Brunswick Corporation Stock

Good morning, and welcome to Brunswick Corporation's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] 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; Ryan Gwillim, Brunswick's CFO and Chief Strategy Officer; and Aine Denari, President of Navico Group and Brunswick's Chief Technology Officer. 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 another strong quarter, characterized by solid execution across the enterprise with financial performance ahead of expectations and year-over-year sales growth across all reporting segments for the fifth consecutive quarter. Headwinds from geopolitical uncertainty, inflation and higher borrowing costs are weighing on consumer confidence and discretionary spending, particularly for the value consumer. Our premium and core focus portfolio continues to be resilient and perform ahead of overall year-to-date SSI data. .

When adjusted for the impact of discontinued value models, our overall year-to-date U.S. retail is in line with the market. Boating participation remains healthy, supporting demand for parts aftermarket products and subscription boating, which together with distribution market share gains helped drive our strongest third quarter engine P&A sales since 2020. Marine OEM orders remain balanced, but with lean pipelines drove solid gains for Mercury Marine and Navico Group.

Bulten engine pipelines remained low and healthy with global boat pipelines down approximately 900 units versus the third quarter of last year, including a reduction of approximately 700 units in the U.S. Overall net sales of $1.5 billion increased 7% versus prior year, and adjusted operating earnings per share of $1.58 increased 63%, benefiting from business outperformance and a favorable adjusted effective tax rate and come in significantly ahead of expectations. Adjusted operating margin increased 230 basis points and expanded by 140 basis points or more across all segments, driven by leverage on higher sales and the lapping of last year's cap impacts offset by cost inflation and planned incremental product development spending. We generated $140 million of free cash flow in the quarter, up $29 million from prior year. with strong earnings helping overcome the increased product investment and reduce working capital benefit due to higher volumes.

Lastly, we've repurchased $75 million of shares year-to-date taking advantage of our strong cash flow and favorable market conditions and retired $100 million of debt, leaving us on track to meet or exceed our $160 million debt reduction target for the year. These actions demonstrate continued execution of our disciplined capital allocation strategy and our commitment to returning capital to shareholders while maintaining a strong balance sheet and our investment-grade credit rating.

Turning now to external conditions. As mentioned, geopolitical uncertainty, inflation and high interest rates continue to pressure discretionary spending and consumer confidence, especially for value consumers. However, strong capital markets and spending momentum amongst wealthier consumers continues to support the resilient performance of our premium and core brands and product lines. And while fuel prices are elevated, they do not appear to be abating enthusiasm for boating with solid boating participation driving our strong performance and increased Freedom boat club memberships.

The tariff environment continues to evolve, but we continue to be agile in driving mitigation. We are maintaining a net incremental tariff estimate at approximately $40 million for 2026. We recognized around $3 million of gross EPA refunds in the quarter and approximately $33 million year-to-date with approximately an additional $10 million reflected in full year guidance. Overall, we expect to recognize $60 million to $70 million in gross IEFA refunds with the majority of the balance expected in 2027.

Dealer and OEM sentiment remains stable but cautious. However, dealer finances are healthy and benefiting from low pipeline inventories. The majority of our dealer partners have more than 50% of their credit capacity available, leaving them well positioned for retail acceleration. The expected balanced pipeline dynamic we discussed at the beginning of the year is playing out with Brunswick and our OEM customers and partners closely aligning wholesale with retail. All segments delivered sales growth over the prior year period for the fifth consecutive quarter, and all segments expanded adjusted operating margin in the quarter on higher sales with the Propulsion segment lapping its first half incremental tariff burden and delivering 350 basis points of increase, fueled by higher volumes and strong high horsepower outboard sales, which attract higher margins.

We maintained our market-leading U.S. outboard retail share of 46%, with strong wholesale share gains year-to-date. and also saw gains in repower as we execute the repower expansion plan shared at our Investor Day. Internationally, Mercury continues to gain share through dealer, OEM and retail partnerships. Mercury share of boat shows remained strong, as highlighted by our recent performance at the CAN show where Mercury achieved 67% overall outward share and 82% share at the Viewport location. That features larger, more premium boats. Our 5 new outboard programs remain on track with 3 launching next year, and we anticipate these programs will continue to fuel global market share gains. and further accelerate financial performance.

