Brunswick Corporation Q2 2026 Earnings Call

Evening and welcome to Brunswick Corporation. S Second quarter 2020 Earnings conference call. All participants will be in 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 CFO Brunswick Corporation.

Good.

Morning, and thank you for joining us. With me on the call this morning are David Foulkes, Brunswick's chairman and CEO. And Ryan Gwillim, 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 in 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 reconciliations sections of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over to Dave.

Thank you Steve. Delivered a strong second quarter despite the turbulent external backdrop with financial performance ahead of expectations and year over year sales growth across all reporting segments. For the fourth consecutive quarter. Our. And core Bias portfolio remained resilient, and our first half bolt retail sales were essentially flat when adjusted for the purposeful value model. Rationalization actions initiated last year. Marine OEM growth rates moderated somewhat from the exceptional first quarter growth, but remained very healthy and drove gains for Mercury Marine and Navico Group. Boating participation also remains very strong and continues to drive our recurring revenue. Parts and accessories. Aftermarket and subscription boating businesses. Both an engine pipelines continue to be leaner, fresh with balanced channel dynamics. With Global boat pipelines down approximately 8800 units for the year, we're well positioned for wholesale growth with any future market improvement. Our overall net sales of $1.6 billion increased 8% year over year, with growth across all segments driven by pricing actions taken in recent periods. Improved mix new product traction, continued healthy OEM demand, and strong operational execution. Adjusted. Per share of $1.56 increased 34% versus last year, benefiting from the same underlying business drivers as well as recognized tariff refunds, partially offset by cost inflation.

Higher variable compensation, incremental tariffs and continued product investment. Absent the. Net benefit, including its associated influence on variable compensation, adjusted EPS was still significantly ahead of expectations. Demonstrating the strength of our underlying business performance. All segments increased adjusted operating earnings and margin with the exception of propulsion, which incurred additional tariffs and higher product development expenses as expected. Later, Ryan will discuss the overall financial impact of the AEP refunds on our results and guidance for the year. Finally, we repurchased $35 million of shares year to date and will retire $160 million or more of debt by year end, underscoring our commitment to both maintaining an investment grade balance sheet and returning capital to our shareholders. Turning now to external conditions. While fuel prices have clearly not dampened enthusiasm for boating participation, the prolonged conflict in the Middle East, combined with the impacts of inflation on affordability, are negatively impacting consumer sentiment, particularly amongst buyers of our value products. We continue to closely monitor the tariff environment and successfully drive mitigation actions. We now expect total gross refunds of approximately 60 to $70 million. We recognize approximately $30 million of submitted and accepted refunds in the quarter. With the remaining expected phase two refunds of approximately $10 million reflected in full year guidance.

The window for the balance of our refund submissions beyond phase two is not yet open, and not yet reflected in guidance. We're also monitoring the newly introduced section 301 and Canadian tariffs, which we currently estimate will drive roughly $5 million of net negative incremental 2026 impact. And we'll continue to adjust our mitigation actions as the environment evolves. Dealer and OEM sentiment is stable, but cautious with wholesale order rates remaining fairly steady. And we continue to outperform the market, expanding our share of wallet and capturing new OEM wins with well-received new products. Moving to segment performance. Our sustained momentum across our businesses and product lines is evident from the fact that all segments delivered year over year sales growth for the fourth consecutive quarter. As discussed earlier, adjusted operating margin also expanded across the enterprise in the quarter, except in the propulsion segment However, our incremental 2026 tariff payments are first half biased, and we expect all segments will expand. Operating margin over the next two quarters. After a very strong first quarter. US outboard engine industry, retail units finished the first half slightly down versus prior year. However, our propulsion business delivered another strong quarter with year over year sales growth driven by steady OEM demand, continued high market share and strong international momentum.

First half global and US outboard wholesale orders were up over 10%, with very strong June order activity. US outboard rolling 12 share was down slightly to 46%, driven primarily by below five horsepower. Registration declines at volume. Retailers and a strong 2025 comp with OEM share remaining robust. Internationally. Mercury is driving strong share gains with double digit unit order increases year to date, and rolling 12 outboard share up across most regions, with significant gains in Asia and Latin America. Notably in Brazil, we've increased share 600 basis points since 2019. Our five. New engine platforms are on track, with four launching in the next two years We're also pursuing growth opportunities in repower government and commercial markets, which will share more about. At our upcoming Investor Day. Engine pipelines remain lean with us output pipelines down 7% in the quarter versus prior year. Engine parts and accessories delivered another strong quarter, supported by healthy boating participation and resulting product demand. Along with past pricing actions. Combined with continued distribution gains, this drove higher sales and the products and distribution businesses both contributed to improved profitability, underscoring the stability and attractive operating leverage of this recurring revenue business.

