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.

Thanks, Dave. Starting with the fourth quarter, on an as-adjusted basis, diluted EPS was 98 cents, a 32% increase versus fourth quarter 2017. Revenue was up almost 9%, with marine business up close to 14%. The combined marine segments had increases in operating margins of 300 basis points and operating earnings of FOR THE FULL YEAR, ALSO ON AN AS-ADJUSTED BASIS, DILUTED EPS WAS $4.77, A 19% INCREASE VERSUS 2017. REVENUE WAS UP JUST OVER 9%, WITH MARINE SEGMENTS UP 12%. ADJUSTED OPERATING MARGINS WERE CONSISTENT WITH 2017 ON A CONSOLIDATED BASIS AND UP 90 BASIS POINTS FOR THE MARINE SEGMENTS. The adjusted operating earnings of the marine segments increased by almost 19% versus 2017, exhibiting the strength of the marine portfolio and giving us confidence in the outlook for the company upon separation of the fitness business. In the marine engine segment, revenue grew by 19%, led by continued robust demand for our new higher horsepower outboard engines, with power products adding 9% to the growth rate. The organic P&A business continues to grow at a steady pace with controls and rigging products gaining acceptance as customers add more content and functionality to their boats. Mercury's adjusted operating earnings increased by 59% in the quarter due to the increased sales, as well as favorable impacts from changes in sales mix, which both contributed to a 360 basis point increase in adjusted operating margins, and operating leverage of 33%. The boat segment had a very solid fourth quarter. Adjusted revenue grew 7% against a strong fourth quarter of 2017, led by sales increases at Boston Whaler, Harris Pontoons, and Sea Ray. The boat grew leverage the sales increase into a 90 basis point improvement in adjusted operating margin and a 20% increase in adjusted operating earnings, with operating leverage of 21%, continuing the trend from the third quarter. Wholesale unit sales were down 4% for the fourth quarter and the full year, while average sales prices increased 10% in the quarter and 11% for the year. These increases in ASPs reflect customers continuing to migrate to boats with more content and higher horsepower engines, as well as growth in premium brands outpacing the performance of value product lines. In addition, we have raised prices in response to cost increases. Dealer pipelines end of the year at 36 weeks of boats on hand measured on a trailing 12-month retail basis, which is consistent with prior year levels and demonstrates our ongoing discipline over pipeline management. We believe that our pipeline levels are appropriate as dealers prepare for upcoming boat shows and the 2019 retail selling season. For 2019, we are planning for weeks of inventory on hand at year-end to be slightly lower than year-end 2018 levels. As expected, net sales for the fitness segment declined by 6%, which was mostly the result of lower sales to Planet Fitness and declines in Cybex-branded cardio product. COMMERCIAL STRENGTH REVENUE INCREASED DUE TO IMPROVED PRODUCT AVAILABILITY. GROSS MARGINS WERE RELATIVELY CONSISTENT ON A SEQUENTIAL BASIS, BUT DOWN VERSUS 2017 DUE TO SEVERAL OPERATING FACTORS, INCLUDING CHANGES IN SALES MIX, INVENTORY ADJUSTMENTS, PRIMARILY RELATED TO PRODUCT TRANSITIONS, INCREASED FREIGHT COSTS ALONG WITH OTHER COSTS, INFLATION, AND INEFFICIENCIES. AS A RESULT, OPERATING EARNINGS FELL BY $17 MILLION VERSUS 2017. OUR FOURTH QUARTER GAP RESULTS ALSO REFLECT THE IMPACT OF SEVERAL ITEMS WHICH HAVE BEEN EXCLUDED FROM OUR AS ADJUSTED RESULTS. WE RECORDED RESTRUCTURING, EXIT, AND INTEGRATION CHARGES IN THE QUARTER TOTALING $24.6 MILLION, WHICH INCLUDED A FURTHER IMPAIRMENT OF THE CYBEX TRADE NAME OF $14 MILLION. WE ALSO RECORDED RESTRUCTURING CHARGES OF $8.6 MILLION AND OPERATING LOSSES OF $11 MILLION RELATED TO THE WIND DOWN AND EXIT OF THE SPORT YACHT AND YACHT OPERATIONS. IN CONNECTION WITH THE POWER PRODUCTS ACQUISITION, WE RECORDED $11.8 MILLION OF PURCHASE ACCOUNTING COSTS AND AMortIZATION. FINALLY, WE INCURRED OTHER NON-RECURRING CHARGES RELATED TO FITNESS BUSINESS IN ADDITION TO SEPARATION COSTS. MOVING TO 2019, WITH THE PENDING SEPARATION OF THE FITNESS SEGMENT, WE ARE PROVIDING OUTLOOK COMMENT AND GUIDANCE EXCLUDING THE FITNESS BUSINESS. This presentation provides greater visibility into the performance of the marine operations and will minimize adjustments to