Engine pipelines remain lean with U.S. outboard pipelines down 3% in the quarter versus prior year. Our Engine Parts and Accessories segment delivered its highest third quarter sales since 2020 as a result of robust boating participation and continued distribution share gains. A richer mix of higher-margin products, along with the impact of prior pricing actions drove operating margin expansion of 190 basis points to an outstanding 24.6%, one of the highest operating margins on record.

The team worked effectively to mitigate higher input costs with multiple operational efficiency actions. Just 1 example of Brunswick's ongoing enterprise-wide continuous improvement programs. Lance's rolling 12-month distribution share increased 120 basis points. and the business outperformed available industry benchmarks on profitability, workforce productivity and cash conversion. Navico Group delivered another quarter of continued performance improvement reflecting the team's focused execution and the leadership of its current President and incoming Brunswick CEO on Itinere.

Sales rose 6% in the quarter, with growth in all business lines fueled by OEM wins and well-received new product launches. Structural operating cost reductions also assisted in expanding operating margin by 140 basis points. despite significant input cost pressures, including from higher memory and commodity costs. During the quarter, we were excited to partner with Saks store on the debut of Simrad auto captain in its product line. Saks Store is the first independent and international OEM to integrate the system, but others are following quickly.

Our Boat segment grew both sales and operating margins with solid contributions from both Boat Group and Business Acceleration. Oak Group benefited from the resilience of its premium and core brands. pricing and mix, continued cost reduction actions and rationalization of the value product portfolio. Combined, these actions contributed to operating margin expansion of 160 basis points. despite the headwinds of inefficiencies associated with the closing of 2 production facilities, which will become a significant structural operating cost tailwind beginning in 2027.

Our third quarter and year-to-date global premium fiberglass and core best brand retail sales were flat to prior year, with weaker performance in value product lines. The latest SSI data for September year-to-date shows U.S. boat industry retail down approximately 4%, with Brunswick U.S. internal retail in line with the industry when adjusted for the rationalized value models, We continue to launch new boat models across our brands and our fast-growing Novan brand launched its latest model with C38 in the expanding global adventure category at the CAN show taking multiple orders at the event.

Lastly, the business acceleration portfolio continues to deliver growth and expanding margins led by Freedom Boat Club. Freedom captured an estimated 69% of the North American boat club market, up 4 percentage points as a number of its competitors faltered. Freedom's increasing global scale and analytics are also enabling significant structural efficiencies to be realized in its operations. Member trips were up 3% year-to-date, again highlighting the continued strong boating participation trends.

Moving now to our guidance. We thought it would be helpful to put our full year adjusted EPS guidance in perspective by reviewing how our outlook has progressed through the year. We started in January with full year EPS guidance midpoint of $4.10 compared with full year adjusted EPS of $3.27 in 2025. We raised the midpoint to $4.25 in April and again to $4.55 in July despite the tough economic and market conditions, and we're raising it again today to $4.65. That's approximately 13% above our initial outlook and an increase of more than 42% versus 2025.

Our Q3 overperformance was led by stronger gross margins which were driven by a larger mix towards premium products and higher-margin engine P&A products, together with improved operating efficiency and productivity as well as a slightly better effective tax rate. There was no material IEPA benefits in the quarter. The latest Tencent increase in our full year reflects our Q3 overperformance partially offset by anticipated headwinds and uncertainty in the fourth quarter.

Amongst the Q4 factors partially offsetting the Q3 overperformance, our additional material inflation versus our July expectations continued channel stocking caution as we enter the off season, some remaining uncertainty on IEPA refunds as well as continued high levels of economic trade and political uncertainty. We remain extremely excited about and committed to finishing the year strong, while maintaining the disciplined approach to guidance we've taken throughout the year. I'll now hand the call over to Ryan for additional detail on our financial performance.

Thank you, Dave, and good morning, everyone. Brunswick's third quarter performance came in ahead of expectations. with sales and earnings growth in each of our segments versus the third quarter of 2025. On a consolidated basis, sales were up 7%, reflecting steady OEM demand across the portfolio, pricing actions taken in previous periods, continued share gains and solid boating participation supporting our P&A and aftermarket businesses. Adjusted operating earnings were up 38% with adjusted operating margins of 10.1% expanding 230 basis points as the stronger sales, operational strength and efficiency across the enterprise; improved absorption on higher production, favorable mix and disciplined cost management, together with the lapping of last year's tariff impacts more than offset material and labor inflation and planned spending on product and technology initiatives. .