Our second quarter sales were the highest since 2022 and up across all global regions, with land and sea rolling 12 distribution share increasing again by 130 basis points. Year. Engine and a business and Navico group continued to work together to exploit combined footprint opportunities. Navico Group continued its strong performance trajectory with sales growth across its business lines, supported by new products. Multiple OEM wins sustained aftermarket demand, and ongoing operational improvement actions, and exclusive of the net impact, expanded its core operating margin by over 250 basis points versus prior year. We were also excited to finalize our first OEM supply agreement with Saxtorph for Simrad. Also, captain, with more expected to be finalized soon. Lastly, our boat segment grew both sales and margins. Benefiting from the increased emphasis on premium and core brands Pricing actions and continued growth in Freedom Boat Club and. We expect continued strong margin expansion over the remainder of the year, benefiting from mix portfolio actions and operating efficiencies. The latest SSI data for June year to date. Shows us main powerboat segment retail down approximately 4%, impacted by sentiment, affordability and poor weather in some northern markets. Overall, Brunswick, US internal retail is performing at similar levels, but with premium fiberglass and core product lines.

Flat to prior year and pressure on value, product lines. As anticipated. When adjusted for our purposeful rationalization of value models. Our first half US retail was roughly flat versus last year. Pipelines are lean and healthy, ending down approximately 1800 units. The business Acceleration portfolio continues to deliver growth and attractive margins, led by Freedom Boat Club, we recently announced our 450th global network location and member trips were up a record 13% for the first half of the year. I'll now hand the call over to Ryan for more details on our financial performance.

Thank you, Dave, and good morning, everyone. Brunswick's second quarter performance came in ahead of expectations with strong sales and earnings growth over last year. On a consolidated basis, sales were up 8%, reflecting steady OEM orders continued strong P and A and aftermarket performance driven by healthy boating participation and pricing taken in previous periods. As Dave mentioned earlier, it was a fantastic to see the fourth consecutive quarter of year over year sales growth for all segments. Adjusted operating earnings and margins were up, driven by the higher sales, high EPA refunds, and positive impacts more than offsetting higher inflationary pressures, increased variable compensation, incremental tariffs versus Q2 of 2025, and continued spending on product development, primarily in propulsion. Even absent the net impact of the refund recognized in the quarter. Adjusted operating earnings were up strongly versus the second quarter of 2025. This resulted in adjusted EPS of $1.56, up $0.34 over last year. An outstanding result. We delivered a robust $278 million of free cash flow in the quarter, just slightly behind Q2 of 2025. Due solely to the second quarter timing of our annual profit sharing payment. This simple bridge shows the key factors of our Q2 adjusted EPS performance from.

Our Q2 guidance midpoint of $1.15. We had a net beat of a little less than $0.20 in the quarter. Due to our outstanding business performance. We then recognized a net benefit of slightly more than $0.20, which is the gross Iipa refunds accrued in Q2 netted against the related earnings impact of our enterprise wide compensation plans. The result was an adjusted EPS of $1.56. Now, looking at the first half of the year, sales were up 10%, reflecting the prior second quarter factors just mentioned. Together with the exceptionally strong first quarter results. First half adjusted operating earnings increased 18% over the prior year. Adjusted EPS is up 32%. And free cash flow of $161 million is ahead of last year. After normalizing for the impact of enterprise compensation paid versus 2025. To our segments, propulsion had another fantastic quarter with sales increasing 8% versus the prior year, driven by steady OEM demand and market share and pricing actions taken in recent quarters. Adjusted operating earnings were up and margins essentially flat versus prior year due to the increased sales, favorable absorption and net iipa refund offsetting, elevated material labor inflation, product spend and tariffs absent the net. Iipa refund adjusted operating earnings and margins declined year over year due to the incremental cost just mentioned, offsetting the earnings from the increased sales and positive absorption impact.

As year over year tariff costs reversed, and elevated product spend normalizes in the back half of the year, we anticipate significant margin expansion in the second half of the year. Resulting in full year margin growth of more than 100 basis points for the propulsion segment. Our engine parts and accessories business delivered another strong quarter of 9% sales growth, with 16% growth in the higher margin products business growth in the. Quarter reflected strong voter participation and the resulting demand for P and A, together with past pricing actions. Adjusted operating earnings were up 19% and adjusted operating margin increased 200 basis points, driven by the increased mix from products and the leverage on higher sales. With the net Iipa refund offering a very slight benefit. Now turn. To the Navajo group that had another quarter of solid growth and improved profitability. Sales grew 7% over prior year and were up across all business lines and regions, driven by increased OEM demand for new products. Pricing and boating participation. Supporting very strong aftermarket performance. Adjusted. Earnings increased 143%, propelled by leverage on their higher revenue and their net Iipa refund. With the adjusted operating margin expanding by 680 basis points.