our outlook at separation. However, until completed, our reported continuing operations gap results will include fitness. On this new basis, absent significant changes in the global macroeconomic climate, our plan reflects overall revenue growth rates in 2019 in the range of 9% to 11%, including an approximate 4% benefit from completed acquisitions. We anticipate strong improvement in both gross and operating margins, with operating expenses declining slightly versus 2018 on a percentage of sales basis and operating earnings growth of a high teens percent. Finally, our guidance for 2019 reflects on an as-adjusted basis, excluding the fitness business, in the range of $4.50 TO $4.70 PER SHARE. FOR THE FIRST QUARTER, WE EXPECT MARINE BUSINESS REVENUE GROWTH TO BE SLIGHTLY HIGHER THAN THE GUIDANCE RANGE FOR THE YEAR AND FOR MARINE BUSINESS OPERATING EARNINGS GROWTH TO BE WITHIN THE FULL YEAR RANGE. IF WE LOOK AT 2019 GUIDANCE ON A CONSOLIDATED BASIS, INCLUDING THE ANTICIPATED FULL YEAR 2019 RESULTS OF THE FITNESS BUSINESS, We would project adjusted EPS of $4.80 to $5.05 per share. Dave will provide more details on the expectations for the fitness business during his outlook section at the end of the call. Incorporated into our 2019 guidance is our view of the impact of tariffs, which has not changed since the update provided after we received the exclusion on the 40 to 60 horsepower outboard engines a few weeks ago. Our marine business still anticipates an impact of 2019 pre-tax earnings of $17 to $22 million related to tariffs or $10 to $15 million incremental over 2018. This estimate assumes that the previously announced wave three of China tariffs will rise 25% or 225% on March 2nd absent the US administration reach an agreement with China and assumes no impact from the potential wave four of tariffs which would have a minimal impact on the marine business. The impact of retaliatory tariffs on boat exports to Canada and the EU have been incorporated into our plan including the program assistance for Canadian dealers that Dave discussed earlier. Finally, as it relates to the fitness business, the potential Wave 4 of China tariffs would have an estimated $8 to $10 million negative impact on pre-tax earnings in 2019. Let me conclude with comments on certain items that will impact our P&L and cash flow for 2019, with a focus on some of the more notable items. We anticipate free cash flow in 2019 in excess of $300 million, reflecting the successful execution of our operating strategies. This estimate includes runoff amounts related to sport yacht and yacht operations, which were accrued at year-end, and excludes any fitness segment results or separation costs. We estimate depreciation and amortization of between $100 and $110 million, which excludes the intangible and tangible amortization associated with a power product's acquisition. Finally, our estimated effective book tax rate for 2019 is between 23% and 24% for the year, up versus 2018 due primarily to lower foreign tax credit benefits and the impact of excluding the fitness business. AS WE HAVE DISCUSSED ON RECENT CALLS, WE CONTINUE TO EXECUTE AGAINST OUR CAPITAL STRATEGY AND DEBT REFINANCING PLANS WITH NO MATERIAL DEVIATIONS THUS FAR. WE PLAN ON REDUCING OUR DEBT BY AT LEAST $150 TO $200 MILLION IN 2019, AND OUR ESTIMATED NET INTEREST EXPENSE FOR THE YEAR IS EXPECTED TO BE BETWEEN $65 AND $70 MILLION, WITH THE DEBT REDUCTION ACTIONS PRIMARILY OCCURRING IN THE SECOND HALF OF THE YEAR. We will continue to invest in growth with capital expenditures for the year expected to be between $240 and $260 million, including investments in capacity and new products, as well as certain cash payments in 2019 that relate to 2018 activities. After the accelerated pension contributions in 2018, we are left with a residual pre-tax funding requirement of between $15 and $25 million, to fully exit the plans, which we intend to complete this year. Finally, our capital plan for 2019 does not incorporate the utilization of any net proceeds that we will receive in connection with the fitness separation. Upon completion, we will revisit our debt retirement objectives and share repurchase program. Finally, our debt dividend policy remains unchanged and we will continue to evaluate opportunities to grow dividends. I will now turn the call back to Dave to continue our outlook comments. Thanks, Bill.

