Brunswick Corporation

Good morning and welcome to Brunswick Corporation's first quarter 2020 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 Guilom, Vice President, Finance and Treasurer.

Good morning and thank you for joining us. With me on the call this morning are Dave Falks, Brunswick CEO, and Bill Metzger, CFO of 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 at 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 of 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.

Thanks, Ryan, and good morning, everyone. Before we start this morning, I'd like to take a minute to recognize the immense impact that the COVID-19 pandemic has had on our employees, our business partners, and the communities in which we operate. Brunswick has taken many steps to help those who interact with us on a daily basis endure during these times and prepare for the resumption of more normal activity. I couldn't be more proud of our over 12,000 global employees for navigating through this dynamic environment, juggling family life with work, and for staying positive despite everything going on in the world around them. To support our employees, we implemented prompt, coordinated production shutdowns, and recently, progressive, orderly restarts, instituted a wage continuity program, and were quick to mandate work from home policies. As our employees return to work in many locations across the globe, we've instituted many health and safety measures, including temperature screening, enhanced PPE and distancing procedures, and have completed deep cleaning processes in order to provide a safe environment in which our employees can work productively. We know this is a difficult time for our dealers, suppliers and other business partners. To enable our dealer network to continue servicing their customer base, we've kept open our global distribution business, which delivers critical parts and accessories same or next day. We've also worked with our floor plan lenders to extend interest and curtailment payment terms during a time when many product showrooms were closed. Finally, we're working with our supply base to match purchases with production needs and ensure a smooth production ramp-up. Lastly, we've responded to the needs of our communities in the fight against the virus. We've donated PPE to local healthcare facilities in many areas in which we operate and are producing pumps, electrical equipment, and masks to be used by first responders and others dealing directly with the fight. We're also supporting charitable organizations that are providing support on the front lines. The COVID-19 pandemic has materially impacted our business operations around the world. In the U.S., we temporarily suspended manufacturing at most of our engine and boat facilities on March 23rd as states implemented stay-at-home guidelines. Our prompt decision to suspend production ensured the health and safety of the affected employees and allowed us to rebalance inventory levels with anticipated reduction in near-term demand. On April 13, we resumed partial operations at Mercury's facility in Fond du Lac and at Boston Whaler, and have opened additional facilities in the last two weeks. As of today, all our major U.S. manufacturing facilities are back online with new temperature screening, distancing, PPE, and cleaning protocols. Approximately 80% of our dealer network is open in some capacity, including providing service. with a large majority of these dealers having the capability to take orders and sell boats and engines to their customer base. Enabled by our distribution businesses, which have continued to operate, these dealers, with some limitations, are able to get boats in the water during a busy time in their season and get people out on the water. Boating is still allowed and even encouraged, with some operating limitations in most parts of the country, and remaining restrictions are easing. creating more opportunities to boat given the generally better weather conditions versus the unseasonably cold and wet 2019 spring. Freedom Boat Club has also been affected as many locations were closed during April due to local stay-at-home orders. However, company-operated locations plan to reopen on May 1 with new measures in place to protect employee and member health, And we have been focusing on generating excitement with prospective new members, resulting in a recent acceleration in membership growth. Outside the U.S., all global manufacturing facilities will have resumed production by May the 4th, aside from one U.K. facility. Our Belgian distribution hub has remained open and is supporting our dealer network across the continent. and our boat manufacturing operations in Portugal and Poland have resumed production and are delivering boats. Our small horsepower engine manufacturing facilities in China and Japan remain open, although the Suzhou China facility closed for three weeks around the Chinese New Year as the country was dealing with the initial COVID-19 impacts. Our Chinese supply base, which accounts for less than 10% of our cost of goods, is also fully operational. and supplying components to all our global locations. Our distribution operations in Canada and Asia Pacific are also operational. We reopened our Advanced Systems Group production operations in New Zealand this week, and we plan to reopen our Prince Craft production facility in Canada on Monday, in addition to our boat production facility in Reynosa, Mexico. All our global facilities are using the same new health and safety protocols. In Europe and Australia and New Zealand, many of our dealers on boat OEMs, which have been closed since mid-March, are now starting to reopen as countries relaxed shelter restrictions. We were pleased to see Australia and New Zealand recently announcing some relaxation of boating restrictions. In light