Q1 2025 Brunswick Corp Earnings Call
Speaker Change: Good morning, welcome to Brunswick Corporation's first quarter 2025 learning conference in Skull, all participants will be in listen only mode until the question and answer session.
Speaker Change: Today's meeting we recorded. If you've any objections, you may disconnect at this time.
Speaker Change: I would now like to introduce Zach Younger, Senior Financial Analyst, Brunswick Corporation [inaudible]
Good morning and thank you for joining us.
Speaker Change: With me on the call this morning is Dave Foulkes, Brunswick's Chairman, CEO , and Ryan Gwillim, Brunswick's CSO. 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.
Speaker Change: 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 fileings in today's press release. All of these documents are available on our website at Brunswick.com
Speaker Change: During our presentation, we will be referring to certain non-depth financial information.
Speaker Change: Reconciliation of Gap to non-GAAP financial Measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited, consolidated financial statements that come being today's results. I'll now turn the call over to Dave.
Thanks, Zach, and good morning everyone.
All our businesses delivered a strong first quarter.
Speaker Change: as a resilient composition of optical folio together with proactive pipeline management, well-received new products.
The benefits of executed and ongoing structural cost reduction measures.
Speaker Change: and Deficient Execution resulted in first quarter financial performance ahead of expectations despite the challenging macro-environment.
Speaker Change: Year-to-date unit retail sales for our core premium boat brand and product lines in line with aquaspectations for a second half-biased year, but we're seeing some weakness in entry-level products.
Speaker Change: Prompting as to consider streamlining our product offerings in the entry-level space while growing freedom boat club as an alternative participation model.
Speaker Change: Billy season boat shows are essentially complete with retail performance that shows flat to prior year and in line with expectations. While overall retail performance in the quarter resulted in appropriate boat field inventory levels as we enter the primary retail season.
Speaker Change: Our first course results again demonstrated the resiliency of our portfolio with our recurring revenue businesses and channels, including our NGM P&A business.
We had outstanding free cash-look generation in the quarter.
Speaker Change: This performance enabled $26 million in sharey purchases in the quarter, maintaining our commitment to returning value to shareholders.
Speaker Change: Despite the uncertain market conditions for Brunswick, our customers, and our channel partners, we're very pleased about our overall start to the year, which exceeded our expectations back in January .
Turning to some highlights from our segments in the quarter.
Speaker Change: Our propulsion business delivered sequentially improved sales and operating earnings versus the fourth quarter of 2024, below first quarter to 2024 levels as anticipated.
Speaker Change: Mercury's Outboard Engine lineup continues to take market share, getting 40 basis points of US retail share on a rolling 12 month basis.
Speaker Change: With indications of a strong April performance, following significant share increases at 2025 both shows.
Speaker Change: Sales to US boat OEMs were strong, as our customer builders increased production levels ahead of the primary retail season and engine pipelines remained at appropriate levels.
Speaker Change: Our ancient parts and accessories business had another strong quarter, with solid year-of-year earnings and margin growth despite lower sales.
Speaker Change: This primarily aftermarket-based business continues to derive its success from stable
Speaker Change: and the world's largest marine distribution network, which delivered sales growth of 2% through continued distribution market share gains, resulting from our ability to support same day on the next day deliveries to most locations in the world.
Speaker Change: Navical Group had flat sales and slightly lower operating earnings versus the first quarter of 2024, as aftermarket sales to dealers and retailers remained strong, but OEM orders were pressured.
Speaker Change: Navajo Group delivered sequential sales growth versus fourth quarter 2024, as its exciting recently launched new products, continue to gain momentum and market acceptance.
Speaker Change: Finally, our boat business had sales and operated earnings below the first quarter of 2024, consistent with lower planned wholesale shipments.
Speaker Change: but sales grew mid-single digits versus fourth quarter 2024 as anticipated.
Speaker Change: Our book group teams are working hard to reduce product costs and protect margin, and an environment with limited pricing opportunities.
Speaker Change: Turning to external factors, the uncertain tariff environment has, of course, become an elevated consideration in a challenging macroeconomic backdrop, and is contributing to declining consumer sentiment and more uncertainty in US Fed policy and the trajectory of interest rate reductions.
Speaker Change: The abrupt introduction of the tariffs in early April and subsequent policy confusion in addition to the capital market turmoil have certainly introduced new reasons for short-term consumer hesitancy.
Speaker Change: Brunswick has the benefit of producing the large majority of our products in the U.S. for the U.S. market and we have significantly reduced our exposure to China-based suppliers since the initial imposition of Section 301 tariffs in 2017.
Speaker Change: However, at current tariff rates, we have the potential to incur up to a hundred million to a hundred and twenty-five million of incremental net tariff costs in 2025, which Ryan will discuss further in a few moments.
Speaker Change: We continue to prepare for a range of scenarios and have many short and long-term mitigation actions already underway, including continued migration of our supply base, inventory staging, pricing, and optimization optimization of our facilities, but this remains a very dynamic situation.
