Brunswick Corporation

Good morning and welcome to Brunswick Corporation's fourth quarter and full year 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 Al Marchetti, Senior Director, Investor Relations.

Good morning and thank you for joining us. On the call this morning are Dave Fouts, Brunswick CEO, Bill Metzger, CFO, and Ryan Willem, Vice President, Finance and Treasurer. 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 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. As a reminder, on June 27th, 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.

Thanks, Al, and good morning, everybody. 2019 was a very successful year for Brunswick and our shareholders. We delivered record earnings for the 10th consecutive year, substantially grew margins, made significant additions to our product portfolio, manufacturing capacity, and technology platforms, completed meaningful cost reduction actions, and have emerged as the world's premier recreational marine company. Our solid fourth quarter performance reflects the continued successful execution of our marine strategy and reinforces the tremendous confidence we have in the future growth opportunities within each of our businesses. The more favorable retail trends in the U.S. persisted in the quarter and together with planned lower wholesale shipment activity resulted in us achieving our stated goals of lower field inventory than 2018 and relatively flat pipelines on a weeks-on-hand basis. Aside from our updated estimates on tariffs, our views on our 2020 financial goals have not changed, and I have a high degree of confidence that we will execute our strategy and deliver strong shareholder returns in 2020. We've started the year off in exciting fashion with a spectacular debut at CES and new product launches at early boat shows. and I look forward to leading Brunswick through further successes in our first full year as an integrated marine powerhouse. I'll now provide some highlights on our segments and the overall marine market. The marine engine segment had tremendous success in 2019, again posting record earnings and significant margin increases. This was in the face of approximately 25 million of headwinds from unfavorable changes in foreign currency rates and tariffs, partially mitigated by a full year of solid performance by power products. Demand for high horsepower outboard engines remains particularly strong, especially in the 175 to 300 horsepower categories introduced in 2018 and the 400 and 500 horsepower engines released in 2019. During the fourth quarter, we brought online additional capacity, allowing us to manufacture significantly more of these engines in 2020, with dealers and international channels already seeing some of the benefits in the fourth quarter. We also continued to expand our outboard engine presence in saltwater markets. Our industry-leading engine lineup was on full display at the Fort Lauderdale Boat Show, where we again had a leading engine share. and we plan to continue our success in Miami in two weeks. Finally, in December, we announced the formation of the Advanced Systems Group, which is comprised of the Power Products brands and the Atwood group of businesses, which include Atwood, Whale, Garlick, and MotorGuide. Power Products continues to perform in line with our expectations and is accretive to the overall growth and margins of the parts and accessories portfolio. Brett Dibke, who joined us at the start of the year from Whirlpool, will be leading ASG and brings a great combination of talent and relevant experience to deliver future growth in these outstanding businesses. In the boat segment, revenue and earnings in 2019 were lower as anticipated, but we are primed for sizable improvement in 2020 due to our new products focused on operating efficiency, and wholesale volume improvements enabled by the lowering of pipeline inventories in 2019 to appropriate levels. Our premium boat brands, including Boston Whalers, Sea Ray, and Lund, all perform strongly at retail in their key product categories. Sea Ray also had strong wholesale sales growth with larger, higher content product driving the improved sales. As we discussed on recent calls, Boston Whaler continues to have very strong retail momentum as we exit 2019. However, wholesale sales in the second half of the year face challenging comparisons versus 2018. In 2019, the business has been leaning pipelines in advance of new product introductions in 2020, compared to strong pipeline increases in 2018 due to the introduction of new realm models. As we enter 2020 with a substantial offering of new products, we anticipate a very strong retail and wholesale performance from this brand in the upcoming year. The boat business continues to focus on product leadership and expanding operating margins. The cost reduction and organizational initiatives that we undertook in the back half of 2019 are already driving efficiencies and allowing us to fully leverage our scale and drive operational excellence. Sharing knowledge, engineering capabilities, and best practices across brands is enhancing our product and technology development and design excellence, while lowering related costs and accelerating time to market. Lastly, Freedom Boat Club celebrated the opening of its 200th franchise location early in the quarter, on its way to a current total of 210 locations, and continues to perform as anticipated. Freedom was also named as a top 500 franchise with the top spot in the miscellaneous recreational business category by Entrepreneur Magazine, which is a further testament to the substantial opportunities associated with this 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 down 4%, while international sales in total were up 4%. International sales for the engine segment increased by 6%, with gains in all regions except Canada. The engine segment performance relates mostly to increased demand for 175 to 300 horsepower engines. Both segment international sales were down 4%. As expected, European sales continue to be lower due to slower market conditions and the supply constraint caused by the transition from a contract manufacturing relationship that we noted at the beginning of the year. This capacity is anticipated to be fully recovered as we exit 2020 as a result of production expansion efforts at our manufacturing facility in Portugal with minimal investment. Finally, Canadian boat revenue remained flat for its prior year. This table provides some color on the performance of the U.S. marine retail market. In the fourth quarter, which comprises only 10% of the total sales for the year, retail trends continue to be slightly ahead of our expectations. For the second half of 2019, retail sales of outboard boats were up 3%, while the main powerboat segments were up 1%. Outboard engine sales were up 1% for the year. SSI data for the main powerboat segments was down 4% for the year. NMMA outboard engine unit registrations are up slightly year-to-date, with outboards 150 horsepower and above up 9% for the year. These results reflect the softness experienced in value pontoon and aluminum fish categories in the first half of the year, and strength in premium offerings, which is generating dollar growth that is outpacing unit performance. We remain confident in the retail market environment as we move into 2020. Dealer sentiment is positive with well-positioned pipeline inventories and strong early season dealership traffic. We believe that retail unit growth for both U.S. and global markets will be flat to slightly positive in 2020 without performance of premium offerings again benefiting dollar growth. 2019 was also a very significant year for capital strategy actions. As anticipated, we completed the remainder of our 400 million share repurchase commitment in the quarter, which, together with the purchase of Freedom Boat Club in May, fully deploys the proceeds from the fitness sale. In addition, we completed the exit of our defined benefit pension plans, retired 300 million of near-term debt through the retirement of our 2021 notes, and refinancing of acquisition-related debt, raised dividends, and invested over $350 million in growth-related R&D and capital expenditures. Our year-end balance sheet position and cash flow generation capabilities continue to afford us the opportunity to deploy capital in a variety of ways depending on market conditions, including for acquisitions, capacity enhancements, debt reduction, or further share repurchases. Bill will speak more on our specific plans for 2020 during his outlook section later on this call. I'll now turn the call over to Bill for additional comments on our financial performance.