Brunswick 2026 Q2 Earnings Call

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 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.

Thank you, Steve. Brunswick 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 premium and core buyers portfolio remained resilient, and our first half boat 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. Boat and engine pipelines continue to be lean and fresh, with balanced channel dynamics. With global boat pipelines down approximately 1,800 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 earnings 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 IEEPA 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 IEEPA refunds on our results and guidance for the year.

Finally, we've 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 valued products. We continue to closely monitor the tariff environment and successfully drive mitigation actions. We now expect total gross IEEPA refunds of approximately $60 million-$70 million. We recognized 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, U.S. 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 U.S. outboard wholesale orders were up over 10%, with very strong June order activity. U.S. 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 we'll share more about at our upcoming Investor Day. Engine pipelines remain lean, with U.S. outboard pipelines down 7% in the quarter versus prior year. Engine Parts & 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 Sea rolling 12 distribution share increasing again by 130 basis points.

The Engine P&A business and Navico Group continue 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, exclusive of the net IEEPA 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 Saxdor for Simrad Autopilot, with more expected to be finalized soon. Lastly, our boat segment grew both sales and margins, benefiting from the increased emphasis on premium core brands, pricing actions, and continued growth in Freedom Boat Club. 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 U.S. main powerboat segment retail down approximately 4%, impacted by sentiment, affordability, and poor weather in some northern markets. Overall, Brunswick U.S. 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 U.S. retail was roughly flat versus last year. Pipelines are lean and healthy, ending down approximately 1,800 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 will 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&A and aftermarket performance driven by healthy boating participation and pricing taken in previous periods. As Dave mentioned earlier, it was 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, IEEPA refunds, and positive mix 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 IEEPA 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 IEEPA benefit of slightly more than $0.20, which is the gross IEEPA 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.

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. Moving 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 IEEPA refund offsetting elevated material labor inflation, product spend, and tariffs.

Absent the net IEEPA refund, adjusted operating earnings and margins declined year-over-year due to the incremental costs just mentioned offsetting the earnings from the increased sales and positive absorption impact. As year-over-year tariff costs reverse 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 & 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 boater participation and the resulting demand for P&A, together with past pricing actions.