Speaker Change: Despite the macroeconomic noise, dealer sentiment remains fairly stable, as early season both show performance with solid and retail traffic is holding in.
Moving now to U.S. Industry Retail Performance Thank you very much.
Speaker Change: US main power-bought industry retail was down modestly in the first quarter, with Brunswick's performance influenced almost entirely by the clients in the value segment.
Speaker Change: You'll see on this slide that we're showing a slightly different view of U.S. retail, which reinforces the fact that versus a strong first quarter of 2024.
Speaker Change: Retail remain very steady for our premium brands, including Boston Whaler, Cerey, Lund and the Van, and as a whole for our core brands.
Speaker Change: Retail Performance for our Value Brands continues to be challenged. We're working to optimize the profitability of these businesses that reduce production volumes.
Speaker Change: Outboard Engine Industry Retail Unit, the client 6% in the quarter, with mercury slightly lower, primarily due to counterization of registrations moving to the first few days of April .
Speaker Change: We remain confident that Mercury will continue to gain Shaft for a year.
Speaker Change: Lastly, we have continued to diligently manage both pipeline levels, and first quarter U.S. wholesale shipments were down 16%, resulting in an 11% reduction in U.S. pipelines, or over 1500 fewer units.
Speaker Change: US weeks on hand are lower than Q1224 at 35.6 weeks, with similar pipeline dynamics also occurring outside the US
David Foulkes, David Foulkes, David Foulkes, David Foulkes
Speaker Change: Before I turn it over to Ryan, I went to walk through the components of our updated 4 year 2025 adjusted EPS guidance.
Speaker Change: Which is now in a range between $2.50 and $4 per share.
Speaker Change: Primarily due to the uncertainties of trade policy, the direct and indirect impact of these uncertainties on our consumers.
fluctuations in foreign exchange rates and the interest rate environment.
Speaker Change: Attempting to provide guidance as uniquely challenging in this environment, but we appreciate invested aside to understand the earnings components and guideposts that we're tracking internally to drive financial results.
Speaker Change: To that end, this slide is showing midpoints of ranges of what we currently anticipate to be the most slightly outcomes for the year. Assuming the current tariff rates persist and estimating the resulting impact to our businesses, the economy, our channel partners and the end consumer.
Speaker Change: 75 cents would represent an approximate 5% reduction in revenue related to slower retail sales, resulting in a complete lower wholesale sales.
Speaker Change: We've modeled a dollar of EPS as the midpoint of our anticipated net tariff impact.
Speaker Change: This is an addition to the 30 million of China 301 tariffs that were included in our initial guidance for the year, and would represent a scenario where current tariffs remain in place, but we continue to work urgently on our mitigation efforts for the achievement better than our baseline plan.
Speaker Change: Offsetting these headwinds are more planned cost reductions and an improved foreign currency exchange rate environment, where the softer US dollar has lessen the initially planned transactional headwind from the start of the year.
Speaker Change: The result is an EPS range of $2.50 for $4 and a midpoint for $3.25.
David Foulkes, David Foulkes, David Foulkes
Thanks Dave, and good morning everyone.
Speaker Change: Brunswick's first quarter results were soundly ahead of expectations, but remained below prior year due to the continued challenging U.S. retelmarine market and macroeconomic conditions.
Speaker Change: First in the first quarter of 2024, net sales in the quarter were down 11% with adjusted operating margins of 6% resulting in an adjusted EPS of 56 cents.
Speaker Change: First quarter sales were below prior year as the impact of continued lower wholesale ordering by dealers and OEMs and prudent pipeline management throughout the channel was only partially offset by modest annual price increases and benefits from well received new products.
Speaker Change: Adjusted operating earnings were down versus prior year as a result of the impact of lower sales
Speaker Change: Lower absorption from decreased production levels, and the negative impact of changes in foreign currency exchange rates partially offset by new product momentum annual price increases and ongoing cost control measures throughout the enterprise.
Speaker Change: Now we'll look at each reporting segment, starting with our propulsion business, which saw a 16% decrease in sales, primarily resulting from continued pipeline management and overall lower wholesale shipments to OEM boat blover customers, which, although below prior year first quarter, were slightly ahead of expectations.
Speaker Change: Segment operating earnings were below priority due to the impact of sales declines and lower absorption, partially offset my cost control measures.
Speaker Change: Sales in the product business were down 9%, while the distribution business sales were up to 2% compared to prior year, while the segments adjusted operating margin was visually strong at 15% up more than 100 basis points versus prior year.
Speaker Change: Navical Group reported sequentially stronger sales versus 4th quarter 2024 and a slight sales decrease of 1% versus Q1 of 2024.
segment operating earnings decreased due to lower sales.
Speaker Change: Navico continues its progress with new product introductions with the successful recent launches of the Eagle and Elite FX multi-function displays, together with the Recon trolling motor leading to share games in the fishing segment.
Speaker Change: Finally, our boat business reported a 13% decrease in sales, resulting from anticipated cautious wholesale ordering patterns by dealers.
Speaker Change: which was only partially offset by the favorable impact of modest, model-year price increases.