Absent the net, Iipa refund impact, both adjusted earnings and margins were still up significantly. Navajo. Group is solidly on track for its full year target of increasing adjusted operating margin in excess of 100 basis points, without any assistance from tariff refunds. And despite inflationary impacts on inputs, including memory costs and other raw materials. Wrapping up. Segment results. Our boat segment increased sales by 5%, driven by beneficial mix from premium models. Improved pricing and discounts, and Freedom Boat Club adjusted. Operating earnings were up 45%, with margins up 120 basis points, reflecting higher sales. The flow through of pricing and lower discounts, and the continued focus on operational efficiencies designed to lower costs and increase gross margins throughout the portfolio. Freedom Boat Club had a very strong quarter, announcing its 450th global network location and continued increases in members and trips. IPO refunds had a minimal impact on this segment. I will now share our updated guidance for the third quarter and full year. While. The new boat retail markets remain pressured due to continued elevated macro and geopolitical uncertainty, our portfolio of leading premium boat and engine products continued to grow. Sales and capture OEM and consumer share, and our recurring revenue businesses continue to benefit from committed, healthy boating participation.

Our disciplined execution and improvement actions also continue to drive strong operating leverage and are expected to result in materially increased adjusted operating margins and earnings this year, overcoming the approximately $40 million impact of incremental tariffs, which is slightly elevated since our last estimate due to the anticipated impacts of section 301, replacing section 122. Our overall tariff impact is first half weighted with the year over year. Second half impact lower than 2025. The overall result is revenue of 5.7 to $5.8 billion, up strongly over 2025. Adjusted operating margins of approximately 8%, up 100 basis points year over year, and adjusted EPS of $4.35 to $4.75, up almost 40% at the midpoint. We're also increasing our free cash flow guidance to more than $400 million on the back of strong earnings, prudent working capital management and the benefit of the net Iipa refunds. Given all the moving pieces, we thought one last bridge would be helpful to show the components of our adjusted EPS guidance raise. As I mentioned earlier, absent any tariff refund impacts, our Q2 performance beat was about $0.20 from. There, we anticipate a full year net Iipa benefit of a little more than $0.30, which includes the refunds, accrued in Q2 plus the remainder of our phase two refunds, which we believe will be approved in the second half of the year.

We are not anticipating or including in guidance any phase for refunds in 2026, which could add more than $0.20. Once approved. Offsetting these benefits are two primary factors. First, we anticipate incurring an additional $0.15 of material inflation in the back half of the year versus what was included in our April guidance, mostly incurred at Mercury and Navico Group. Second, we believe the tariff changes just discussed will add another approximately $0.05 to our overall cost base. These. Costs and benefits. Net to an approximate $0.30 of adjusted EPS benefit, and we're flowing it through to the full year with our EPS midpoint. Now $4.55 for the year. Reflecting a balanced view of risks and opportunities as we navigate the continued challenging macro environment. I'll now pass the call back over to Dave for concluding remarks.

Thanks, Ryan. This year, Brunswick earned 15 boating industry Top Product awards, the most we've ever received in a single year, with 13 different brands represented, spanning boats, propulsion, vessel control and marine electronics. This extraordinary performance, along with many other domestic and international product design and technology awards. Clearly illustrates the increasing breadth and depth of our product leadership. Overall, through the first half of the year. Brunswick has secured a company record 86 awards, and we remain firmly on track to surpass 100 enterprise awards for the fifth consecutive year. As in prior years, this recognition spans products, innovation, workplace culture, leadership and corporate reputation and reflects the strength and consistency of our organization and values. Thank you to all of our Brunswick employees whose talent and dedication makes this recognition possible. Before we. Open the line for questions. While I'm very pleased and excited about Brunswick's performance and trajectory next. Never rests and there is a lot more to come, which we will share at Brunswick's Investor Day on August 11th. We'll release a pre-recorded video strategy presentation on our website next week and address questions on those materials at the event's live Q&A session. The event. Which will be held at Mercury Marine's headquarters in fond du Lac, Wisconsin.

Will also include facility tours and on water product demonstrations. For those unable to attend, we'll also be pleased to answer follow up questions in post-event calls we're approaching. Capacity for the event, so please register if you've not already done so. With that, we'll now open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue for a participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. The first question is from James Hardiman from Citi. Please go ahead.

