Brunswick Corporation

Good morning and welcome to Brunswick Corporation's third 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 Foulkes, Brunswick CEO, and Ryan Guillem, 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 these 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 Neha and good morning everyone. We delivered a record third quarter with 1.7 billion in net sales and almost 280 million of adjusted operating earnings, continuing our trend of exceptional resilient performance in a challenging macroeconomic and supply environment. These results were achieved despite an extremely difficult end to the quarter for many of our Florida employees and locations. as a result of the impacts of Hurricane Ian. All our divisions contributed to the strong performance, with many new products, sustained cost control, and a continued focus on operational efficiency, together with the benefits of capacity investments and ACES initiatives driving growth across our businesses. Consumer demand for our product remains resilient, with boat field inventory levels getting healthier but remaining nearly 40% lower at the end of the quarter versus the same time in 2019. Our boat and engine production levels remain generally 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. Mercury continues to capture market share, with gains likely to accelerate in the coming quarters due to major new product launches and the completion of the capacity increase in the Fond du Lac Wisconsin production facility in the coming months. P&A sales benefited from acquisitions completed in 2021, while Freedom Boat Club saw significant overall and same-store membership sales increases in the quarter. As the economic outlook continues to create overall market and sector dislocation, we executed $140 million of share repurchases in the third quarter, bringing our year-to-date share repurchases to 360 million. And we plan to continue an aggressive repurchase schedule as we close out the year. Prior to discussing business segment performance, I'll share an update on Hurricane Ian. At the end of September, Southwest Florida experienced Ian as a category four hurricane. Brunswick has a strong presence in Florida with multiple manufacturing sites, distribution locations, and freedom boat couple locations. We closed our Florida boat manufacturing facilities for the last week of the third quarter to prepare for and ride out the hurricane. The facilities incurred minimal damage, allowing for manufacturing and shipping operations to resume in the following weeks. Only one distribution location remains out of operation. Many dealer locations in Florida stopped receiving product ahead of the hurricane, and some dealer locations in the most impacted areas incurred significant damage to property and inventory. Freedom Boat Club operations in southwest Florida were significantly impacted by Ian. with over 100 boats sustaining major damage and five locations unlikely to open until 2023. Members of the most impacted locations are able to pause their memberships until 2023 as they manage through this difficult period and we restore operations. From an employee standpoint, approximately 20% of our employee base resides in Florida. Some in the most impacted areas were significantly personally impacted. Brunswick is providing critical relief, supplies, and aid to employees and their communities as they rebuild and recover, including through activation of a Brunswick Employee Relief Fund. We estimate an approximately $25 million four-year revenue impact to Brunswick as a result of the disruption to our facilities, teams, and customers caused by Hurricane Ian, with more than half of that impact in the quarter. In the medium term, following rebuilding and insurance recoveries, we may receive orders for boats to replace those lost in this event. Turning to other external factors, despite an improving overall trend in supply delivery and cost inflation, compared with the worst period of supply chain constraints, we continue to manage through some discreet but impactful shortages. most recently due primarily to continued labor shortages at some of our U.S. supply facilities. This quarter, the propulsion business was notably impacted by a couple of supply issues, which slowed production of some products and led to nearly 2,500 mid-range outboard engines awaiting one proponent for completion at the close of the period, a situation we expect to resolve in Q4. Despite these challenges, the propulsion business delivered outstanding performance, which I will speak to further in a few moments. Consumer boating activity remains strong, with a warmer September in many parts of the U.S. extending the boating season. While buying activity in the year-round markets remains strong, the boating season in the northern markets is coming to a close. And with the uncertain economic conditions and high interest rates, we expect to see some buyers in these markets deferring late-season and off-season purchases until the start of the 2023 season. This impacts mainly aluminum products. From a dealer standpoint, while our channel partners have shared concerns related to macro factors, Inventory refill remains their core focus, and they're excited about our many new products, so we continue to see forward orders and backlogs in line with historical levels. Turning now to segment performance during the quarter, let me highlight again that we delivered a record third quarter with each of our segments driving quarterly top-line improvement versus 2021. Our propulsion business continues to deliver exceptional results with 14% top-line growth versus third quarter 2021, enabled by a higher sales volume resulting from strong global demand, capacity increases, and market share gains. During the quarter, Mercury Marine gained 100 basis points of outboard propulsion retail market share in the U.S. and continues to capture outboard share in international markets, as recently seen in the Cannes Boat Show. where Mercury had a record 65% outboard share on the water. As I mentioned, the outboard engine capacity expansion at the Fond du Lac, Wisconsin facility is on track to come fully online toward the end of the year. Our parts and accessories businesses delivered strong sales growth led by benefits from acquisitions completed in 2021, solid engine P&A sales, and strong OEM sales from Navico Group. On an organic basis, P&A segment sales in the third quarter grew 1% compared with 2021, excluding currency. Navigo Group experienced retail point-of-sale activity above 2021 levels during the quarter, but continued to see slowness in retailer and distributor restocking, which impacted wholesale sales. Our boat business posted another robust quarter with top line growth of 27% and double digit adjusted operating margins for the second consecutive quarter. Each product category posted solid top line growth despite our Florida boat manufacturing facilities being closed for the last week of the quarter due to Hurricane Ian. Additionally, our aluminum fishing and recreational fiberglass brands delivered operating margin expansion compared to prior year. Finally, Freedom Ball Club had record same-store membership sales increases in the quarter, despite its Southwest Florida operation being significantly impacted by Hurricane Ian. Freedom continues on its growth trajectory in the U.S. and Europe and now has more than 360 locations, nearly 54,000 membership agreements covering 84,000 members network-wide and a fleet size above 5,000 boats, all while generating exceptionally strong synergy sales across our marine portfolio. I will now provide an overview of sales performance by region on a constant currency basis, excluding acquisitions. In the third quarter, all regions delivered substantial sales growth versus third quarter 2021, with broad base gains across the business segments. Overall, international sales and U.S. sales were each up 13% versus the prior year quarter. Additionally, on a year-to-date basis, sales have increased 11% compared to 2021 on a constant currency basis, excluding acquisitions, with growth across all business segments. Finally, we anticipate further propulsion share gains across the regions as we're able to service a backlog of demand and high horsepower outboard nodes enabled by the additional capacity coming online by the end of this year. From an industry view, U.S. third quarter retail unit sales improved sequentially from the first half of the year. The main powerboat segment was down 5% versus the third quarter of 2021. On a year-to-date basis, the main power board segment was down 14% versus 2021 and about 7% versus 2019. Outboard engine industry data remains favorable, as the third quarter of 2022 increased 10% over third quarter of prior year. Mercury performance during this period was very strong, as we gained overall market share in each of the last three months. and over 400 basis points in our 200 horsepower and greater outboard engines over a three-year period. Brunswick's retail unit performance in the third quarter was broadly consistent with the overall market performance, with outperformance in recreational fiberglass products and premium pontoons, and underperformance in value aluminum, where lower-contented value boats, mainly from smaller manufacturers, have regained share lost in 2019 and 2020. We continue to focus successfully 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. I'll now turn the call over to Ryan for additional comments on our financial performance.