Speaker Change: Green and Vote Club had another strong quarter, contributing approximately 11% of segment sales, including the benefits from recent acquisitions.
Speaker Change: Segment operating earnings were within expectations as the impact of net sales declines and lower absorption from the reduced production was partially offset by pricing and continued cost control.
Speaker Change: Next, I want to provide additional information on our anticipated tariff impact for 2025, should the current tariff rates continue for the remainder of the year?
Speaker Change: This slide shows the approximate percentage of cogs affected by tariffs currently enforced.
Speaker Change: along with our anticipated 2025 net tariff impact for each category after planned the mitigation measures are considered.
Speaker Change: The largest tariff impact relates to China, and while only approximately 5% of our cogs could represent 75 to 100 million dollars of tariff expense due to the current 145% tariff rate on supply from China and China tariffs on US imports.
Speaker Change: These incremental tariffs are in addition to the approximately $30 million of Section 301 tariffs that were included in our initial guidance for the year.
Speaker Change: We continue to make strides in lower guard dependency on the China supply chain and are working with our Chinese supply partners on cost sharing and other mitigation efforts.
Speaker Change: Mexico and Canada supply accounts for approximately 15% of US COGs, but most of the supply from these two countries are imported under the USMCA, meaning that our tariff exposure here is small, assuming the continued USMCA exemption.
Speaker Change: Finally, there are other smaller tariffs on the rest of the world imports.
Speaker Change: Not included in this analysis are other impacts, or potential impacts, both positive and negative to the enterprise, including...
Speaker Change: Potential retaliatory terrorist from the EU and Canada on US manufactured boats and possibly engines and parts.
Speaker Change: Per if some votes imported into the U.S. by our European OEM partners that use mercury
Speaker Change: Mercury engine competitors which are paying tariffs on the importation of engines from Japan or other non-US manufacturing locations.
Speaker Change: and maybe most importantly, the disruption of the capital markets and the corresponding impact on our consumer during this critical point in the retail boning season.
Speaker Change: As everyone is aware, this is an extremely dynamic situation, and the entire Brunswick team is committed to minimizing the overall impact that tariffs ultimately have on our enterprise.
Speaker Change: My last slides shows are updated for your guidance, taking to account the uncertainties that we have been discussing.
Speaker Change: Earlier, Dave walked through the components of our Adjusted EPS range of $2.50 to $4, which is driven by anticipated revenue of between $5 and $5.4 billion.
Speaker Change: We are strongly focused on cast generation and believe we can still reach or exceed our initial guidance of 350 million a free cash flow for the year.
Speaker Change: We anticipate the Q2 market conditions looking similar to Q1, with sequentially stronger revenue and earnings driven by the annual seasonality of our businesses.
Speaker Change: Lastly, while we still believe a flat U.S. retail vote market is achievable for full-year 2025,
Speaker Change: Our guidance contemplates potential volume impacts resulting from the tariff environment and general uncertainty in the macroeconomy and its anticipated impact on our consumer, which we believe could result in boat unit sales being slightly down versus 2024 with weakness primarily related to value product.
Speaker Change: I will now pass the call back today for concluding remarks.
Speaker Change: Thanks, Ryan. As we wrap up, I want to highlight some of the key product launches and events from the first quarter as well as some of the notable awards we've received so far this year.
Speaker Change: During the 2025 Miami boat show, Simrad launched the all-new NSS-4 multifunction display, the latest premium child plotter and fish finder, and Simrad Polfolio.
Speaker Change: which for the first time allows anglers to track four sauna sources on a single display.
Speaker Change: One had a very busy start to the year with a January launch of the 185 Impact GL and an all-new heavy gauge pilot line on the way.
Speaker Change: In February , Ryan and I were able to attend the annual Freedom Forum, another successful gathering of our outstanding Freedom Book Club franchise partners and corporate team.
Speaker Change: We all have the opportunity to experience the power of being part of the Brunswick family and celebrate three of them's continued growth and success.
Speaker Change: Dwight launched the all-new Series 5 Flightboard with a highly efficient, light jet-2 propulsion system in Miami, hosting a media event and on-water demos featuring this full-product lineup.
Speaker Change: While the Bayline of C-21 had its European launch at the Dusseldorf boat show, and was very well received by its international channel partners.
Speaker Change: Lastly, Nevan C30 and S30 models had a strong boat show season following that North American introduction late in 2024, with sales at multiple shows already in 2025.
Speaker Change: They've also been very well received as a premium option at a select number of freedom boat club locations.
Speaker Change: Finally, we've continued our rapid pace of awards in the quarter for our people, products, and commitment to innovation. And our own pace to eclipse a hundred awards again in 2025.
Speaker Change: In the quarter, we won a pair of Newsweek awards, including being named to the list of the most trustworthy companies in America for the third consecutive year.
Speaker Change: Brunswick ranked in the top ten companies within the manufacturing and industrial equipment category.
Speaker Change: Also for the first time, Brunswick was named to Newsweek's list of America's greatest workplaces for women, and two of our outstanding female leaders were selected as women make winners, the highest honour for women in manufacturing, from the National Association of Manufacturing.
