Brunswick Corporation

Good morning. Welcome to Brunswick Corporation's second quarter 2025 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 like to introduce Stephen Weiland, Senior Vice President and Deputy CFO, Brunswick Corporation.

Good morning, and thank you for joining us. With me on the call this morning is David Falks, Brunswick's Chairman and CEO, and Ryan Willem, Brunswick's 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, Steve, and good morning, everyone. Brunswick delivered strong second-quarter results as the power of our market-leading products and brands, efficient operational execution and cost control, continued prudent pipeline inventory management, and the benefits from the resilient, recurring, aftermarket-focused portions of our portfolio resulted in second-quarter financial performance ahead of expectations. This was despite the challenging macro environment and uncooperative weather in many parts of the U.S. through the first two months of the quarter. Year to date, both unit retail sales in the value category are underperforming our initial expectations for the year. But continued overall resilience in the premium and core categories, combined with improving retail sales trends in July, is expected to provide a floor for wholesale performance in the second half of the year. Tariffs continue to directly impact our earnings and add uncertainty for both our end consumers and channel partners. But all our businesses are executing strongly on their mitigation plans, resulting in a smaller net tariff impact than originally anticipated. Against this backdrop, we are pleased to report second quarter sales of $1.4 billion, up slightly from prior year, and earnings per share of $1.16. both exceeding the top end of our guidance and sequentially up from the first quarter. Earnings were impacted by the reinstatement of variable compensation and the effects of tariffs, but were consistent year over year, excluding those items. A continuing highlight of our financial performance is our free cash flow. We had another quarter of outstanding free cash flow generation. with $288 million of free cash generated in the quarter, a record for any second quarter in company history. This performance also resulted in a record first half free cash flow of $244 million, a $279 million improvement versus first half 2024. The free cash generated in the past three quarters represents the largest free cash flow generation in any fourth through second quarter period in Brunswick history. In summary, despite everything going on around us, Brunswick was firing on all cylinders in the second quarter. But of course, next never rests. And we are fully committed to doing a lot more, including progressing certain rationalization and manufacturing capacity optimization actions in the second half of the year to improve profitability and cash flow in several of our businesses, while still driving incremental product costs and operating expense reductions and maximizing the positive impact of our cash generation on our capital strategy. Our overall results were supported by performance ahead of or in line with expectations for each of our segments. Our propulsion business delivered strong year-over-year sales growth with shipments to U.S. OEM customers outpacing expectations, resulting in sequentially improved earnings despite the anticipated tariff and absorption headwinds. Mercury's outboard engine lineup continues to take market share, gaining over 300 basis points of U.S. retail share in outboard engines over 300 horsepower in the quarter, and 30 basis points of share overall on a rolling 12-month basis. despite heavy wholesale shipments by competitors ahead of tariffs being implemented on Japanese imports. Mercury's leadership in high horsepower outboard engines will be further reinforced by the new 425 and 350 horsepower engines launched earlier this week with performance, smoothness, quietness, weight, and other attributes far ahead of the competition. Our engine parts and accessories business had another strong quarter, with slight year-over-year sales growth and steady earnings, despite the weather-affected start of the boating season. This primarily aftermarket-based business continues to derive its success from stable boating participation and the world's largest marine distribution network, which in the U.S. has gained 180 basis points of market share resulting from our ability to support same-day or next-day deliveries to most locations in the world. Navico Group had slightly lower sales versus the second quarter of 2024, with aftermarket sales and sales to marine OEMs modestly lower. However, sales trends continue to improve each month in the quarter. Navico Group earnings remain consistent with first quarter levels. and we're driven by enthusiastic customer acceptance of new products and steady operational performance. Year-to-date revenue for Navico Group is only down 2.5% versus the first half of 2024, led by steady performance from the group's aftermarket businesses. Restructuring actions continue to gain traction, despite tariff and market headwinds. And in the quarter, we consolidated two production locations, and transferred European distribution to a 3PL, while in July we implemented a leaner organizational structure that will reduce expenses and increase agility. Our bulk business had lower overall sales, mainly resulting from weakness in value categories, but outperformed the market in some other key categories, resulting in overall market share gains, and has delivered 30 new model launches year to date. In response to the tighter value fiberglass market, we have rationalized our value fiberglass model lineup by 25% for the 2026 model year. Dealer inventories remain healthy, and Freedom Boat Club continues its journey of profitable growth, launching its first club in the Middle East, located in Dubai, and with plans for additional expansion. further reinforcing its position as the world's largest and only global boat club. Now looking at external factors, we see some areas of continued uncertainty, but also some emerging bright spots compared with the first quarter. Interest rates remain steady with a potential for improvement, and foreign exchange tailwinds should benefit our predominantly U.S.