Brunswick Corporation

Good morning and welcome to the Brunswick Corporation's fourth quarter and full year 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 now like to introduce Stephen Weiland, Senior Vice President and Deputy Chief Financial Officer of Brunswick Corp. Please go ahead.

Good morning, and thank you for joining us. With me on the call this morning are David Feltz, Brunswick's Chairman and CEO, and Ryan Guillen, 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 the 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 unhonored consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thank you, Steve. We finished 2025 ahead of recent expectations with all our businesses reporting sales and earnings growth in the quarter, leading to full-year net sales growth for the first time in three years and significantly higher free cash flow generation, all supported by strengthening boat market in the second half of the year. In addition to improved retail conditions, our performance was underpinned by solid boating participation driving stability in our recurring revenue businesses and outstanding operational execution across the enterprise. Retail demand stabilized in the second half of the year following a challenging second quarter primarily caused by tariff-induced economic uncertainty. While the U.S. retail boat market finished the year down approximately 9% in units, Brunswick's leading boat brands outperformed the U.S. industry and Brunswick global retail unit sales were down only 5%, driven by weakness in value product. dealer inventories remain at very low levels and with a high percentage of recent model year product. Despite the volatile first half of the year, we delivered $5.4 billion in net sales, up 2% over prior year. Our adjusted earnings per share of $3.27 were impacted by the anticipated tariff headwinds, which had a substantial impact on the fourth quarter. Comprehensive cost containment actions throughout the year, along with robust capital strategy execution and diligent working capital management, resulted in exceptional free cash flow generation for the year of $442 million, which provided us with the financial flexibility to continue to invest in the business repurchase $80 million of shares, increase our dividend, and retire approximately $240 million of debt to further improve our strong balance sheet. Strong early season retail and falling interest rates combined with a stabilized retail environment currently supports our initial expectations for improved market conditions in 2026. In 2025, boat and engine retail sales significantly outpaced wholesale, which positions Brunswick for revenue growth in 2026 in a range of flat to improving retail scenarios. Turning to some segment highlights, I'm pleased to report that for the second quarter in a row, all segments grew revenue over the prior year quarter. Operating margin also expanded across our businesses, except for engine P&A, where it was down slightly due to strong performance in the lower margin distribution side of the business. Our propulsion segment had an outstanding fourth quarter, increasing revenues and earnings versus prior year in each of its three business lines, outboard, stern drive, and controlled rigging and propellers. Mercury continues to be the outboard market share leader in the U.S., Canada, and Europe, and is increasing its investment in groundbreaking new products. Recently, at the Consumer Electronics Show in Las Vegas, Mercury unveiled its 808 outboard engine concept, signaling the future direction of ultra-high horsepower outboard propulsion. Mercury's commercial traction continues to accelerate. as highlighted by the recently announced exclusive agreements with Axapar, SACSTOR, and D'Antonio Yachts, adding to the more than 100 new or renewed OEM agreements in the last 12 months. Our recurring revenue, high margin engine parts and accessories business delivered higher sales and earnings in the fourth quarter versus prior year in both its products and distribution business lines, fueled by higher boating participation and our growing share in marine distribution. Our market-leading U.S. distribution business gained 210 basis points of share in 2025. Navico Group increased both revenue and operating margin in the fourth quarter versus prior year, reflecting the steadily increasing benefits of our continued focus on a refreshed product portfolio and operational, commercial, and financial improvement actions. Navico Group launched connected solutions, including integration with mobile apps and Simrad multifunction displays, enabling onboard and offboard real-time monitoring and control of vessels. And the introduction of our Simrad AutoCaptain Autonomous Boating System was another example of Brunswick's unique ability to deliver seamlessly integrated system solutions co-developed by Navico Group, Mercury Marine, and Brunswick Boat Group. Finally, this quarter, our boat business capitalized on the continued improvement in the retail market, which drove sales growth and significantly expanded margins versus the prior year quarter. Discounting levels in 2025 also improved approximately 100 basis points year over year. Our premium and core brands experienced continued