Speaker Change: A product of awards continued in the first quarter, with the flight board team winning a pair of Red Dot awards.
One of the world's most prestigious design awards.
Speaker Change: and Princecraft winning its first-ever National Marine Manufacturers Association Innovation Award with the Minneapolis boat show.
Speaker Change: We also expect to be able to announce a number of additional product awards in the near future.
Speaker Change: Finally, Boating Industry Magazine announced its 2025 40 under 40 lists, recognizing six emerging leaders from Brunswick Corporation of Freedom Book Club among the industry's top young professionals.
Congratulations to all the winners!
Speaker Change: Despite the continued external headwinds, we never take our eye off the importance of making Brunswick one of the most exciting and rewarding places to work.
Speaker Change: Let's the end of our prepared remarks. We'll now turn it back over to the Operator's questions.
Speaker Change: Thank you. We'll now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question at this time, you may press star one from your telephone keypad and a confirmation tone to indicate your line is in the question queue.
Speaker Change: Can we press star two if you'd like to withdraw your question from the queue?
Speaker Change: For a participant study using speaker equipment, it may be necessary to pick up your handset before person the star keys. One moment, please, when we pull for questions. Thank you.
Speaker Change: Thank you, and our first question comes from the line of Mike Swartz with Tourist Security. Please receive your questions.
Mike Schwartz: Hey guys, good morning. There was a lot of numbers and scenarios thrown out in terms of the guidance update for 25, but maybe Ryan, David, at a high level, could you help us just understand what's embedded at the lower end and maybe what's embedded at the higher end of your outlook for the year?
Speaker Change: Yeah, good morning Mike, I'll take a stab and then Dave can fill in.
Mike Schwartz: You know, it's pretty straightforward. I think the high end of the range...
would anticipate a couple of things it would it would probably be the end of the day.
Mike Schwartz: a moderation of the tariff environment and or combination of us being able to mitigate the cost better than anticipated.
which by the way, I think we're as an enterprise.
Mike Schwartz: I'm doing the best we can, and I've really been on this since day one on mitigation exercises so
You know, that would, if it's the tariff environment moderated a bit [inaudible]
Mike Schwartz: I think you would have an argument that the value degradation that's in the bridge there could be lessened or even go away.
Mike Schwartz: So, it's kind of that simple and high end on the low end, really the emphasis, right? It's the tariff environment that goes the far end of our range that we show on the fly and the volume doesn't
Mike Schwartz: So we see the decline in volume about the year and maybe there's not the effects benefit that we've shown. So it's kind of all those things on the chart. So pretty negative versus on the top end. This is a little bit of relief.
Mike Schwartz: Okay, okay, that's helpful, and just with the care of outlook of the
Backer.
Mike Schwartz: and some of the mitigation efforts. I would assume that's only a half year if we were annualizing that. You anticipate another 100 million next year. I'm just trying to think through how that works.
Mike Schwartz: We lost you there in the middle of the question a little bit, but I think I have the question right about a full-year annualized youth. No, I would say
Mike Schwartz: Notful Year, but when they're started, but then it does assume the current birth rates continue as they are today through the whole year, including an extremely high China rate, which is our biggest impact. However, if you go to...
The year looked especially...
Mike Schwartz: You're going to have a lot more ability to mitigate and have a lot more time to do that Mike and I think we've shown the ability to be very thoughtful and quick in mitigation.
Mike Schwartz: You would also have some of the benefits from Terrace Paid in 25 that would actually not show up until 26.
Mike Schwartz: and that would include duty drawback and substitution primarily at Mercury.
Mike Schwartz: We've got to be counting on characters in a bit of a delay on when we pay them and when it occurred and then when we are able to do some of the mitigation, drawbacks or substitution and some of that timing would benefit.
David Foulkes, Ryan Gwillim
Okay, perfect. Thank you for that.
Speaker Change: Thank you. Our next questions are from the line of James Hardiman with City. Please receive your questions.
James Hardeman: Hey, good morning, and maybe just a quick follow up on that last point, Ryan, if we're to think about 100 to 125 million of net impact this year, what's the gross number? How much are you assuming you're able to mitigate away?
James Hardeman: Yeah, it's hard to give that number. I mean, you can take the call so we've given you on the slide and multiply it by the rates.
James Hardeman: But there's so much that goes in there, James, including, as I said, the timing [inaudible]
of when the tariff comes in. [inaudible]
James Hardeman: It's obviously worth mitigating a good amount. I would say the gross number is probably not double that, but it's somewhere south of it. But again, with all the moving pieces on how you have to account for it and actually pay it versus incur it, it's just not as simple as a...
Cod's calculation that he'd want to make.
Got it. And then...
David Foulkes, David Foulkes, David Foulkes
Speaker Change: What's driving that? And I guess this part of that question is really about tariffs.
How much of that 100 to 125 is in Q2?
Speaker Change: Is that going to be even more aggressive this year? Just trying to think through a second half, guys, soon.