As we look to 2019, our plan for our marine business builds on the strong momentum generated in the second half of 2018. For the marine engine segment, this entails growing market share in outboard engines, especially in the greater than 150 horsepower categories and completing additional capacity initiatives necessary to meet the strong demand for these products. We will complete the integration of the power products business into our strong P&A business and drive synergies resulting from the acquisition. While also strengthening the aftermarket business, Power Products provides the backbone of electrical systems that complement Mercury's existing propulsion, steering, and other control systems, provided a fully integrated systems offering for boat manufacturers. Finally, Mercury will not slow down its aggressive pace of new product development and looks forward to another year of releasing exciting propulsion and P&A products, which make boating more accessible and enjoyable. The result of these activities is estimated net sales growth for the segment in the low to mid-teens percentage range, with a strong improvement in operating margin. Similarly, the bulk group will look to extend its 2018 momentum. Sales are anticipated to grow mid-single-digit percent in the U.S., led by continued growth in premium brands. International sales are expected to be flat versus 2018, as a number of factors will impact top-line growth, including the rationalization of our commercial and government products business, retaliatory tariffs, and the European supply constraints I discussed earlier. But these factors will have a minimal impact on segment earnings. We intend to continue to grow margins in 2019 through operational efficiency improvements at our facilities and other cost initiatives. We will also lay the groundwork for additional future growth by launching several significant new products towards the end of the year. The revitalized CRA sport boats and cruiser business is providing a platform for several of the marine business's technology platforms, including Nauticon, advanced control systems, and other enhancements, which will continue to drive high-value content on boats. Finally, as you'll hear more about in a couple of weeks at our investor meeting in Miami, technology and consumer engagement activities will be a catalyst for more growth in the boat business as consumers are demanding more content on boats focused on connectivity and ease of use. Moving to the fitness business, The 2019 plan anticipates net sales declining by a mid-single-digit percent, reflecting lower sales to value-oriented health clubs and flat market demand. Gross margins are expected to remain consistent with 2018 levels. As the separation process continues, fitness will continue to execute against the new strategic plan put in place by the reorganized management team. This plan will leverage increased investment in new products and information technology, including the modernization of the business's sales platform and continuation of its digital and online content strategy. Finally, the business will engage in cost reduction initiatives and actions to improve operating efficiency, including opportunities to significantly reduce freight and certain manufacturing process costs. These actions will result in further operating dilution in 2019, but will be accretive to the growth of the business in future years. Overall, as evidenced by our robust marine business sales and earnings growth and continued execution of our marine business and capital strategies, 2018 was a banner year for our company. I'm looking forward to leading the company and our over 15,000 dedicated employees to even greater success in 2019 and beyond. Mercury Marine is celebrating its 80th anniversary throughout 2019, reflecting on its strong heritage of innovation and leadership in the marine industry. There will be several opportunities during the year for Mercury to showcase its focus on product development and technology, And Mercury looks forward to celebrating with everyone who has made these past 80 years such a success. Finally, be sure to mark your calendars for our upcoming investor event at the Miami Boat Show, which will be held at the Mandarin Oriental Hotel in downtown Miami on Thursday, February 14th, starting with lunch at 11.45 and presentations at 12.30. Although we hope to see many of you in Miami, the event will be webcast for those not able to attend in person. I will now open the line for questions.