This resulted in adjusted EPS of $1.58, up 63% over last year, another outstanding result. Lastly, we generated $140 million of free cash flow in the quarter up 26% versus the third quarter of 2025, driven by the higher sales and prudent working capital management across the enterprise. On a year-to-date basis, sales were up 9%, driven by the same factors supporting the third quarter, while year-to-date adjusted operating earnings are up 25%. Adjusted operating margins expanded 100 basis points to 8.6%, and adjusted EPS was up 42% versus the first 9 months of 2025.

Free cash flow of $301 million is down versus prior year, due solely to the roughly $100 million year-over-year impact of the restatement of variable compensation. Absent that item, year-to-date free cash flow is well ahead of 2025, consistent with the sales growth we previously discussed. Moving to our segments. Propulsion delivered another strong quarter with sales up 7% versus the prior year on steady OEM demand in a low pipeline environment. Outboard engine sales were up 7%. And controls, rigging and propellers grew 9%.

Adjusted operating earnings were up 51% and margins expanded 350 basis points to 12%, showing the expected margin inflection we've been anticipating. This improvement resulted from the leverage on higher sales, favorable mix, improved absorption and reduced year-over-year tariff pressure offsetting continued planned product development investment and ongoing material frank and labor inflation.

We remain on track for full year propulsion margin expansion of more than 100 basis points. Turning to engine parts and accessories. Our aftermarket high-margin recurring revenue business delivered another quarter of growth with sales up 5% versus the prior year behind solid contributions from both products and distribution. Sustained for participation through the back half of the season, continued share gains in our global distribution business and disciplined commercial execution, drove broad-based growth across essentially all of our global retails.

Adjusted operating earnings were up 14% with adjusted operating margin of 24.6%, up 190 basis points versus prior year. That improvement reflects margin expansion from the leverage on higher sales and cost discipline, partially offset by higher commodity and other material input costs. Over to Navico Group, which delivered yet another quarter of sales growth and margin expansion. Sales were up 6%, with all 3 business lines contributing. OEM demand was the key driver as new product wins supported double-digit marine OEM growth, while retail and aftermarket channels remain steady.

Adjusted operating earnings rose 36% with adjusted operating margin expanding 140 basis points to 6.1%, resulting from the higher sales plus the cost actions we have been executing all year. Footprint consolidation and SKU rationalization continue to drive gross margin improvement with the resulting benefits more than offsetting memory and other material cost inflation. We continue to see encouraging traction from recent product launches and our second phase of enzymatic capacity came online in early October to support that demand.

With a strengthening OEM pipeline heading into model year '27, Navico Group remains on track to deliver full year adjusted operating margin expansion in excess of 200 basis points. Finally, our Boat segment delivered a 9% sales increase over the prior year, with growth in both boat sales and the business acceleration portfolio. Saltwater fishing led the went up 30%, with aluminum freshwater up 13% and business acceleration up 14%, more than offsetting a planned reduction in value offerings as part of our model rationalization plan.

Freedom Boat Club continued its growth journey contributing roughly 13% of segment sales. Segment adjusted operating earnings doubled with adjusted operating margin expanding 160 basis points to 3.6%. This improvement reflects the higher sales and favorable mix, together with ongoing manufacturing and sourcing cost savings programs, which continue to pay ahead of plan and are flowing through into better gross margins across the portfolio. As Dave said earlier, the even quarter, and we responded with targeted retail programs and additional cost discipline on head count -- and discretionary spending. Importantly, we maintained wholesale discipline. The dealer pipelines ended the quarter healthy and lean with mostly current model your product. which well positions the segment as we move into the fourth quarter and next year's currently sailing season.

My last slide shows our full year guidance. We are maintaining revenue guidance of $5.7 billion to $5.8 billion and adjusted operating margin guidance of approximately 8%, As Dave discussed earlier, we are raising adjusted EPS to approximately $4.65 as despite the dynamic operating environment -- we remain confident in our ability to drive sales and earnings growth to close out the year.

Our continued strong cash flow performance will enable us to meet our debt retirement target and progress our goal of lowering our net debt leverage to under 2x during the next year. Following recent Brunswick share price dislocation, we are increasing our repurchase target to exceed $80 million of repurchases for the full year with $75 million of those repurchases already complete. I will now pass the call back to Dave for concluding remarks.