Speaker Change: material growth, year over year, despite a bunch of tariffs in there, you know, how realistic
Speaker Change: Alright, thanks James. A couple of several questions in there. I'll try to respond and then- [inaudible]
Speaker Change: Hope as well. So, I will say, first on Q2. Yes, there is a tariff impact. Obviously, the way you have to account for anticipated full-year tariff impact would include capitalizing the cost that you anticipate for the full year. The tariff impact would include capitalizing the cost that you anticipate for the full year.
Speaker Change: as incurred. So there's a portion of that. Terrific impact is in Q2.
Speaker Change: You know, there's probably a little bit of conservatism there in terms of the sales figure. You saw the volume drop on our bridge.
Speaker Change: Important quarter for retail, it's important quarter for wholesale.
Speaker Change: and if there's still uncertainty in the tariff environment in the macros...
Speaker Change: I think you can see that come through in the second quarter, but also it could be a little bit of a delay.
Speaker Change: The other thing, you know, FX is kind of a good guy for us in the quarter, and there's probably some mix in there as well with a little bit more sales to PNA, so a lot of back and forth between what you kind of what we saw him if you wanted and what we did to explain in Q2.
Speaker Change: The last thing I'd mention, and you can correct me if I left anything out, for inventory we do still plan on an inventory reduction through the year.
Speaker Change: and should there be value reductions needed in the back half because of sales pressure we will and have shown the ability to and should we put the brakes on inventory coming in.
Speaker Change: Yeah, I would just bet that James that there might be, I think there might be an implication in there that we had some sales pull ahead into.
Speaker Change: Q1, which has been the case in some other industry, like Altumotu, for example, but we really didn't. We had negligible sales pull ahead into Q1 and really we did embed quite a bit of the revenue.
Speaker Change: Uncertainty in that bridge into Q2 just because of the extremely dynamic environment which we think
is driving more hesitancy and uncertainty at the moment, versus...
Speaker Change: Well, we'll hopefully be a bit more of a certain environment in the back half of the year. So, you know, there's plenty of opportunity for us to do better in that second quarter if things stabilize. Bye.
Speaker Change: I guess ultimately my question, if you don't mind just sort of following up and maybe just doing my question a little bit better as I think about the second half you've got earnings up year over year obviously a big tailwind is that you were
Speaker Change: Reducing inventory in the back half of last year, so that was a big negative a year ago.
This year you're going to have a significant tariff exposure.
Speaker Change: Are we, as we work through our models, is the assumption that the good guy is bigger than the bad guy, as some people work through all of that math, particularly given an uncertain consumer environment.
Speaker Change: Yeah, James, that's a good point, and yeah, that's a good point. I think you're really talking about pipeline inventories, a little bit more than our inventory, in which case, yeah.
Speaker Change: Remember the week, you know, Mercury took their production down the second half dramatically.
Speaker Change: You know, more than 50% even in Fondelac and our high horse power and both did something similar so we've done a really nice job of lowering production and lowering the pike lines [inaudible]
Speaker Change: in advance of what we anticipated was going to be a strong 2025 and actually was actually a good start to the year. I think even on balance the good outweighs the bad as we look to the second half even in an even an entire impact environment.
Speaker Change: Yeah, I think the only one of the main components of that is we were operating in a very inefficient way in the back half of last year.
Speaker Change: Up production lines were not optimized. We had too many people because we're all, we're kind of always kind of trailing, trying to get people.
Speaker Change: Optimized for production rates. Mercury, as Ryan said, was running since the every other week.
Speaker Change: So we should be operating much more efficiently in this environment to the back half of the year. And that will come through on the absorption line two James. That's a big, you know, the year over year production swings. Look much more favorable in the back half even even in tariff impacting environment.
Got it. Thanks Dave, thanks Ryan.
Speaker Change: Our next questions from the line of Craig Kennison with Baird, please receive us your questions.
Craig Kenneson: Okay, good morning. Thanks for taking my question. The press release mentions plans to streamline entry-level both and wondering if you could shed more light on those plans and maybe even comments on which categories or brands might be impacted.
Speaker Change: Yeah, thank you, Craig very much. We already are essentially in process at a kind of model by model level. Obviously, as we showed in the slide deck.
Speaker Change: The entry level really is the most impact, at least in our portfolio, but the moment which tends to correlate to the more economically sensitive.
Speaker Change: You know, if we were anticipating a year of increasing volumes in that segment, then we could maybe tolerate those lower gross margins for a while, but given the current environment, it seems appropriate to...
Speaker Change: that we continue to offer in that category. I would say broadly, probably fiberglass value is weaker than aluminum value at the moment.
Speaker Change: Every model that you continue really carries the cost of...
Speaker Change: Not just the immediate cost of lower gross margin, if you like, but also the requirement for a future investment to develop new models or enhance models or model year changes.
Speaker Change: and as we think about where we prioritize our investment, we clearly would like to prioritize it in the areas with the highest margins for us and the biggest growth opportunities. So we'll be working on that. We're certainly studying additional ways to...
Speaker Change: to make sure that we optimize manufacturing in that area. One of the things I would just point out though is um...