-based business. In addition, the One Big Beautiful Bill Act favorably addressed tax increases that were previously scheduled to take effect and restored key pro-business provisions, such as full expensing of U.S. R&D. We are still analyzing the impact of all these changes on a global basis, but anticipate a significant positive cash flow impact moving forward. Brunswick continues to actively monitor and manage tariff exposure. Our coordinated team across trade compliance, supply chain, and finance analyzes the latest updates, implements mitigations, and continually refines our forecast. Despite recent tariff increases for some countries, overall, we've revised down our estimate for total potential net exposure. Ryan will go into more detail, but I will again stress that despite the negative direct impact of tariffs on our earnings, Given our primarily U.S.-based, vertically integrated engine of boat manufacturing base and predominantly domestic supply chain, and the fact that we manufacture almost all our boats for international markets within those markets, we remain competitively well-positioned in an environment of persistent tariffs. In addition, our leading position in scale affords us the resources and sophistication to effectively manage this complex, evolving situation. including through the deployment of AI tools. We see an improvement in longer-term dealer sentiment and inventory comfort, which is moving closer to historical norms. Boating participation remains strong with upticks throughout the quarter. Dealer foot traffic is stable, and we have seen a slight increase in people considering a boat purchase in the next 12 months. OEM production rates were up over the second half of last year, And while overall retail was down for the quarter, July is off to a strong start. We're using competitive incentives where appropriate to support second-half sales and are continuing to invest in and derive benefits from the latest digital marketing technologies to generate more leads and optimize conversion. Overall, while we remain mindful of the dynamic macroeconomic backdrop and soft consumer sentiment, There are some reasons for cautious optimism as we progress through early Q3. Moving now to industry retail performance. Outboard engine industry retail units declined 6% in the quarter, with Mercury gaining 30 basis points of share on a rolling 12-month basis and 140 basis points of share in the same timeframe on engines 150 horsepower and greater. Mercury continues to gain share internationally, with 170 basis points of share gain in Canada over the past 12 months, and strength in high horsepower share continuing around the globe. As of the latest SSI reporting from May, U.S. main powerboat industry retail was down modestly year to date, with Brunswick's boat brands outperforming the industry. Since the beginning of June, internal Brunswick U.S. retail has improved, with registrations only down mid-single-digit percent over the same period in 2024. On a global basis, first-half retail remained very steady for our premium brands, including Boston Whaler, Z-Ray, Lund, and Navan, and as a whole for our core brands. Retail performance for our value brands continues to be challenged, and as noted, we're working to optimize the profitability of these brands that reduce production volumes. We have continued to diligently manage bulk pipeline levels, and second quarter U.S. wholesale shipments were down 9%, resulting in an 11% reduction in U.S. pipelines, or over 1,200 fewer units versus last year. Global pipelines are down 2,300 units over the same period, reflecting our continued focus on maintaining the freshest imagery and market. Lastly, as I indicated earlier, according to internal data, July retail for essentially all our businesses has accelerated and is trending positive versus July 2024, giving us and our channel partners positive momentum to start the back half of the year. Before turning the call over to Ryan, I want to highlight the diligent efforts across our enterprise that resulted in record free cash flow, despite some inventory banking for tariff mitigation, and continue to support our investment-grade credit profile. Our strong Q1 cash performance continued into the second quarter, and in the first half of the year, we delivered $244 million of free cash flow, up $279 million versus the prior year. You've delivered $1.5 billion of free cash flow since 2021 and a record $522 million in the last three quarters in very dynamic and challenging market conditions. Our balance sheet remains very healthy with no debt maturities until 2029 and an attractive cost of debt and maturity profile. Given our continued strong cash performance, we're increasing our previous debt reduction guidance for 2025 by $50 million to a total target of 175 million for the year. With this increase in our 2025 debt reduction target, by year end, we are on track to have retired 350 million of debt since 2023. We remain on the path of returning to our long-term net leverage target of below two times EBITDA. We are accomplishing this while maintaining significant financial flexibility, as evidenced by a commitment to our investment grade credit rating. At quarter end, we'll have $1.3 billion in liquidity, including full access to our undrawn revolving credit facility. I want to thank the entire Brunswick team for their disciplined focus on execution, driving efficiencies, working capital management, optimization of capital expenditures, and many other actions that together allow us to return capital to shareholders while maintaining financial flexibility and opportunistically reducing leverage. Our cash generation profile and investment-grade credit rating are important to our business and also differentiate Brunswick in our industry and sector. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.