Thanks, Ryan. During the Q2 earnings call, we highlighted the record 15 boating industry top product awards we had recently received. But next never rest, and as we wrap up, I want to highlight some of our product launches, events and technology introductions from the third quarter. We had a strong presence at all the major European boat shows, including CAN, inTobo and Genoa, all of which serve to highlight the continued strength of our brands.

In addition to the introduction of the all-new Devan C38, we continue to build out our premium aluminum boat portfolio in the quarter. With the new lung tie, Harris Summit twin engine models and Princecraft Platinum 220. As always, these new models are powered by Mercury engines and equipped with Navico Group technology, another demonstration of the power of our enterprise synergies. Mercury also continued its rapid pace of innovation, adding the Dock feature to its joystick system, which makes holding position against the dock simpler and more intuitive and the new Revvick 16-inch right in Propeller model that extends our propeller offering for high horsepower applications.

And finally, Navico Group introduced the ECS 900, a light commercial and professional vessel applications and the new AI intelligent boating assistant highlighted at our recent investor and media events. We've now surpassed 100 enterprise awards for the fifth consecutive year, and we got there faster than ever before. which speaks to our momentum and the exceptional nature of our people, products and innovation.

A few highlights include Newsweek again naming Brunswick, 1 of America's most trustworthy companies. Having 7 of our female leaders received women making waves awards, which recognize women shaping the future of the marine industry and being recognized in the Ibex Innovation Awards new EPIC award category. Thank you again to all our talented Brunswick employees whose dedication makes this recognition possible. Before we turn to questions, I'd like to say a few words on the leadership transition we announced last month.

Leading Brunswick has been the greatest privilege of my professional life. I'm grateful to our employees, leadership team, Board and shareholders for your support and very proud of the marine powerhouse we built together. Preparing a successor is a central responsibility of the Brunswick Board and myself as Chairman and CEO, and we're extremely confident that Aine is the right leader for Brunswick's next chapter.

Aine brings 30 years of operating experience across marine, automotive and industrial businesses, with technical, financial, commercial depth game to Brunswick, ZF, TRW, Ingersoll Rand and Ford. Her McKenzie and Bain strategy experience or service of Mason wheels, Kellogg MVA and engineering degrees complements a record of delivering results and leading teams in multiple complex environments. Since joining Brunswick in 2020, Aine has turned strategy and technology into financial results. She led Boat Group through changing market conditions, launching new models and delivering strong performance.

As Navico Group President and Chief Technology Officer, She's broadened her enterprise perspective while driving market share gains, product innovation and operating improvements, leading to revenue growth and margin expansion. Our strategy, capital allocation priorities on long-term Investor Day targets remain unchanged. Aine and the team will continue to execute that strategy with a continued focus on driving shareholder returns. I'll work closely with Aine through year-end, ahead of a January effective data CEO, and we'll be on the road together in fourth quarter, meeting many of our shareholders.

As you will have seen, we've also already announced the appointment of talented experiences for the open roles on the leadership team created by One's appointment. I'm very excited about what Aine and the Brunswick can achieve in the future. That's the end of our prepared remarks. Note that Aine is present today in her current role as Navico Group President, to answer any of your questions on Navico Group but she will not take questions on other topics today. We'll now turn it back over to the operator to open the line for questions.

[Operator Instructions] Our first question comes from Anna Glaessgen at B. Riley Securities. And you may now your line and ask your question.

First, I'd like to ask for a little bit more perspective on the material inflation we've seen over the past few months. Any perspective you can share on the movement to 4Q earnings in light of that versus internal expectations and perspective into 2027?

Thank you for the question. Yes, we called out commodity inflation and kind of aluminum and copper, as you might expect, and also memory inflation. And obviously, we have a different effect in the P&L depending on when it rolls off the balance sheet versus what the exact spot price is. So we saw some significant increases through the year, and that will still roll off the balance sheet in Q4, but we are seeing stabilization now.

So we do anticipate a more stable environment as we can roll into 2027, which I think will be helpful for the first quarter of the year and hopefully, the full year. We've taken a lot of mitigation actions. Our scale really helps with that, hedging programs, we have a bigger buy on some of those areas that can help with getting good pricing. I think memory was called out by some other companies, but the reality for us is it only represents something like 2% of our COGS. So it's a pretty small portion of our COGS, but nevertheless, we have seen inflation. Aine, you might want to comment a bit more on that.