Speaker Change: Although the margins on those products are relatively small for the boat group, of course there are margins that flow through to Mercury and NaviCo Group, all those boats carry Mercury engines so we have to think holistically as we're doing this to make sure we don't. [inaudible]
Speaker Change: You know, we don't compromise, for example, as we take those actions. But you should expect to see more detail on those as we go through the year and firm up the direction. [inaudible]
Speaker Change: Should we think of those as more tactical decisions to reduce the number of models you have within a brand or are you making more strategic decisions with respect to some of your brands or some of the bulk categories themselves?
Speaker Change: Yeah, I wouldn't say that we're making any strategic decisions at a brand level, but I would say that we're studying options that would have long term cost benefits to us, not just short term tactical opportunities.
Bridge, thank you.
Thanks, Craig.
Speaker Change: The next questions are from the line of Megan Clap with Morgan Stanley . Let's just use your questions.
Megan Clapp: Hi, good morning. Thanks so much. I wanted to ask, I think Ryan, you talked a lot about impacts that could impact the guide that are included in your analysis today. One of which was
Megan Clapp: The disruption of capital markets. I wanted to ask, you know, premiums held up very nicely.
Megan Clapp: over the last couple of years, and I think you said was flat in one queue, but anything you're seeing or hearing from dealers kind of month to date in April as it relates to discernible impacts from that consumer in particular, just as we've seen more stock market volatility.
Speaker Change: Yeah, maybe I'll start and Ryan can follow up and I think, um...
Speaker Change: I would say our premium brand seems to be in a pretty decent spot overall, I would say that there's been
Speaker Change: If you look, you know, it's always difficult to segment now, Bruns, exactly, because even now, premium brands have small models for, you know, um,
Speaker Change: Boston Oiler has a 16-foot super-sport. So I think what we're seeing at the moment is it tends to be.
Speaker Change: Smaller product, like less than 100,000 that we might see a bit of weakness in. And then I think some of the very large product categories that we don't really participate in.
Speaker Change: So fundamentally, I think our brands are in pretty good shape, but certainly the stock market is going to have a fairly...
Speaker Change: So yeah, I think we're in a good position relative to others in the marketplace with our products.
Speaker Change: But yeah, there certainly could be some short-term hesitancy. I would say that both buyers, particularly in that premium segment, are not just holding up well now, they've held up well for a number of years in the face of quite a few headwinds.
Speaker Change: So, they're a very resilient consumer, they tend to be very...
Speaker Change: Engaged in the on-water lifestyle so we continue to expect them to be pretty resilient even in the face of the current uncertainty but you know everybody's impacted right. You know what I'm saying?
Speaker Change: and if maybe you translate that into wholesale, this is where the very lean pipelines, especially at Whaler.
C-Rates of the Premium Lone Products
Speaker Change: really helps us, you know, our Q2 wholesale for those products and there's already kind of in the books if you would.
So, you'll be-
Ryan Foulkes, Ryan Gwillim
Yeah, I would maybe another...
Speaker Change: component here is, you know, you're right that the capital market [inaudible]
Speaker Change: So Marla is certainly a headwind. I would say a bit of a tailwind for our brands particularly the premium brands and core brands, but really all of them is that they're produced domestically and most of them carry mercury engines that are produced domestically.
So, versus some of the imported brands, we are not.
Speaker Change: We're in a beneficial tariff environment at a boat level.
Speaker Change: Anyway, so I think as dealers look at where to place their bats in terms of wholesale orders, we're probably in a preferred position at the moment which to some extent mitigates some of the other
Speaker Change: By Segment, that is where the bulk of the at least bottom line cut is coming from, which presumably, I think that's because you're
Speaker Change: and importing components from China, but correct me if I'm wrong. But how do you think about, again, I think, Ryan, another factor you mentioned was...
Speaker Change: The potential for, I think, what would be a tail end, given some competitors are…
Speaker Change: from importing the full engine from other countries. So, I guess, how do you kind of think about that potential tailwind today? Is that anything you're seeing or hearing yet from OEMs, and when could that potentially play out?
Megan Clapp: Yeah, thanks Megan, and you're correct on the first piece, you know Mercury is the recipient if you went on a majority of our
David Foulkes: The tariff impact on their sales into China, which are actually not immaterial given the day they sell engines in parts into China at 125% retaliatory, those are going to be very challenged
David Foulkes: Many of us use similar Chinese supply chains I have for a number of years. Some of our competitors take those same components, go to their facilities in Japan,
David Foulkes: We take the same components, sell what's sent them to the United States [inaudible]
David Foulkes: I use all of the United States labor and up in Fondelac, make those products here in the United States, but we pay tariffs on the importation of those exact same components. [inaudible]
David Foulkes: and so yeah, there's certainly a benefit there if the non-US engine manufacturers continue
David Foulkes: Steady until they see where it's ultimately going to land, but that is one where I think that would be a pretty nice advantage for Mercury moving forward.
Okay, great. Super helpful. Thank you.
Speaker Change: The next question is from the line of Yen Tzu with BNP Paraba. Please receive your questions.
