Brunswick Corporation

Good morning and welcome to Brunswick Corporation's fourth quarter and full year 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 questions, you may disconnect at this time. I'm sorry, if you have any objections, you may disconnect at this time. I would now like to introduce Neha Clark, Senior Vice President of Enterprise Finance at Brunswick Corporation.

Good morning and thank you for joining us. With me on the call this morning are Dave Fowkes, Brunswick CEO, and Ryan Guillum, 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 concluded 2022 by delivering record performance of $6.8 billion in net sales and almost $1.05 billion of adjusted operating earnings for the full year, continuing our exceptional history of strong operating performance and cost control in a challenging macroeconomic environment. Our full-year adjusted earnings per share of $10.03 highlights the strength of our businesses and leaders and the robustness of our portfolio and earnings profile. All our divisions contributed to the strong performance, with our boat segment exceeding 10% full-year adjusted operating margins for the first time in company history. And the propulsion and parts and accessory segments delivering exceptional top-line and operating earnings growth versus prior year. Boat field inventory levels are recovering, but global units exiting the fourth quarter were more than 5,000 units lower versus the same time in 2019, and there is no indication of material wholesale cancellations. Our boat and engine production levels finished above prior year, despite some continuing supply chain challenges. As the overall market and sector dislocation continued, we executed $90 million of share repurchases in the fourth quarter, bringing our four-year share repurchases to $450 million. Turning to the segment highlights, each segment contributed to the robust adjusted operating margins in the fourth quarter as compared to the fourth quarter of 2021. Despite some supply chain shortages earlier in the quarter, our propulsion business delivered exceptional results with 17% top-line growth versus fourth quarter 2021, enabled by favorable product mix and pricing actions taken earlier in the year. Mercury has captured significant market share in outboard engines with approximately 300 basis points of retail share gain in the U.S., and more than 10 percentage points in over 300 horsepower engines since December 2019, which has been a key focus area for our investments. Products continue to perform above expectations, with the recently launched V10 outboard engines being extremely well received in the marketplace and met with strong demand. The capacity expansion project in our Fond du Lac, Wisconsin campus, primarily for higher horsepower outboards, is materially complete and will enable increased production for recently underserved international and repowered channels together with new and existing OEM customers in 2023 and beyond. Our boat business delivered outstanding top-line and earnings growth in the quarter, reaching 10.2% four-year adjusted operating margin for the first time in company history. Each product category posted strong top-line growth and delivered operating earnings expansion for the fourth quarter, compared with the same prior year period. Our bulk business continues to diligently manage global pipeline levels, which remain healthy at 18,000 units, or 24% below 2019 levels. Freedom Boat Club had strong same-store membership sales increases in the quarter, despite its Southwest Florida operations recovering from the impacts of Hurricane Ian. All hurricane-impacted locations have now reopened. Freedom continues to grow globally and now has more than 370 locations and a fleet size of approximately 5,000 boats, all while expanding synergies with Mercury Marine and our boat brands. Freedom also recently announced the opening of its first location in Australia. Our parts and accessories businesses delivered solid adjusted operating earnings and operating margin growth in the fourth quarter. Operating earnings contributions were broad-based across our P&A businesses as optimized pricing and the initial benefits of the redesigned Navico Group organization more than offset the negative impact of currency and the return to more normal seasonality in the quarter. Sales were impacted by certain headwinds, including currency, leading to slightly lower top-line performance. However, on a four-year basis, revenue was down less than 1%, excluding the impact of currency and acquisitions, versus a record 2021. Finally, we have now lapped the one-year anniversary of the P&A transactions and are very pleased with the integration of the businesses. Shifting to revenue, we continue to deliver growth across regions on a constant currency basis, excluding acquisitions. In the fourth quarter, all regions grew sales versus fourth quarter 2021. Overall, US sales increased 13% and international sales increased 12% versus the prior year quarter. On a full-year basis, sales increased 12% compared to 2021 on a constant currency basis, excluding acquisitions, led by gains in our propulsion in both segments. Finally, with increased production capacity in high-horsepower outboard engines, we anticipate further share gains via new customers, international markets, and repower channels. Turning to external factors, we continue to see overall improvement in supply chain stability and delivery, but with some persistent issues continuing to require very active management and impacting productivity and efficiency for some product lines. Despite these challenges, our teams continue to work diligently and creatively to optimize production. Input cost inflation has moderated, and we have essentially returned to historical pricing cadences and price increases. Higher interest rates have become a consideration, mainly for buyers of value product. Consumer interest and boating engagement remain strong, with related search activity mostly in line Early season boat shows have been encouraging, with many shows sold out and attendance above prior year levels. We're also seeing strong attendance and activity at shows outside the U.S., notably at the very recent Dusseldorf International Show, the largest show in Europe, where our brands reported solid sales as well as strong lead generation. Mercury's share of outboard engines above 150 horsepower at the show was close to 60%. From a dealer standpoint, while our channel partners are aware of the macro factors, dealers are appropriately stocking and order levels remain healthy with no sign of material wholesale cancellations. Moving now to the 2022 U.S. retail boat market, fourth quarter activity did not materially change four-year results, with the main powerboat segment down mid-teens percent from 2021 and approximately 7% lower than 2019. Outboard engine industry data was more favorable, with U.S. industry registrations finishing 2022 down less than a percent versus 2021 and 9% ahead of 2019. Mercury performance in the fourth quarter remained strong, especially in high horsepower, with 360 points of retail share gain in the fourth quarter in 300-plus horsepower engines versus fourth quarter 2021. Pronto Expo retail unit performance in the fourth quarter and full year was broadly consistent with the overall market performance, with outperformance in recreational fiberglass products and premium pontoons and underperformance in value aluminum, where 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. As we look to 2023, we remain confident in post-COVID voting participation rates, with more than 10 million votes still being registered in the U.S. each year, and people continuing to have more flexibility in their working arrangements. Alternative participation models, including Freedom Vote Club, are also driving participation by a more diverse consumer demographic. Over recent history, industry retail sales generally show a positive outlook. Despite softness in 2021 and 2022 caused by a combination of inventory shortages and macroeconomic factors, industry retail boat sales have increased at a low to mid single-digit CAGR since the end of the great financial crisis. Unlike in some other industries, although boat sales were somewhat elevated in 2020, inventory constraints prevented a true COVID sales spike and subsequent dislocation between inventory and demand. As we start 2023, industry sales of approximately 170,000 units are similar to 2016 levels, whereas with a fairly constant 10 million boats in the U.S. boat park and assuming a typical useful life of 30 to 35 years, replacement rates would suggest sales potential close to 300,000 units. On the subject of pipelines, U.S. unit inventory remains 28% or almost 5,000 units below 2019 levels. Fiberglass inventory levels remain even lighter, with 31% fewer units in dealer hands at the end of 2022 than in 2019. Both inventories of dealers outside the U.S. are at similar weeks on hand levels. Dealer inventory is very fresh, and our brands have done a fantastic job getting our many very exciting new products to our dealers ahead of the prime 2023 selling season. As always, we are continuing to monitor inventory levels and will adjust production accordingly. Our initial plan for the year is generally to match wholesale with retail, except in premium fiberglass categories, where it is still necessary to rebuild from current low levels. I'll now turn the call over to Ryan for additional comments on our financial performance.