Hey, good morning. Thanks for taking my questions., real shocker. I have a question on tariffs because there's a lot of moving pieces there. Obviously the the incentive comp makes it ,, even even more. Complicated., but I think I get it for the quarter, maybe as we just think about the full year guide .. EPS is up $0.30. Tariffs are giving you $0.30. Those sort of roughly cancel each other out., there's some operational upside, but that's being offset by inflation and Canadian tariffs.. Let me know. If you think that's sort of good math. And then as we think about the margin guide, a 25 basis point increase, is that up or down at all. Ex the the refunds. Thanks.

Hey James. Maybe I'll take this., and maybe I'll be just a little bit broader to start just so that everyone gets the full picture. I think, you know, we we consider ,, the tariffs paid in 26 and then the refunds pretty different animals. So maybe I'll take them in sections and that'll help kind of everyone on the call. So on 26, really the only major change in the quarter was the elimination of 122. It was replaced by section 301. And then,, the additional potential Canadian tariffs, you know, together, we think that's probably a $5 million or so bad guy., and that's really a second half hit. So if you think about our incremental tariff impact from last year, that takes it from our previous range where we thought we were at the bottom of that 35 to 45 range and puts us squarely in the middle of approximately 40 million. And so that that is embedded in the guidance. We will continue to mitigate., we'll continue to lower our China, impact ., and that is. Remember first half loaded as the way the timing worked through last year versus this year., bad guy in the first half. And actually neutral positive in the second half of this year due to that timing.

And then maybe on a refunds,, we think about it in a couple of ways. We have, we have been pretty public with a gross number. So just a, a gross before any other impacts to the P and L of $60 million of refunds., you saw today in the materials that looks to be now between 60 and 70 million, but two very key things here. So first, this is a gross number., we understand the, the refunds are a reduction of cogs, which ultimately is an increase to earnings. But that gross number does not include the associated impacts. The refunds have on other parts of the P and L, namely variable compensation. And that's why we're really we're talking about it as a. Net number, which as we turn the calendar to 27. Will enable everyone to back out the net impact, which is really the correct way to think about it. And then the other item is there's a lot of timing involved here., refunds are really in three phases. There's phase one, which is very small,, received and recognized in the quarter. In Q2, but very, very small phase two, which is about 60% of the refunds. And I'll get to that in a second.

And then phase four, which is the remainder. And importantly, we are not anticipating currently any phase four refunds to be accrued or any benefit in 2026. So have not included that number in,, any guidance. So that that's part of the 60 to 70 million of growth that will eventually be received, but it is not included in any 2026 guidance. So. That leaves the treatment of phase two. I ,, and simply about 30 million of that, as you as you, correctly mentioned, 30 million was accepted in Q2. And therefore included in the results. And once netted,, for enterprise wide variable comp impacts that represented. About a 20 cent benefit in the quarter. So that's what you saw on the bridge. The remaining,, about 10 million of phase two was not accepted in Q2 due to some technical technicalities in the system., but we will we are confident that they will be accepted. And so although not in the Q2 numbers, they are a benefit in the second half, which we included about $0.10 into the full year guidance. So that really is all things tariff. And then to roll it forward to your,, full year guidance question, you know, we had a 20 cent beat in Q2,, that had nothing to do with tariffs.

We had another approximately $0.20 of net iipa, which we talked about., resulting in the 40 cent overall beat versus our midpoint of $1.15 from April. And then if you look forward to, to the second half, we really, we see about $0.20 of risk,, on the macros, which is inflation and the increased tariffs that I discussed,, which is offset by that $0.10 of phase two goodness., so if you think about what flowed through, you really got the whole Q2 beat that was not related to tariffs and about half of the net Iipa goodness in the quarter for $0.30. So a raise from 425 to 455 at the midpoint. So long answer, but lots of things covered there. Hope that, hope that answers your question.

That's really good. And it's a, I think it's a good way to frame it., I guess on to, to theory what should, should really matter. And that's sort of the demand environment., you talked about retail all in being down for, I think flattish X, the, the sort of value units rationalization. What can you tell us about the momentum within those numbers. you guys. Started out the year really strong. I think January and February were, were up meaningfully. And then March was was weaker ., and then here in 2Q2Q was weaker than, than one Q., is there anything that we should be drawing from that. And I think the tie breaker is always, you know, the last month. Right. Which everybody will want to focus on., but anything you can tell us to help us frame sort of where demand appears to be headed with the most sort of updated