Brunswick Corporation

Good morning, and welcome to Brunswick Corporation's second 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 Neha Clark, Senior Vice President, Enterprise Finance, Brunswick Corporation.

Good morning, and thank you for joining us. With me on the call this morning are Dave Fowkes, Brunswick CEO, and Ryan Guillem, CFO. Before we begin with our prepared remarks, I would like to remind everyone that during the 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 section of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thanks, Neha, and good morning, everyone. In the second quarter, we delivered our first-ever quarter with more than $300 million of adjusted operating earnings, and together with record revenue and EPS, continued our trend of exceptional performance in a challenging macroeconomic landscape. We maintained our strong focus on cost control and operational efficiencies while continuing to invest in new capacity, new product programs, and ACES initiatives necessary to fuel future growth and market share gains. All our divisions contributed to the strong performance while continuing to actively manage our supply chain and negotiate macro volatility. Consumer demand for our products remains strong as we work through a period of tougher year-over-year retail comparisons versus a particularly strong first half of 2021, while being impacted by continued low field inventory and some enduring supply chain disruptions. Global boat field inventory levels increased in the quarter over the same prior year period, although they remained 55% lower versus the same time in 2019. This is notable as the 2022 retail season had a slower start in some parts of the U.S. and Canada, while gaining momentum in the latter part of the quarter. Our P&A business backlogs remain elevated. Overall, our production remains on track, and the percentage of our boat production that is already retail sold continues to be high, especially for our fiberglass brands, with no evidence of wholesale cancellations across the enterprise. As the economic outlook continues to create overall market and sector dislocation, we executed $140 million of share repurchases in the second quarter, bringing our year-to-date share repurchases to $220 million. And we plan to continue an aggressive repurchase schedule in the back half of the year. Prior to discussing our segment performance for the quarter, let me spend a few minutes updating our view on external economic factors, consumer activity, and engagement. First, we're seeing some abatement in supply chain constraints and inflation from recent peaks in a number of areas, resulting in more efficient manufacturing across our footprint. While our businesses continue to experience elevated inflation, any moderation occurring in the back half of the year will factor into our pricing strategies. From a consumer standpoint, we continue to see limited signs of fuel prices deterring boating. Even as the world has opened up versus the more pandemic-impacted 2021, boating participation remains strong and little changed from robust COVID levels. Specific to the U.S. market, population migration towards warmer regions since 2020 and proximity to water has increased, with six of the 11 largest boating markets reporting net household growth. Web search interest for boat and boat club-related purchase and activity has trended up coming out of Q2, and most recently, searches for boat club are above prior year. Lastly, our internal consumer insights reflect healthy traffic and bulk purchase consideration, similar to prior year. As I turn to the performance highlights of our segments during the second quarter, let me note each of our segments delivered sequential quarterly top-line improvements. Our propulsion business continues to deliver outstanding results with 13% top-line growth versus second quarter 2021, enabled by increased production and customer demand. Mercury Marine continues to expand outboard propulsion retail market share around the globe, gaining 140 basis points over the past 24 months, including 630 basis points in greater than 200 horsepower outboard engines in the U.S., As the additional outboard engine capacity at the Fond du Lac Wisconsin facility comes online towards the end of 2022 and supply constraints are alleviated, we expect further global market share gains. Our parts and accessories businesses delivered strong sales growth as benefits from acquisitions completed in 2021, steady engine P&A sales in the U.S., and strong OEM sales from our advanced systems group helped to offset headwinds related to early quarter poor weather in certain northern locations, supply chain constraints in our distribution businesses, and retailers returning to more normal stocking patterns. Segment earnings were flat against an extremely strong second quarter 2021, but are far ahead of second quarter 2019, with boating participation remaining elevated and continuing to drive our aftermarket businesses. Our boat business posted robust top-line growth in the quarter, with double-digit operating margins which increased sequentially for the third consecutive quarter. Each product category delivered strong top-line growth, with our aluminum fishing and recreational fiberglass brands also significantly expanding operating margins. Finally, Freedom Boat Club continues on its growth trajectory in the U.S. and Europe, and now has more than 360 locations, reaching 50,000 membership agreements, covering 80,000 members network-wide, and a fleet size of nearly 5,000 boats, all while generating exceptionally strong synergy sales across our marine portfolio. On a same store basis, freedom membership growth in the quarter was 30% higher than in the same quarter in 2021. Next, I'd like to review the sales performance of our business by region on a constant currency basis, excluding acquisitions. In the second quarter, nearly all regions posted substantial sales growth versus second quarter 2021, with Canada and Europe delivering strong sales growth in every business unit. Overall, international sales were up 7% versus the prior year quarter, and U.S. sales grew 14%. Sales in Asia Pacific were down slightly against extremely strong 2021 comparisons, although nearly doubling since pre-pandemic levels in 2019. A comment on proportion market share says, Well, we have focused our recent commentary on our continuing share gains in the U.S. over the past five years, especially in high-horsepower categories. The same share gains are happening across the globe. Our data indicates we are taking share in each region with significant runway still to conquest, enabled by the additional capacity coming online by the end of this year. From an industry view, continued low product inventory remains a constraint on retail sales growth versus strong 2021 comparisons. The main powerboat segment was down 16% versus the first half of 2021, but just slightly down versus 2019. In addition, preliminary June data reflects a narrowing of the U.S. retail gap versus prior year as trends improve through the quarter. Outboard engine industry data is more favorable, as the first half of 2022 was flat to the first half of last year, and up 10% versus 2019. Bronto Expo retail performance in the second quarter was broadly consistent with the overall market performance, without performance in recreational fiberglass products and pontoons. In our aluminum fish boat brands, we have focused on margin maintenance and expansion and have shifted production to higher margin product lines at the recent expense of some unit share of value aluminum product. As important, Mercury continues to maintain its very strong market share in all these product categories. Among 75 horsepower and greater outboard engines, Mercury has increased U.S. market share in each of the last five years, gaining almost 600 basis points. I'll now turn the call over to Ryan for additional comments on our financial performance.