of lower near-term demand for our products, we have taken certain cost measures to adjust our spending levels to match lower revenue targets. Recall that 2020 is already benefiting from the 50 million of structural cost reductions implemented in 2019. We have furloughed production and salaried staff directly affected by the suspension of production. We also instituted a salaried workforce hiring freeze and canceled annual merit increases for salaried employees. In addition, we have suspended or delayed lower priority capital projects and curtailed discretionary spending. These measures are contributing to a roughly 15% reduction in operating expenses versus originally forecast expenses for 2020. Given our highly flexible and variable cost structure, which Bill will discuss further in a few minutes, we have the ability to make additional expense reductions later in the year should economic conditions necessitate. We're also benefiting from prudently managing our capital structure. We ended the first quarter with approximately $515 million of cash on hand, including proceeds from our fully drawn revolver. We expect to maintain sufficient cushion against our debt covenants and continue to monitor and execute on opportunities to bolster liquidity. Given the retail bond issuances undertaken after the Power Products acquisition, our maturity profile has been greatly extended, with no significant long-term debt maturities until 2023. We completed 34 million of share repurchases in the first quarter, prior to suspending activities in early March. However, we're not planning any additional repurchases for the remainder of the year due to the current business outlook. Our second quarter dividend has been approved and will be paid in June. Finally, we've reduced our capital expenditures for the year from over 200 million to between 150 and 160 million. The remaining spending is largely in support of new product programs and digital initiatives that will drive future earnings growth and market share gains, and which we have protected in our actions to date. We do have the opportunity to further reduce spending if it becomes necessary. Our first quarter performance demonstrated the robustness of our marine focus portfolio despite the unprecedented disruption of the global economy resulting from the COVID-19 pandemic. particularly in the latter part of the quarter. Prior to the progression of global shutdowns that began in March, our businesses were performing in line with expectations, with sales and earnings consistent with our plan provided at the beginning of the year. The U.S. retail marine market exhibited strong demand trends. Mercury continued to gain significant share in outboard propulsion, and our parts and accessories businesses remained steady without performance of power products. Our premium boat brands, led by Boston Whaler and Sea Ray, leveraged strong early season boat shows into success at retail. And Freedom Boat recorded some of its busiest weekends in the history of its operations. The COVID-19 pandemic had a material impact on our results in the quarter, primarily due to lower revenues stemming from the suspension of production at many of our manufacturing facilities. almost all of which, as I mentioned, resumed production in April. However, our global distribution businesses continued to operate, and we were able to offset half of the earnings impact of the production shutdowns through austerity measures and operating expense control. This enabled us to generate operating margins consistent with prior year, demonstrating the resiliency of our businesses in an extremely challenged market. Next, I'd like to review the sales performance of our segments by region on a constant currency basis, excluding acquisitions. In the U.S., total revenues were down 11%, while international sales in total were down 2%. International markets remained relatively resilient despite the pandemic, and we are seeing more bright spots as countries begin to relax or exit stay-at-home orders. Revenue performance for most regions was affected by the pandemic, particularly in our North American boat operations. International sales benefited from strong performance in Asia Pacific, particularly in higher horsepower engines and commercial applications. This table provides some color on the performance of the U.S. marine retail market. In the first quarter, which comprises less than 20% of the total sales volume for the year, retail trends were exceeding expectations prior to the COVID-19 pandemic. The strong performance in January and February, which make up less than half of the volume in the quarter, was offset by slowness in March, resulting in industry unit volume for the main powerboat segments being flat for the quarter versus 2019. Note that less than half of the states reported March figures, meaning this number is likely to be revised as we move through the second quarter. As expected, outboard product continues to outperform stern drive inboard, with outboard product representing more than 90% of boats sold today. Outboard engine unit registrations were down 5% in the quarter, but registrations for engines over 175 horsepower were up over Q1 2019, and Mercury significantly outperformed the market in these high horsepower categories. We don't yet have complete information on April, but we believe retail performance is likely better than initially anticipated. In addition, based on information from our banking partners and internally through our Bluewater finance business, applications for retail financing have been healthy in April, with applications similar to or recently higher than in 2019. Bill will offer some additional comments on our outlook for the remainder of 2020 later on the call. I'll now turn the call over to Bill for some additional comments on our financial performance.