Speaker Change: Hi guys, thanks for the question. You mentioned the mitigants. Can you maybe give a little bit more color on what the mitigation actions would be in terms of mitigants against tariffs? Is it pricing? Is it moving sourcing? And how confident are you to realize the mitigants? Thanks.
Speaker Change: Yeah, thank you for the question. Yeah, it's the things that you just
Mentioned, certainly.
Speaker Change: Well, maybe we'll start with pricing. We have some ability to take price, but we have to be very careful about how we do it. For example, we are not intending for mercury to take and big pricing this year despite the tariff impact. It's just not an environment where we can...
Speaker Change: Introduce additional pricing and not effect volume or market share and other things but we can do it selectively on some.
Speaker Change: on some product lines, and certainly, internationally, we have a little bit more freedom, too.
to do that. We certainly are continuing to migrate our...
Speaker Change: Supply Base, either to other, or to lower tariff international locations or to ensure it.
Speaker Change: We've been doing that for a long time, and we have plans to reduce our China-sourced components very substantially, and that is well in flight.
Speaker Change: Just making sure that we can do it with quality. It can't happen instantaneously. We need to make sure that we...
Speaker Change: We do it well, but those actions are very important to us. The other thing to be honest is just how you classify components. [inaudible]
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: The HTS, the Tom and I's Tarris schedule components, the HTS codes have incurred differential Tarris and Song instances.
Speaker Change: For example, making sure that our products that we manufacture are components that we manufacture in Mexico and Canada are appropriately classified for USMCA, so there's quite a lot of work in making sure that we are properly classified all our components to minimize the...
Speaker Change: Tariff Exposure. I would say all of this really was and has been in flight for a long time.
Speaker Change: This is not stuff that we suddenly had to action or at least most of it is stuff that we didn't have to suddenly action.
Speaker Change: Recently, our exposure to China back in 2017 was much larger, and we could easily see our exposure to China reducing by, you know, 50% by the end of this year. So we have a lot of a lot of actions like that in flight.
Speaker Change: That's super helpful. And then maybe just on inventory at Pipeline, I think you mentioned you're hoping to reduce that over the course of the year. So you maybe give us a sense of where you hope to end in terms of weeks on hand.
for Pipeline.
Speaker Change: Yeah, I mean weeks on hand obviously is a function of
Speaker Change: What you had just been retail being. Maybe in terms of units, I think we still think we'll take.
For full year, we'll take another 1000 units out globally.
Speaker Change: which will get you down another week or two.
Speaker Change: in the US, probably something similar, maybe a little less, maybe 500 units or so, and that would land you really in the mid-30s, kind of comfortably where we've been historically, and that's with a...
kind of assuming a TTM that's still negative.
Speaker Change: So smart there. And then maybe in Conzeon, I know we don't talk about it as much, but even on the engine side, it's very likely that we'll take
Speaker Change: Significant engines out of the pipeline for the full year, which will, if you look at kind of a three or four year curve, kind of put us back to where we started almost coming out of the GFC with pipelines really about as lean as they've been.
Speaker Change: Certainly since we started all the efforts on 150 horsepower and above and taking all the market shares. So again, setting ourselves up for some nice wholesale benefits as we think the market eventually picks back up.
Great, thanks. Good luck.
Speaker Change: Our next questions are from the line of Scott Stember with WathMKM. Let's receive your questions.
Good morning and thanks for taking my questions.
Scott, good morning.
Speaker Change: Can we talk about voting participation? It looks like at least through the quarter, through you, or...
Speaker Change: Engine P&A sales that it held up pretty good, but have you heard anything or from Freedom Bow Club or just through any other Marina data for whatever reason since April 2nd that we've seen that slow down, I don't know.
Speaker Change: Oh, hey, Scott. No, it's the answer. I think, you know, the exact phasing of B&A sales, like, you know, I hate to bring this up, but weather is important. So this year, the Northern Lake kind of ice-up is about three weeks behind. [inaudible]
Speaker Change: So we should see actually some, I think, check up in P&A sales as we get into April and May that might have been delayed from earlier parts of the year.
Speaker Change: And we are not seeing any material change in overall voting participation in the presentation.
and Freedom Trips are actually very steady.
Speaker Change: You're over here, they're essentially flat, and that's with relatively poor weather, respectfully and respectfully in Florida, which is the busiest traffic state of freedom, certainly this time of year.
Speaker Change: And then just last question, also in April , any signs of any tightening of lending from lenders or credit deterioration on the behalf of the consumer.
Speaker Change: No, actually both retail financing rates have been holding very steady around eight percentish, maybe a little bit less than that for larger loans. If you have decent credit so the spread to the mortgage rate is actually narrowed.
Speaker Change: and interestingly, it's been 8% for several months now, we have not seen any change in that. There's also, you know,
Speaker Change: and other opportunities for getting discounted financing rates. I don't think that's, yeah, I don't haven't seen any deterioration in that, nor in credit quality.
Speaker Change: and maybe on the wholesale side, I'd say the same thing. Dealers came out of their procurement holiday in late winter, early spring, and dealer health continues to be very strong, so we're not seeing any degradation on dealer finance side as well.