strength, highlighted by 15% overall revenue growth across our premium brands at the Fort Lauderdale Boat Show. And our value brands also recovered some momentum. Lastly, Freedom Boat Club had another strong quarter, growing to 442 global locations and with member trips finishing the year at over 640,000, up 5% over 2024. Moving on to external factors, the U.S. Fed cut rates by 75 basis points over the latter part of 2025, with additional rate cuts anticipated in 2026. While the cuts have reduced financing costs for both dealers and consumers, they came too late in the season to have a material impact on 2025, but will be a tailwind for the 2026 season. Additionally, while the geopolitical and trade environment remains very dynamic, continued equity market strength and the moderating inflation trend are also expected to create a more constructive environment. Our tariff mitigation actions in 2025 were extremely successful, offsetting over half of our gross dollar exposure and resulted in approximately $75 million of net incremental tariff impact. While the Supreme Court decision regarding the AIPA tariffs remains pending, U.S. import tariffs on Mercury's Japanese competitors are projected to remain in effect in any scenario. representing a potential long-term structural advantage for Brunswick as the only domestic manufacturer of outboard engines. Notwithstanding the outstanding IEPA decision, with U.S. import tariffs anticipated to be in effect for the full year of 2026 versus a partial year in 2025, we expect to incur further incremental tariff costs of approximately $35 to $45 million in 2026 net of continuing mitigation actions. OEM dealer and customer sentiment is improving with healthy pipelines and increasing voter participation benefiting all our businesses. We were particularly pleased to see Navico Group's marine OEM sales pick up in the fourth quarter, supported by well-received new products. Looking now at industry retail performance, the latest SSI reporting for December showed U.S. industry retail units down about 9% for the year, with Brunswick internal U.S. retail outperforming the market. As I noted earlier, Brunswick retail boat sales stabilized in the second half of the year, resulting in overall flat second half performance compared to prior year, and with acceleration through year end. In addition to solid performance from our historically strong premium and core brands, we also experienced some recovery in value products. Mercury Marine's leading U.S. retail outboard share remained stable, although during the year, share was temporarily impacted by tariff-related dynamics. Mercury finished the year with approximately 47% share, gaining 70 basis points overall in the second half of the year. and with large gains in higher horsepower engines. Mercury also remains the clear leader in Canada, Europe, and many countries around the world. Consistent with its strong outboard share performance at recent boat shows, Mercury's wholesale market share also accelerated through the fourth quarter and was up over 400 basis points in the quarter and 900 basis points in December versus prior year. As previously noted, our boat and engine pipelines are extremely low levels, the result of deliberate action over the last two years. Global boat pipelines are down approximately 2,200 units from a year ago, and U.S. outboard pipelines down by approximately 10%, with retail sales significantly outpacing wholesale. In addition, as of year end, our global boat order backlog was 79% of our first quarter wholesale forecast, up 13 percentage points from the same time last year. Brunswick delivered outstanding free cash flow of $442 million in 2025 with continued benefits from our recurring revenue businesses that represented approximately 60% of our earnings this year. and continued operational and working capital discipline. Our cash performance has enabled us to support planned investments in industry-leading products and technology, return capital to shareholders, and efficiently retire more debt than previously planned. Our investment-grade balance sheet was further strengthened by the retirement of approximately $240 million of debt this year, exceeding our guidance and commitments. and putting us firmly on track towards our two times net leverage target. We're progressing towards this goal while maintaining significant financial flexibility. And at year end, we had $1.3 billion in liquidity, including full access to our undrawn revolving credit facility. In December, we converted $300 million of long-term debt into rate-advantaged commercial paper. reducing interest expense and setting up additional debt retirement in 2026, supported by continued strong free cash flow generation. A series of thoughtful capital strategy actions initiated at the end of 2024 will reduce our expected 2026 interest expense by approximately $40 million, including the benefits of an additional $160 million or more of anticipated debt retirement this year. while still allowing us to make our planned new product, AI, and other investments, as well as return capital to shareholders. I'll now turn the call over to Ryan to provide additional comments on our 2025 financial performance and our initial outlook for 2026.