Brunswick Corporation

Good morning. Welcome to Brunswick Corporation's third quarter 2024 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. You may begin.

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 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 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. Our businesses delivered solid results in the quarter as continued market share gains, wealth of new products and expanded contribution from recurring revenue businesses resulted in financial performance in line with expectations, despite the challenging marine market. We continue to tightly manage field inventory across all our channels and have adjusted production accordingly. ending the quarter with 10,700 units in the U.S. pipeline, around 200 units below prior year. Our third quarter results again demonstrated the resiliency of our portfolio with our recurring revenue businesses and channels, including our Engine P&A business, Propulsions Repower business, Freedom Boat Club, and Navico Group's aftermarket sales, contributing nearly 70% of our Q3 adjusted operating earnings. As we enter the final months of the year, we estimate full-year new boat retail unit sales to finish in line with our expectations of down approximately 10% versus prior year. With the core retail selling season behind us and retail discounting levels remaining elevated, dealer reordering in some segments is slower than anticipated, leading most boat OEMs to maintain lower production rates, impact propulsion, and Navico Group OEM orders. However, our aftermarket-based engine parts, accessories, and distribution businesses and Freedom Boat Club continue to perform well, as boating participation remains strong. Prudent capital management remains a priority, and we recently executed an amendment to our revolving credit facility, increasing the commitments to a billion dollars and expanding the maturity to October, 2029. We also increased the size of our commercial paper program, permitting the issuance of commercial paper notes, also up to a billion dollars, to provide further capital flexibility. In addition, our businesses delivered strong cash flow, enabling us to complete $190 million of share repurchases year to date, and maintaining our commitment to return value to shareholders. Turning to some highlights from our segments in the quarter. As anticipated, our propulsion business delivered lower sales in operating earnings versus the third quarter of 2023. But we continue to outpace the market at retail and gained 420 basis points of U.S. outboard engine share in the quarter. We are currently producing at rates significantly below retail, as OEM customers maintain reduced boat production schedules into the off-season. Our engine parts and accessories business had another strong quarter with record operating margins of 26% and with both the products and distribution businesses contributing to margin expansion despite slightly lower sales. The completed transition of engine parts and accessories distribution to our new state-of-the-art facility in Brownsburg, Indiana continues to provide efficiency and delivery time benefits, enabling modest international sales growth versus the prior year quarter. As anticipated, Navigo Group had lower sales and operating earnings versus the third quarter of 2023 due to continued soft marine OEM order rates and retailers delaying aftermarket orders until closer to the holiday selling season, which was partially offset by slightly higher sales in the Europe, Middle East, and Africa region. Our pace of product investments is showing benefits. including at the recent Cannes Yachting Festival, where Navigo Group's products were present on approximately 70% of boats exhibited. I will provide more details on Navigo Group's new product introductions in a moment. Finally, our boat business had sales and operating earnings below the third quarter of 2023, consistent with lower planned production levels and fewer manufacturing days due to the extended summer shutdowns. Freedom Boat Club continues to deliver steady performance, with 3.5% year-to-date membership sales growth. In addition, we completed the acquisition of the South Florida Franchise Operations and Territory, further solidifying Freedom's leadership position in the largest boating state in the U.S. We expect to enter the Asian market in the near future. Navico Group is continuing to invest in and accelerate the introduction of new products developed since the acquisition. The Elite FS 10-inch and 12-inch fish finders with live sonar and full networking capability were launched today to fulfill the needs of consumers who desire larger screens with premium features at an affordable price. These products are amongst more than 20 new products introduced across the Navico Group portfolio year to date. Some of these new products are launching in time for the e-commerce and holiday season, and we expect them to contribute to some operating margin re-expansion in the fourth quarter, while a number of white space products opening expanded market opportunities. In the third quarter, we launched the new Lowrance Eagle Eye 9, the first entry-level fish finder in the market to offer live sonar capability. Even as we continue to rationalize its global footprint, We're also continuing to build Navico Group product development capabilities and expect to launch an additional 20 exciting new products over the next three quarters. Turning to external factors, while the macroeconomic landscape is stabilizing, with inflation continuing to moderate and employment generally remaining solid, we continue to monitor the escalating geopolitical tensions and election-related activities. The downward movement in interest rates in the U.S. and some other markets since the beginning of the quarter is welcome, and it's already benefiting consumer financing costs and dealer floor plan costs. However, given the point in the current retail selling season, we do not anticipate benefits until 2025. Dealer sentiment is generally stable but negative, with ordering remaining cautious in most segments. We do not anticipate any significant change entering the off-season curtailment holiday. Discounting and promotion levels remain elevated. However, our investments in our digital assets continue to drive solid lead generation and conversion. Despite these challenging conditions, our surveys do show some improvement in bulk purchase consideration, particularly among higher household income consumers. We continue to invest in and launch many exciting new products and technologies across all our businesses and product lines with the intent to position us for market share gains and to ensure we have the freshest portfolio when the market returns to growth. As we all know, at the end of September and early October, Florida and the Southeastern US experienced two major hurricanes. While Brunswick has a strong presence in Florida, it was only a minor direct impact to our facilities, though production and distribution halted at some locations for approximately three days for hurricane preparation, and in a few cases for power outages. Brunswick's supplies in the region were also largely unimpacted. Of the approximately 100 corporate and franchise-owned Freedom Boat Club locations in Florida, only four will remain closed for infrastructure repair exiting October. Some Brunswick Channel partners incurred damage to their facilities, which, in combination with direct impacts to boaters and consumers in the area, will have a modest short to midterm impact. We estimate a four-year operating earnings impact of $5 to $10 million. Brunswick is providing financial support, supplies, and essential needs to impacted employees and communities. Moving now to U.S. industry retail performance. U.S. outboard engine industry retail units declined 10% in the third quarter versus prior year, with Mercury Marine outperforming the industry at down just 1.8%. As mentioned, Mercury Marine continues to gain share. delivering approximately 50% U.S. outboard engine market share in the third quarter. We are diligently monitoring bulk pipeline levels and continue to undership retail, exiting the third quarter with 10,700 units in the U.S. pipeline, slightly below prior year. We ended the third quarter at 32 weeks on hand, with premium fiberglass pipelines remaining well below historical levels. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.