Brunswick Corporation

Good morning and welcome to Brunswick Corporation's second quarter 2019 earnings conference call. All participants will be in a listen-only mode until the Q&A, 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 Gwillum, the Vice President and Finance and Treasurer.

Good morning. Thank you for joining us. On the call this morning are Dave Falk, Brunswick's 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-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation schedule sections of the consolidated financial statements accompanying today's results. As a reminder, on June 27, 2019, Brunswick completed the sale of its fitness business. Starting with the second quarter of 2019, the historical and future results of this business are now reported as discontinued operations. Therefore, for all periods presented in this release, all figures and outlook statements incorporate this change and reflect continuing operations only, unless otherwise noted. I would now like to turn the call over to Dave.

Thank you, Ryan, and good morning, everyone. The second quarter represents a pivotal point in Brunswick's transition to a pure-play marine company, and we have tremendous confidence in the future of our business. Completing the fitness transaction allows us to center our strategy and message on our unparalleled marine platform. In addition, the combination of deploying sales proceeds reinforced by today's announcement of more aggressive share repurchases and the decisive actions recently announced regarding the structural reduction of approximately $50 million in annual run rate costs across the enterprise enables us to substantially enhance our long-term earnings power under a range of potential market scenarios. The demand environments in the first half of 2019 was challenging in certain of our businesses, due in significant part to unfavorable weather across many regions of the US and Canada. Muted market demand affected both of our segments, mostly through reduced demand for value boats and lower horsepower engines. However, we were able to post strong earnings growth in the quarter due to power products contributions the overall strength of our premium brands, cost management actions, and stable P&A business performance. We also completed the sale of the fitness business in the quarter and plan to aggressively deploy proceeds in a manner that enhances shareholder value, which I will discuss in a few minutes. I'll now provide some commentary on our segments and the overall marine market. For the marine engine segment, revenue growth was 4.5% in the quarter, with outstanding operating leverage of 56%, leading to a 160 basis point improvement in operating margin. Demand for higher horsepower outboard engines remains particularly strong, especially in the 175 to 300 horsepower V6 and V8 categories introduced in 2018. Sales of higher horsepower engines to the dealer channel are up significantly over first half 2018, resulting in more robust free power activity. Capacity investments to further our production capabilities in this horsepower family remain on target for completion in the fourth quarter, with a new state-of-the-art die-cast facility opening in this quarter as part of these investments. We also launched a 450-horsepower racing outboard in the quarter, following closely from the mainline 400 horsepower engine launched 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. The parts and accessories business continued its steady performance, led by power products, with a substantial aftermarket portion of the business, which comprises 75% of total P&A sales, outperforming sales to OEMs. The bulk business continues to focus on growing its premium bulk brands, which significantly contribute to the sales and earnings performance for the segment. Boston, Whaler and Harris in particular are planning major product launches during the balance of this year and early next year. as we maintain investment levels needed to drive future growth. For the second quarter, the boat segment's revenue and earnings were modestly down, but operating margins remained relatively stable as the business countered softer market conditions and elevated discount levels with focused cost containment. Finally, as most of you already know, we completed the purchase of Freedom Boat Club in May, making us the leader in shared access boating. The business is performing to plan, and we look forward to working with the Freedom team, capitalizing on the many synergies with our other businesses, and continuing to grow this fantastic business. Next, I would like to review the year-to-date sales performance of our segments by region on a constant currency basis, excluding acquisitions. In the U.S., total revenues were up 1%. while international sales in total were up 5%. International sales for the engine segment were up 10%, with gains in all regions, reflecting the performance of the outboard from parts and accessories business lines. Both segment international sales were down 6%. As expected, demand in Europe was lower due to slower market conditions and the supply constraint caused by the transition from a contract manufacturing relationship that we noted in January. Canadian bulk revenue was also lower in the first half, reflecting the impact of both import tariffs and unseasonable weather on dealer purchasing behavior. As a reminder, the import tariffs which were put in place in Q3 last year were removed in Q2 this year, which should benefit comparisons in the second half of 2019. This table provides some color on the performance of the U.S. marine markets. NMMA outboard engine unit registrations were up modestly year-to-date, with outboards below 150 horsepower down 7%, and outboards 150 and above up double digits. First half SSI data for the US boat market is down 7%, and on a trailing 12-month basis is down 2%. As I mentioned earlier, this is due mostly to weakness in the value end of the aluminum fish and pontoon categories. The market on a dollar basis continues to outperform unit comparisons due to strength in premium categories and continued transition to high horsepower engines. Overall, despite the slower market conditions, consumer health and general economic indicators remain fairly positive, giving us confidence that the retail market trends will likely stabilize as we get into the back half of 2019 and into 2020. Finally, as long anticipated, we closed on the sale of the fitness business at the end of the second quarter, with net proceeds of approximately 470 million from the sale. We have an aggressive plan in place to deploy the proceeds and have already taken certain steps to accelerate our planned actions. Our board has increased our share repurchase authorization to 600 million, and we plan to repurchase 330 million of shares during the second half of the year. The increased authorization also gives us flexibility to continue on an aggressive repurchase schedule beyond this year, as market conditions allow. Note that we have already repurchased 70 million of shares since the first quarter earnings call, bringing the total planned repurchases for the year to 400 million, or approximately 10% of our outstanding shares. When combined with the recently completed acquisition of Freedom Boat Club, these actions fully invest the fitness sale proceeds. In July, we completed two actions to strengthen our balance sheet that were included as part of our normal capital strategy plans for the year. First, we called our $150 million of outstanding senior notes, which will be redeemed on August 2nd. Additionally, we completed the annuity placement for our legacy pension plans. finalizing the exit from our remaining defined benefit plans. Now I'll turn the call over to Bill for additional comments on our financial performance.