Thank you. Ladies and gentlemen, at this time, if you do have a question, please press the star and the number one key on your touchtone telephone. And if your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Michael Swartz of SunTrust. Your line is open.

Hey, good morning, everyone. Just wanted to touch on, I guess, the engine business and incremental margins for the year ahead. It looks like you're assuming in the guidance of low 20s, maybe 20, 21%. incrementals following a year in which you did, I think you said 22, and you came out of the year doing in the 30s. So I just want to get a sense of, first of all, are my numbers correct? And then maybe, you know, how we think about some of the incremental investment going forward as we think about 19 and beyond.

YEAH, MICHAEL, IT'S BILL. GOOD MORNING. I WOULD KIND OF CHARACTERIZE IT THIS WAY. WE'VE GOT, GOING INTO 19, STILL VERY, VERY STRONG WIND AT OUR BACK RELATIVE TO THE NEW PRODUCT THAT WE INTRODUCED IN 18, BOTH FROM A DEMAND PERSPECTIVE AS WELL AS AN INCREMENTAL MARGIN PERSPECTIVE. I think if you dial the clock back on 18, we had some challenges kind of mid-year relative to the launch of and bringing online some new capacity in the product. We also started up a new system in our P&A business. Both of those will not be a factor moving forward. I would point out that tariffs, which are mostly engines, intensify moving into 19. We've got a little bit more currency headwind in 19 versus where we were in 18. When you blend all of that stuff together and given what the business wants to accomplish... From an investment and product perspective, I feel very, very comfortable with where we kind of set the leverage expectations for the business. There's certainly factors that are there that could produce a better result, but I think where we sit at this point time of the year, it's absolutely the right place to be.

Okay, that's helpful. Thanks, Bill. And then second question, I mean, just maybe, David, provide us some color. I think you had mentioned some positive commentary out of the early boat or retail shows that you've seen. Maybe a little more color that you can provide on that topic.

Yes, certainly. So I would say the results of the shows early this year, we'd say supportive of our growth projections and I'd say fairly balanced. We're in a very fortunate position with the breadth of our portfolio that as things ebb and flow between different segments across the years, we can always take advantage in one or more segments. Sea Ray and Boston Whaler have had a particularly strong start in the boat shows in the U.S. and also, in fact, the large Dusseldorf boat show in Europe. So I would say at the moment we feel that our premium fiberglass brands are off to a strong start, but we've seen somewhat softer performance in value aluminum and pontoons in the last year. So overall, I think, you know, constructive and supportive, somewhat of a different balance between 2018 and early 2019. Okay, great.

That's it for me. Thank you. Our next question comes from the line of James Hardiman of Woodbush Securities. Your line is open.

Good morning. Thanks for taking my questions. So industry growth 3% in the U.S. this year. That's down a little bit versus last year. I guess what gives you confidence that we won't see an incremental step down into 2019 and that the 2018 deceleration isn't the beginning of a broader trend?

Well, I think from a Brunswick perspective, we had a good fourth quarter. I think a number of people are reporting that, although there was some softness in Q4 of last year, that there is a pickup. in early 2019. And I think reports on early shows, reports on dealer confidence, are all constructive towards the 3%-ish range, although potentially with a slightly different mix to last year. I think from Brunswick's perspective, we're very excited about the initial performance of our premium brands in 2019. I think we're set to capitalize on the market. Whether it's 3% or somewhat different to that, I think we're very strongly positioned. But nothing at the moment suggests to us a material deviation from that market scenario.

