Brunswick Corporation

Good morning and welcome to Brunswick Corporation's first quarter 2019 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 Ryan Guilum, Vice President, Investor Relations.

Good morning. Thank you for joining us. On the call this morning are Dave Falks, 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 will also be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the consolidated financial statements accompanying today's results. I would now like to turn the call over to Dave.

Thank you, Ryan. Good morning, everyone. As anticipated, our marine business delivered strong results in the first quarter. as we grew top line by over 10% and expanded operating margins by 80 basis points. These results reflect the continued successful execution of our marine strategy, focusing on product and technology leadership, growth initiatives, and operational excellence. After a slower than expected start to the marine selling season, due in part to more challenging weather conditions in much of the U.S., We believe that the market demand for the remainder of the year will reflect modest growth in units, with dollars again growing at a greater rate. As a result, we will continue to execute against our plans and our overall marine strategy. And we believe that we can deliver operating performance and cost controls that will drive strong leverage and achieve our full-year earnings targets. Finally, we have made significant progress on the separation of the fitness business from the portfolio, which I will discuss in more detail on an upcoming slide. I'll now provide some commentary on our segments and the overall marine market. The marine engine segment continued its momentum from the second half of last year. Engine demand remains particularly strong for the 175 to 300 horsepower V6 and V8 outboard engines introduced in 2018, and the new mainline 400 horsepower outboard, which debuted in Miami in February. These platforms are the most recent evidence of the success of our strategic investments in industry-leading technology and product development capability, which has driven both market share gains and margin accretion. Note that the capacity investments discussed on our last call, which will further enhance our engine production capabilities, remain on target for completion in the fourth quarter. In addition, we plan to deliver exciting new engine products during the remainder of 2019. The parts and accessories business continued its steady performance led by power products. The delayed start to the boating season in the U.S. has slowed OEM and aftermarket parts sales, but we anticipate that improved conditions will lead to performance consistent with recent experience. Overall, revenue growth was 11.5% in the quarter, with outstanding operating leverage of 31%, leading to 180 basis point improvement in operating margin. The boat business remains focused on delivering our long-term strategic commitments, including investing in our market-leading premium boat categories, enabling and enhancing the boating experience, and maximizing operational efficiency across our manufacturing footprint. For the first quarter, top-line growth in the segment was slightly below expectations due mostly to weather and some market softness in the value categories. However, our aspirational brands with premium content continue to outperform, with growth in average sales prices outpacing unit results. Sales in international markets were down as expected. Operating margins declined 50 basis points due in part to factors that will help enable future margin expansion and growth, as Bill will discuss in a few minutes. Lastly, we announced two strategic moves to enhance our manufacturing and product development capabilities, which I will discuss at the end of the call. Looking at our combined marine segments, global revenue grew by more than 10%, with 6% growth achieved on a constant currency acquisitions basis. The engine segment reported strong growth in international markets, including benefits from improved outboard engine availability. U.S. market growth was influenced by a delayed start to the marine season and continued weakness in stern drive engine sales. The boat business also delivered solid growth, with U.S. outperforming international markets. Sales in Europe were down as anticipated, primarily due to slower market conditions and the supply constraints, caused by a transition from a contract manufacturer, as we discussed in January. Canadian sales were up in the quarter, after very weak wholesale demand in the second half of 2018, as dealers deferred orders to Q1 in response to the tariffs on boats imported from the U.S. The power products acquisition added 6% growth to marine business in the quarter, while currency was unfavorable by 2 percentage points. As I mentioned, the U.S. market is off to a slower start than anticipated in 2019, with reported industry demand metrics mixed. And MMA outboard registrations, which represents a more complete view of the market, were essentially flat with the prior year. As a reminder, currently over 90% of boats sold are powered by outboards. SSI, which provides a somewhat incomplete view of the market, is reporting a decline in demand of 7%. SSI reporting for the first quarter remains preliminary, as this reflects only 46% of the activity in March, with several key states, including Florida, not yet reporting. This is significant because March normally comprises half of the retail activity in the first quarter. Our view is that the unit market in the first quarter was most likely slightly down, primarily due to weather and softness of value categories. On a dollar basis, the market continues to grow due to strength in premium categories. Turning to the fitness segment, our attention remains firmly on completing the separation of this business from the portfolio. As I mentioned earlier, we've made significant progress on the separation and are very encouraged by the strong level of buyer interest in the sales process. Consequently, while we continue to maintain our preparedness for spinning the business, we have confidence that we will be in a position to announce a sale of the fitness business as expeditiously as possible in the second quarter. Fitness's first quarter performance was mostly consistent with our expectations, with revenue declines resulting from lower sales to Planet Fitness and softness in certain international markets. Gross margins remain relatively stable from the second half of 2018. Now I'll turn the call over to Bill for additional comments on our financial performance.