Got it. That's all I have. Thank you.
Thank you.
Speaker Change: Our next questions come from the line of Joe Altobello with Raymond James. Please receive your questions.
Speaker Change: Thanks, hey guys, good morning. First question, I wanted to go back to the 75% reduction to EPF guys, it's only the softer volumes, and I apologize if I missed this, but does that assume the man trends here in April and the constant? Does this assume it gets better or worse in the second half?
Speaker Change: 5 plus billion 75 cents with our variable margin looks like 250 million of sales. As we said earlier, I think we in our minds think that that could be a little heavier in the second quarter as we know we're dealing with tariff environment today. It could get better in the second half.
Speaker Change: But you know, it would probably be an impact that would be felt throughout the year should the current macros continue. Yeah, I would also say.
Speaker Change: Joe, that 5% is really a revenue, that shouldn't be conflated with a boat unit sales.
Speaker Change: Number, we could tolerate boat unit sales in the entry-level brands deteriorating much more significantly than 5%.
Speaker Change: Given the fact that 60% of our earnings is coming from recurring revenue sources and we expect P&A to hold up a lot better, so I would say that 5% is pretty aggressive in terms of an assumption.
Speaker Change: It could be unit sales down more than that. Right, and that's a good point and worth reiterating that, that chart anticipates or presupposes. [inaudible]
Speaker Change: that the tariff environment lasts the whole year. So the volume is a direct result, the volume reductions, the direct result of the tariff environment, you know, pain that is on our end use customer. If that abates in any way, then, you know, those things are very much interrelated.
Speaker Change: Okay, perfect. I managed to follow up the outlook for share of purchases. I think it's still 80 million. You've talked about that being the floor. Potentially given more of the stock is today. Any thoughts to open that at some point? No. No. No. No. No.
Speaker Change: Yeah, we'll see, Joe. Obviously, we're balancing a lot of things here with our capital strategy. Obviously, debt and dividends, which are pretty good shape.
Speaker Change: and then Sherry Purchase. We obviously would like to be aggressive given where our stock price is.
Speaker Change: Cash is in the best way as possible. And again, maybe just to reiterate, we had our second best cash quarter.
and really such the GFC.
Speaker Change: Whether it's on record or in the deck, our records go back a long way, but our company is very different as far You know once you go too far back, but we are in a situation where our cash position today, as we're on this call, we are now free cash flow positive for the year.
Speaker Change: The first time I certainly, I've been able to see that.
Speaker Change: as CFO , and certainly it's something we've been working hard on. So this is about as early of past generations as we've done. So should that continue, that'll give us a good chance to be aggressive on shares and maybe even take another swing at some of the debt reduction work that we started last year.
God, thank you.
Jamie Katz: The next questions from the line of Jaime Katz with Morningstar, please receive your questions.
Jamie Katz: Okay, good morning. I just have one quick one. It was mentioned.
Jamie Katz: and the program marks that retail traffic was steady and that when the right incentives were working, you know, there was there was some conversion on units. So is there any insight that you guys have into what is working best for consumers right now? Is it rate-by-downs or pricing promos or is there something else that might be noteworthy? Thanks.
Jamie Katz: Yeah, thank you. I think to be honest, the cashback is the thing that has the most consistent, consistent appeal. I think, no, there are opportunities for consumers to get, you know, kind of portfolio benefits from cash off.
Plus, in some cases, discounted.
Jamie Katz: of financing rates, but I would say that the basics continue to probably work the best. I would say, though, your question raises something, and that is that we are being more targeted right now with our motions and discounts.
Jamie Katz: So we are operating, particularly in the entry level and it might be costing us a bit of volume there, we're operating with about the point lower of kind of aggregate promotions and discounts and we did last year.
Jamie Katz: So, you know, we do have an opportunity to dial it up a bit more if we really need to, but at the moment, we're really trying to balance kind of volume and profitability. This is still a, you know, promotional environment, but and the basics still work the best I think.
Thanks.
Dave Foulkes: Thank you. At this time we would like to turn the call back today for some concluding remarks.
Dave Foulkes: Well, thanks everyone for your questions and much appreciated. I think as we noted the resilient composition of our portfolio
Dave Foulkes: drives very strong earnings and cashflow generation for us which is extremely welcome and certainly differentiates our business.
Dave Foulkes: Our exceptional team also continues to execute extremely well and we are focusing on all the
Dave Foulkes: Beyond that, we continue to pursue the initiatives that will yield growth and margin expansion and balance sheet strength in the future.
Dave Foulkes: Despite the unique challenges at the moment, we elected to provide refreshed guidance in a form that we hope will be useful to our investors as they assess and react to the current environment and model of future changes.
Speaker Change: So we're a transparent company and we wanted to share the best of what we know at the moment.
Thank you very much.
Speaker Change: This will conclude today's conference. Let me disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
Speaker Change: David Foulkes, David Foulkes, David Foulkes, David Foulkes David Foulkes, David Foulkes,