Okay, very helpful. And then the fitness business, obviously another tough year anticipated for 2019. But where the stock is trading, it's almost as if people are – describing zero value to fitness business. I guess if I think about 2019, earnings are getting cut in half 30 cents. I guess where did that number peak? I guess is question number one. Question number two, what do you think the potential earnings power is of that fitness business? If I'm doing the math right, it seems like your initial 2020 guidance was north of $1. And ultimately, you know, this may or may not be the best setting to ask this question, but what do you think is a fair price for the fitness business?

James, I'm not sure I'm going to get into trying to size what the value of the business is, but I will give you some perspectives on what the businesses think about relative to what their long-term objectives should be. You know, 2018 certainly turned out a lot differently than we thought it was going to. I would say the lion's share of the delta really starts to be tied to, A, where the Planet Fitness outcome ultimately landed with that supply relationship, but also just how the new integrity product line ended up being launched and some of the cost implications including freight and install, a little bit of warranty, a little bit of production inefficiency, et cetera. We're just in a completely different place than where we thought we'd be at the end of 18. You know, looking forward, I'd say the business has an opportunity, A, through better execution to improve margins, I think, fairly substantially from where they're going to trough in 2019. I think there's opportunities for them to start to stimulate some demand through some additional product investments. I think some of the investments they have planned on the IT side and simplification side will allow them to operate perhaps in a little bit different cost structure today or tomorrow than they are today. I think all of those have a bit longer term sort of implications to the earnings of the business. It's not a 2019 thing. It's more of a 2020 to 2021 is when the benefits will start to show. The team that's there has done a lot of work in a fairly short period of time to put together a plan that's really focused on getting the margins of that business back, not to where they would have been pre, you know, kind of back in the 2014-15 range, but that's still a business that should operate substantially higher than where they are today from an operating margin perspective.

Helpful. Thanks, guys. Does that help? Yeah, it does. Thank you.

Thank you. Our next question is from the line of Scott Stember of CL King. Your line is open.

Good morning, guys.

Good morning. Good morning.

Yeah, could you maybe just talk about pontoons and aluminum fish? Your comments are echoing what we're hearing across the board of, you know, some of the lower-priced entry-level stuff lagging, you know, some of the more expensive stuff. Maybe just, you know, how does that factor into your expectations for 2019? And maybe just if you could just broader speaking just give us an explanation of why you think we're seeing weakness there.

Well, I'll certainly do my best. I think our primary focus in our boat business is on continuing to improve our margins, and we're focused very, very heavily on our premium aspirational boat brands, particularly Boston Whaler, Lund, and now revitalized Sea Ray. As I mentioned earlier, the fiberglass brands seem to be doing well. Harris, which is our premium pontoon brand, was capacity constrained through 2018 and will be to some extent in 2019. So even though there might be some market softness in pontoons, we still feel confident about the Harris brand. I would say that the softness that we've seen in some aluminum fish value brands does not extend to the Lund brand, which is our premium brand. So I think that we're watching the marketplace. It's a difficult time of year. There are a lot of weather effects going on. Certainly weather affected some of the early shows in the Midwest and in Canada. So we'll wait and see over the next few weeks or so how this develops. I would say that from our perspective, from Brunswick's perspective, though, although it might affect unit volumes... Our premium brands with the best margins are performing very well with no indications of weakness. I would say that the comment I made about the low brand, low is recovering, as you know, from FastPro's acquisition of Cabela's, but really is benefiting from migration of dealers away from other value aluminum brands. that was subject to some disruption last year. And so it will be interesting to see for all of us how that balance plays out during the year. And, of course, we'll know more in a month or so as we get through some of the weather effects and lower volumes associated with this time of year.