Yes. No, that's right. It is about 2% of COGS for Navico. And we should also mention that, that is an inflationary fracture that we have had throughout the year this year. So it does not represent a headwind for us as we move into next year. And we, of course, are taking all the mitigation actions that Dave mentioned that includes value engineering, looking for alternate supply sources as well as taking other actions. So we're feeling pretty good about the vision we're in as we round out this year and move into next year.

Great. And I guess, one, while we have you here with Bob some more perspective on Navico transformation over the past few years and where it stands today. particularly, you mentioned on the call or it was mentioned that it benefited from some cost cutting this quarter. maybe share some perspective on the margin opportunity going ahead? Are there more cost cuts? Or is it mostly driven from gross margin expansion ahead.

Yes. No. And of course, you saw the strategic plan targets that we laid out in our Investor Day, and those certainly remain true. We certainly have a pretty good confidence in the about to continue to deliver those. I would say what's really driving things for Navico is a combination of the top line and bottom line. A lot of it really, honestly, is a top line and efficiency gains as we think about market share gains, new product launches, increasing content per vessel as we think about more complicated integrated systems that we are delivering.

We're also continue to conquest new OEMs, which is very helpful, both in the initial phase as well as then from an ongoing kind of stickiness phase and flow through to the aftermarket. So those are all things that are really driving the top line growth as well as the margin expansion. As you know, Navico Group, in particular, has some pretty strong leverage. On the efficiency side, we certainly have delivered a lot of operations efficiency gains. We have done several footprint consolidations over the last several years.

I think we're in a pretty good stable place there as it relates to our footprint. We have also done a lot of work on refining the org structure, refining the teams and we have been embedding AI and robotic process automation across the board to drive further efficiency. So that is how big drive the margin expansion, and we expect to see that to continue to drive the margin expansion as we move forward throughout the remaining stock on period.

Our next question comes from James Hardiman at Citi.

First, I wanted to say Dave congrats on retirement. Thanks for all the time and the engagement with the investment community over the years. It's been a blast. And Aine, congrats on the CEO appointment. I'm excited to work more with you. Absolutely. So let's talk 4Q a little bit. Obviously, sizable beaten through, a lot of that we're giving back in 4Q. We talked about how the retail environment softened a little bit over the course of the quarter, maybe bridge sort of where you were in terms of fourth quarter thinking and where you are today?

How much of the implied 4Q reflects dealer ordering assumptions? How much of that is sort of inflation specific to that quarter. And then I don't know if there's any sort of tariff timing that we need to be considering in the context of 4Q.

James, it's Ryan. I'll start with this 1 and then Dave can follow through. So if you think about Q3, $0.20, maybe a little bit more of a beat, we passed half of it through. I would say the other half really is the majority of that is just material inflation that arose in the quarter that we didn't anticipate when we gave July guidance. I think Dave talked about the puts and takes there a second ago, so I won't repeat them. I think the fourth quarter is a relatively small quarter. And so as we think about ordering patterns that this could be a little variability there.

But all in all, the real change, the only real change from a numbers perspective, it is this material inflation. Otherwise, I think the commercial side will come in as we anticipated, the ordering side will be fine. And we can continue to see very good steadiness from all of our aftermarket business. So P&A from Aine's aftermarket and retail businesses as well, continue to be nice and steady. So I think that gives us some support on the bottom end with just a little bit of inflation kind of coming at us. Otherwise, really nothing has changed from a fundamental operation performance perspective, and I think we're going to end the year strong.

Yes, I agree. And I wouldn't -- I don't think the softening of brand referred to is significantly going to be reflected in Q4. As softening continues to be in the value segment. 90% of our group profit is from our premium and core products, and they continue to hold up extremely well. And we're all -- a number of us adding to the Fort Lauderdale show right after this call. And just a heads up, Mercury share is up again and pretty significantly. So we're excited to be able to report that out a little bit later. .

So even in the fall shows, which obviously run through early Q4, we're seeing some nice early indicators. So I think we're seeing solid ordering from our OEM customers. This is the off-season, so it's more about stocking and certainly in the seasonal markets. But really, we're not seeing a lot of changes in wholesale ordering assets.

