn the call over to Bill for additional comments on our financial performance.