Brunswick Corporation

Good morning and welcome to Brunswick Corporation's fourth quarter and full year 2020 earnings conference call. All participants will be in a listen-only mode until 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 Brent Dahl, Vice President, Investor Relations.

Sir, please go ahead. Good morning and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick CEO, and Ryan Willem, 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 details on the factors to consider, please refer to our recent SEC filings and today's press release. All 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 sections of the consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thanks, Branson. Good morning, everybody. Our businesses executed extremely well against our operating and strategic priorities in 2020, demonstrating the strength and resilience of our marine-focused portfolio. Despite the many challenges faced in 2020, including the significant disruptions to our global operations during the first half of the year due to the global pandemic, we expanded growth and operating margins, delivered an 11th consecutive year of adjusted EPS growth, and generated record-free cash flow. The transformational changes we've made to our business in recent years have reinforced our position as the market leader in the marine industry, and our position does to meet or exceed our strategic plan financial targets. Our propulsion business continues to deliver outstanding top-line and earnings growth, outperforming the market by leveraging the strongest product lineup in the industry and accelerating penetration into saltwater, re-power, and international commercial markets. Our parts and accessories businesses delivered strong top-line growth and robust operating margins as a result of increased boating participation, which drove strong aftermarket sales, together with high demand for our full range of OEM systems and services, as boat production increased during the second half of the year across the industry. Within our boat business, all brands contributed to the revenue and earnings growth over the second half of 2020. as U.S. marine retail demand continued to surge through year end. Our premium boat brands remain the market leaders in their categories, with a series of significant new product launches underway, and our value brands continue to offer attractive entry points to new and returning former boaters. The surge in retail demand resulted in historically low pipeline inventory levels, with 40 percent fewer boats in dealer inventory at the end of 2020 versus the end of 2019. Finally, Freedom Boat Club exceeded our expectations during 2020 by adding over 40 new locations and almost 10,000 new memberships, while also driving exceptionally strong synergy sales across our marine portfolio. Finally, although we continue to operate in an uncertain environment, I have high confidence that we will continue to execute our strategy and deliver very strong shareholder returns in 2021. I'll now provide some highlights on our segments and the overall marine market. Our propulsion business exceeded top-line and earnings expectations for 2020 by continuing to outperform the market due to the strength of our industry-leading product lineup. Field inventory of mercury outboard engines remained significantly lower than in past years, and we continue to increase productions to refill pipelines and meet exceptionally strong customer demand. Mercury continues to gain significant retail market share in outboard engines, especially in higher horsepower categories, where we have focused higher levels of investment in recent years. As a consequence of our constant product innovation and ability to quickly ramp up production, and as a result of the capacity increases in 2018 and 2019, Mercury secured more than 70 new or enhanced OEM partnerships in 2020. One recent win was the announcement of a major enhancement to Mercury's relationship with Crownline Boats, with Mercury becoming its exclusive marine propulsion partner, beginning with 2022 Movia products. Mercury's controls, rigging, and propeller business continues to be the market leader, with significant investment in technology leading to increased sales at a time when boat OEMs are ramping production to meet demand. New product and technology investments are also at the core of certain imminent new propulsion and controls products that I will discuss more towards the end of the call. Our parts and accessories businesses completed their first year as a separate reporting segment and delivered outstanding results in 2020. The segment top line grew by 9% for the year, with aftermarket sales significantly outpacing recent historical trends and OEM customers increasing orders to keep up with production, resulting from the accelerating retail demand. 2020 results were bolstered by very healthy boat usage as a consequence of the need for social distancing-friendly recreation, and by favorable weather conditions in the U.S. throughout the year, especially compared with 2019. In addition, our Engine P&A business enjoyed increased demand to supply products to our dealers in support of increased service needs. And our distribution business, which added 1,700 new dealer customers during the year, was also able to capitalize on both the increased participation and the extended fall season in both marine and RV spaces. The advanced systems group, which includes all the brands and operations in our power products and outward businesses, demonstrated significant second-half sales and earnings improvements leveraging the same aftermarket and OEM trends while advancing restructuring actions to drive long-term efficiencies. With solid operating margins, these annuity-based businesses strengthen our overall financial profile and provide a robust base line of earnings from which we can continually invest in our businesses and return capital to our shareholders. Our boat segment finished 2020 with lower sales and earnings than 2019 as a result of pandemic-related plant shutdowns in the spring and production ramp-up activities that continued through the fall. However, the surging retail demand environment, together with prior cost reduction and organizational initiatives, led to a phenomenal second half of the year that saw revenues increase by 19%, operating earnings increase by 85%, and operating margins expand by 330 basis points when compared with the second half of 2019. Additionally, we exited 2020 with operating margins above 9% over the last two quarters, which is in line with our strategic plan target to achieve double-digit percent operating margins in 2022. Pipeline inventory levels, a key driver of future wholesale boat sales, ended the year at approximately 19 weeks, the lowest level at year end for the last two decades. Boston Whaler and C-Ray have seen very strong retail sales and their dealer inventories are especially low. Our value brands have also performed well at retail and will also require significant pipeline replenishment. We continue to hire additional workers at most facilities to ramp up production. but it is very unlikely that pipelines will be significantly rebuilt until 2022 at the earliest. Freedom Boat Club continues to exceed our growth expectations with a 35% increase in memberships and 20% increase in locations during 2020. In addition, sales of Brunswick boats into the franchise network are exceeding expectations. Each boat rigged with a mercury engine and equipped with LP&A products. Just recently, Freedom was named a top franchise of 2021 by Franchise Business Review, a market research firm that performs independent surveys of franchisee satisfaction. Freedom was one of 200 honorees commended for the exceptional support and leadership demonstrated in leading franchisees through the challenges of 2020. Next, I'd like to review the sales performance of our business by region on a constant currency basis. Full-year sales increased versus 2019 in most regions, with international sales up 10% and sales in the U.S. up 4%. Asia Pacific led the international growth with continued strength in commercial propulsion and P&A. Canadian sales lagged slightly as Canadian boat dealers had more inventory ahead of the COVID shutdowns and did not reopen for sales as quickly as other geographies. However, we saw a recovery in the fourth quarter as Canadian revenue grew by 19%, with additional growth anticipated in the region in 2021. Europe also delivered strong propulsion growth as dealers and distributors were able to get higher horsepower engines that had been capacity constrained in previous years. This table provides some color on the performance of the U.S. marine retail market for the first half, second half, and full year of 2020, with comparisons to 2019. All boat categories reported retail gains in the second half of full year of 2020. The main powerboat segments were up 32% in the second half of 2020 and were up 13% for the full year, with Brunswick's unit retail performance in line with the market growth rates. New product launches, including the new Boston Whaler 220 and 250 Dauntless models, which debuted in December, provide confidence in our ability to grow share in 2021, especially in margin-accretive premium categories, such as saltwater fishing, day boats, and cruisers. Outboard engine unit registrations were up 35% in the back half of 2020, with Mercury significantly outperforming the market, as they have done all year. In fact, Mercury gained retail share in 2020 in just about every horsepower node, with outsized increases in large outboard engines over 200 horsepower. As we enter 2021, retail continues in growth mode, as lead generation, finance applications, dealer sentiment, and other leading indicators all remain very positive. In addition, similar to our comments on the last call, at the end of 2020, our percentage of dealer orders received with a customer name already attached is at least two times the percentage from the start of 2020, and for several brands, three or four times. All these factors give us high confidence in the continuing strength of the retail market as we move into 2021. I now turn the call over to Ryan for some additional comments on our financial performance.