Brunswick Corporation

Good morning, and welcome to Brunswick Corporation's first quarter 2022 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 Brent Dahl, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me on the call this morning are Dave Falks, 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 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 unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thanks, Brent, and good morning, everyone. Our businesses had a strong start to 2022, delivering record first quarter sales, operating earnings, and EPS. Continued focus on operational efficiency and strengthening our supply chain enabled increased production levels, and our investments in technology, innovation, recurring revenue businesses, and capacity have shaped the enterprise portfolio for further success in any economic environment. Despite the inflationary backdrop, the pace of retail sales continues to be dominated by the twin supply side challenges of very low field inventory levels and supply chain disruption. Global bulk field inventory levels were 6% lower at the end of the first quarter 2022 than at the same time in 2021, and down 12% in the U.S., and are lightly exaggerated by a slower start to spring in the northern U.S. and Canada. which is resulting in delayed deliveries and registrations for many retail sold boats. The percentage of our boat production that is already retail sold continues to be at an all-time high. Early 2022 boat show performance is encouraging, and there is no evidence of wholesale or retail cancellations. Field imagery of our larger boats in the U.S. is currently at or near zero, and consequently, there continues to be very little advertising or promotional activity. With macroeconomic and geopolitical factors driving current financial market dislocation, we took the opportunity to issue long-term debt at favorable interest rates and complete 80 million of share repurchases in the first quarter, and are significantly increasing our 2022 annual share repurchase target to 300 million. Later in the call, Ryan will provide you with further details behind our updated guidance for 2022. Before taking a look at our segment performance for the quarter, I wanted to spend a few minutes talking about the external factors and influences we are monitoring and managing, some on a daily basis. First, I'd like to address both the sentiment in the face of the macroeconomic pressures and geopolitical issues currently at the forefront of many people's minds. Our internal surveys continue to indicate that intention to boat and to buy a boat remain essentially unchanged versus 2021, and that supply side challenges are pacing retail sales. Clearly, our businesses have not been immune to the impacts of the inflationary environment on product cost. We take a long-term view, and our overall strategy has been just to cover our cost of inflation through price increases on a dollar basis. As you know, around 80% of our boats sell for less than $50,000, and boats can be financed up to 15 years. Additionally, despite recent and forecast rate increases, on a historical basis, interest rates remain low. In terms of boat operating costs, we estimate that for the average Brunswick boater, the rise in fuel prices since early 2021 will increase their seasonal fuel bill by less than $200. Turning to geopolitical events, the tragic conflict in Ukraine and our cessation of business in Russia, Belarus, Crimea, and the disputed territories has had no significant direct financial or supply chain impact to our business. However, wholesale sales and production growth continues to be constrained, most notably now by the supply impact of the China lockdowns and associated freight and transportation delays. And the spring boating season is getting off to a slower start than a year ago in northern U.S. and Canadian markets. We are monitoring long-range weather forecasts that currently show some improvement in May, which should translate into greater boat usage and increased aftermarket P&A sales in the second quarter. I'll now provide some highlights on the performance of our segments during the first quarter. Our propulsion business had strong results versus a historic first quarter 2021, with top line growth enabled by increased production. Mercury Marine continues to expand outboard propulsion retail market share, gaining 310 basis points in the last 24 months, including over 1,000 basis points of share gains in engines over 300 horsepower. Production capacity for high horsepower outboard engines will be significantly increased by the previously announced capacity expansion in the Fond du Lac, Wisconsin facility, which remains on schedule for completion in the fourth quarter of 2022. Mercury has now delivered V12 600 horsepower Verado engines to more than 50 different OEM customers since its unveiling just over a year ago. Our parts and accessories businesses continued their robust performance, collectively delivering the highest ever first quarter revenue as both aftermarket and OEM channels prepare for the prime boating season. Our advanced systems group, with the addition of Navico, delivered exceptional top-line growth in the quarter, with healthy margins despite continued supply chain tightness and cost headwinds. Our boat business posted outstanding top line growth in the quarter, with operating margins slightly below double digits and increasing sequentially for the second consecutive quarter. Our aluminum fishing category had outsized revenue growth and robust operating margins, while our recreational fiberglass brands also posted a strong quarter. We are meeting our production plans for the year despite the headwinds, with global pipeline imagery levels remaining at the very low level of 19 weeks. Finally, Freedom Boat Club has had an incredibly busy start to the year with substantial growth in the U.S. and Europe, and now has 350 locations and over 48,000 memberships network-wide, while generating exceptionally strong synergy sales across our marine portfolio. Next, I'd like to review the sales performance of our business by region on a constant currency basis, excluding acquisitions. As expected, most regions posted substantial sales growth in the quarter versus first quarter 2021, with Canada and Europe delivering strong sales growth in every business unit. Overall, international sales were up 11% versus the prior year quarter, and U.S. sales grew 8%. Sales in Asia Pacific were also strong when compared against the historical level achieved in Q1 2021. when that region saw a 31% increase versus first quarter 2020. As a reminder, the capacity initiatives across the enterprise, but especially in the propulsion segment, will allow us to better satisfy the immense international demand and backlog for our products. As we discussed during our January earnings call, the industry experienced more pronounced supply chain disruptions than anticipated in the second half of 2021. with continued strength at retail, leading to a more significant inventory-constrained retail environment. As expected, this trend continued into the first quarter of 2022. As mentioned, our indicators suggest the reported industry retail declines are being driven by a lack of product. We viewed the delayed deliveries to end consumers in northern boating markets as transitory, with deliveries expected to pick up when the weather improves. which will be reflected in future SSI reporting. U.S. lead generation, dealer sentiment, and other leading indicators all remain very positive, and we are essentially sold out of our 2022 wholesale production slots, with some brands being sold out at retail for 2022. Ryan will provide some additional commentary on this point during his discussion of the pipeline. Brunswick's retail performance in the first quarter was broadly consistent with the overall market performance, without performance in recreational fiberglass products and pontoons. U.S. outboard engine unit registrations were down 3% in the first quarter for the industry. On a rolling 12-month retail sales basis, Mercury continues to gain significant market share, capturing more than 400 basis points of share over the last 12 months in 200 horsepower and greater categories. I'll now turn the call over to Ryan for additional comments on our financial performance.