Got it. And last question on tariffs. Obviously, we're getting, I guess, closer to a decision now the administration, whether we go up to a 25% rate on list three. Can you maybe just give us a couple of scenarios? If we do go to 25%, obviously you have that within the guidance here, but if the 10% goes away outright at some point, maybe just give us an indication of what you would expect to get clawed back into as far as earnings for 2019. I know it's difficult because there's different moving pieces and commodities and whatnot, but maybe just give us a little flavor there, and thanks for taking my questions.

Scott, I guess I would characterize it. I think we've done a pretty good job of laying that out in the script. Kind of the 17 to 22 million is what we've got included in the results for 2019 related to tariffs. If the tariff situation were to go away, the lion's share of that number is China. there's probably some revenue implications to it that probably aren't included in that number. But I think when you balance that up against the other kind of headwinds, tailwinds within the boat group, I would focus on the $17 million to $22 million as what the number would be.

Got it. Thanks again.

Thank you. Our next question is from the line of Craig Kennison of Baird. Your line is open.

Good morning. Thank you for taking my questions. I wanted to start with fitness. Have you considered a delay in the spin or sale of that business given the recent performance and given maybe the desire to give that time, I'm sorry, give the team some time to show better performance? And if so, how do you weigh that against maybe shareholders that want to see you move on as quickly as possible?

Yeah, we're firmly on plan to separate the business. I think, you know, there are always things that you could think about that might get better or worse, but we are firmly in the process, in flight, with separating the business. and working, as we said, along two parallel paths, spin and potential sale. So that is the plan and continues to be the plan.

Thank you. And then on a different note, powered products, maybe just talk about where you're seeing opportunity for Synergy. What surprised you about that opportunity since you've acquired it?

Well, Power Products, I think, was a wonderful acquisition for us. If you think about, you know, Brunswick Marine as a whole, we have a marine platform that is unparalleled and generate, you know, with the ability to generate tremendous synergies and operate and offer value to the whole industry, I think. Mercury is wonderful propulsion systems. Our P&A business has everything from seats to lighting, to a whole range of other things. But getting the power products gives us the whole electrical backbone and digital backbone of the boat. And so we can now come to a boat OEM and offer them a fully integrated solution for their boat systems with propulsion, electrical, digital control, water management, steering, essentially allowing an OEM to focus where they want to focus, which is how to differentiate their product, which is typically the boat, the use case, the hull, the interior, those kind of things. Nobody else in the marine industry can offer that kind of integrated solution. And so as soon as we got power products, we built that team, which is already out with OEMs, offering that integrated service, and we have a lot of interest on it. So I think I'm incredibly excited about that acquisition. We could not, I mean, you could not have imagined a better way of filling out our P&A portfolio than Power Products. It was the perfect acquisition. It gives us something that nobody else in the industry has anything like. And I think the Power Products team is as excited about it as we are. They have a lot, you know, hot on their plate. We're finishing out the acquisition on plan, but I know the whole team is tremendously excited about what we can now offer to the marine industry.

Thank you.

Thank you. And our next question comes from the line of Tim Condor of Wells Fargo Securities. Your line is open.

Thank you. And, David, welcome to your first official call here. I look forward to seeing you again in Miami. A couple things, gentlemen, here. Just to follow up on the aluminum and the question that was asked earlier, how much, again, early in the season, you alluded to weather impacts. How much of that also is maybe from Canada with Princecraft in addition to weather impacts? And also, from the dealers, are you seeing any feedback that that consumer may be on the margin? It's harder to close sales year over year relative to the larger products.

Good question. You know, I think the Toronto boat show did show softness in aluminum. Princecraft is pretty uniquely positioned as a Canadian-based manufacturer and not subject to tariffs. So we're excited about the prospects for that business. But there's no question that the combination that tariffs and perhaps other things going on in the Canadian economy are potentially affecting buyer behavior. I would say, though, that...