Brunswick Corporation

Good morning. Welcome to Brunswick Corporation's fourth quarter and full year 2023 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. Thank you. You may begin.

Good morning, and thank you for joining us. With me on the call this morning are Dave Faux, Brunswick CEO, and Ryan Gwilym, 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. Brunswick delivered another successful year in which we achieved the second highest sales and adjusted earnings per share in company history, despite market headwinds. We also continued to gain market share, increase our operational efficiency, launch exceptional new products, actively control costs, and progress our strategic initiatives, including our ACES strategy. Our full-year net sales of $6.4 billion and adjusted earnings per share of $8.80 were slightly below our guidance range as wholesale customer ordering patterns softened late in the year. However, our diligent focus on cash generation resulted in outstanding free cash flow of $473 million and full-year free cash flow conversion of 76%. In addition, we executed $275 million of share repurchases. Mercury Marine has continued to capture solid market share, with four-year U.S. outboard retail share up 50 basis points versus prior year. 2023 U.S. New Boat Market unit retail sales are anticipated to finish in line with our estimates of down mid to high single digits. with Brunswick brands outperforming the market in many segments. As we moved out of the core 2023 retail selling season, we worked closely with our marine channel partners to actively manage boat field imagery levels, and we closed the year with 36.7 weeks on hand in the U.S., which is in line with our target and with historical norms. I'll now turn to some of the segment highlights for the quarter and full year. Our propulsion business finished its second best year on record, leveraging more exciting new products, market share gains, and operational efficiencies to deliver consistent year-over-year operating margins despite slightly lower sales and earnings versus the historical highs in 2022. For the full year, Mercury gained 150 basis points of overall U.S. retail share for outboard engines over 30 horsepower. which account for the majority of Mercury's investment in recent years. In addition, over 5,000 Avatar electric outboards were produced following the launch of the first model in early 2023. Mercury saw slowing of OEM off-season orders as the OEM scaled back load production to control field inventory going into the new year. We expect OEMs to remain cautious entering the first quarter of 2024 as they assess consumer sentiment at early season boat shows and monitor the macro environment. Our engine, parts, and accessories business demonstrated steady performance in the quarter, reflecting a continued improving sequential trend. Sales in the products portion of the business were up versus prior year for the second consecutive quarter, and our distribution business was only down slightly, with sequential improvement from the previous quarter. Overall segment sales were up 22% on a full year basis versus 2019. Navico Group had a solid finish to the year as an increased flow of new products and continued focus on cost control, business integration, and complexity reduction helped offset a softer marine OEM market in the quarter and the considerably slower RV manufacturing environment. Finally, our boat business delivered sales and earnings in the quarter consistent with expectations while continuing to ensure healthy pipeline imagery levels entering 2024. Strong demand for premium products together with market share gains in many categories is helping to provide a stable baseline for 2024. Freedom Boat Club continues to grow and now has more than 410 locations. Members completed approximately 600,000 trips in 2023 demonstrating the productivity of the model. Shifting to external factors now, U.S. employment remains at healthy levels with inflation continuing to stabilize. The cadence of Fed and global central bank interest rate reductions will continue to be an important factor in the coming months. Overall boat retail sales are trending slightly above 2023 but unit sales in the month of January are always a small contribution to the year. Global early season boat shows are generally encouraging with good traffic, interested buyers, and healthy lead generation. Normalized inventory levels are allowing consumers to shop for the models of their choice, and incentives continue to be important in stimulating interest and assisting dealers in closing sales. Our boat engine and technology brands continue to perform well, with Mercury recording outboard share gains at the important Dusseldorf Boat Show, achieving overall share of 48%. Dealers entered 2024 with healthy inventory and are cautious in their ordering entering the new year, as they closely monitor boat shows in retail at the start of the season, as well as the economic trajectory. We are pleased with interest in the recently launched Brunswick Retail Finance Program, with more than 25% of Brunswick boat dealers having already enrolled. The program provides an additional way to stimulate demand and convert leads, with an efficient online consumer finance approval process and the ability to introduce promotional financing. In addition, our investments in digital platforms continue to drive benefits across our brands. with more than a third of boat group sales digitally assisted in 2023. As expected, boat OEMs are carefully controlling boat production rates to align with anticipated retail in 2024, resulting in lower order rates for Mercury engines and Navico Group OEM products. The softness continues to be more prevalent in value products and low to mid-horsepower outboard engines, with premium product production and demand remaining more solid. Shifting now to a global view of revenue in the quarter. Overall, we saw 15% sales decline on a constant currency basis, excluding acquisitions. On a full year basis, the US market declined mid single digits versus 2022, roughly in line with Europe and Asia Pacific. US new boat industry retail was slightly down in the fourth quarter versus 2022. with preliminary full-year retail in line with expectations of down approximately 6% versus 2022. Overall, for the full year, Brunswick performed slightly better than the industry, picking up share particularly through strong performance by our pontoon, premium fiberglass, and tow brands, supported by planned promotions and marketing on select product lines. Outboard engine industry retail units turned positive this period, with the fourth quarter up 1% versus prior year, bringing four-year unit retail to down 2%. Mercury continues to outperform the industry, with fourth quarter share gains of 50 basis points in greater than 30 horsepower categories. As we actively managed both pipelines, we ended with inventory in line with expectations and historical norms, with U.S. weeks on hand at 36.7 weeks and 14,000 units, versus 16,000 units in 2019. International bulk pipelines are slightly higher, which is normally the case. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.