Got it. And then as I think about 2026 coming into the year, 1 of the biggest sort of cards that you had to play that you had in your back pocket was that you had under ship channel pretty meaningfully in 2025. And so when you lap that, that was going to create or unleash a good amount of sort of hidden earnings power. I don't know that the setup is quite as beneficial from that perspective in 2027. And so how should we think about the setup for next year? Any breadcrumbs that you could give us that would help us understand obviously, the market is going to do what the market's going to do. It's volatile, but sort of what types of earnings tailwinds do you think that you can sort of lever to offset declines in the industry if we see that or sort of enhance your earnings power in, let's say, a flat demand environment.

Yes, good question, James. I think 1 of the things we've continued to see on Exhibit really is a lot of discipline in pipelines. So we have, even through this year, continued to undership across pretty much every part of our business. Obviously, we noted that put pipelines are down, again, engine pipelines are down again and down pretty significantly over the past couple of years. So we still have some of the wholesale retail rebalancing. That will be a tailwind for us as we enter 2027. .

But we do have a lot of exciting other tailwinds. If you think on the product side, we have 3 new Mercury outboards launching, continue to gain repower share. We continued to gain share in wholesale distribution. Navico Group is launching some very exciting new products at the end of this year and into early next year. So on the product momentum side, we have a lot going for us and then on the cost side, we have some other tailwinds, for example, the headwind that our book groups saw this year from the footprint consolidation will reverse as we go into '27 and be a nice tailwind for us.

So I think we have a continued -- some continued benefit from the restocking cycle, a lot of product-related market share gain opportunities as well as some pretty significant and material and realizable cost efficiencies again going into the year. And it's been really nice to see that our premium and core brands are really holding up very well. Mercury's share is strong. I mentioned upflows. It was -- when you think about where we are in terms of market position, on work propulsion, on marine distribution, now we have Freedom Boat Club with a commanding share of the boat club market, 70% of the market. I mean I think the franchise is pretty good shape for 2027.

And just to clarify, you do or don't think that this inflation that we've seen in the last couple of months is going to be a meaningful headwind for 2027?

Well, of course, you never exactly now, but I would say that we think that we have taken a lot of the pain in the second half of 2026. And so as we look at on a kind of 2026 second half into 2027 first half, we think we've taken the bulk of the pain on that basis. .

Yes. And James, just to put it very finely. We don't see any reason sitting here today that '27 doesn't track the sales and operating leverage targets that we just laid out in the strategic plan. So sales growth in the 5% to 8%, operating leverage of 20% to 25%. We are very confident we can deliver that. And we also have benefits from the capital strategy work that we've done this year, both on continuing to buy our shares and being more aggressive on that in the third quarter and paying down debt. So more to come in January, but folks should not be surprised that '27 is going to continue the glide path of the strategic plan that we just laid out.

Our next question comes from Scott Stember at ROTH MKN.

Last quarter, you gave some data which suggested that the -- you're not seeing any meaningful impact from fuel costs going up, notably on the usage side. And obviously, we saw that in the strong results in Engine P&A. Did you see anything in the quarter as it accelerated that changed that narrative?

No, Scott, we don't. We continue to see -- obviously, we're entering a period where the seasonal markets are going to be shut down over the next couple of months. But in the nonseasonal markets, we don't really see any evidence of fuel prices affecting the kind of proxies that we have for boating participation things like Freedom, Boat club trips. I think the interesting thing I've said before but interesting -- if you could design and experiment to isolate the impact of fuel prices on boats, and it would be freedom boat club because other than the dining payment and monthly cues, it's basically the only variable and we don't see it affecting year-over-year trips..

In fact, year-over-year, trips are up. And certainly, as a proxy, our P&A performance, distribution and products continues to be extremely strong. Obviously, we had a really strong Q3 here. So the answer is no. We don't see any evidence of abatements or slowdown in participation.

Got it. And then my next question was on Freedom. Are you seeing any folks that have been members over the last few years that have decided to trade up and become official boat members buying a Brunswick boat? Or is right now really proving the worth of freedom where people just -- the ease and the lower cost really proves its worth.

Yes. I think generally, that is the case that I think Freedom attracts people coming into boating and people who would exit both ownership if they didn't have an alternative like Freedom available, I do think it's very interesting to see if you provide despite whatever trends you look at in new boat sales, if you provide people with a really compelling, convenient value proposition they will go through. And I think that is what Freedom is but operating something like Freedom is not just about providing a compelling proposition like that.

It's also being extremely operationally efficient. How do you think about customer lifetime value, how do you think about boat lifetime value and what you see with Freedom for us is not only a compelling consumer proposition, but also an extremely well-oiled machine behind it, that is expanding margins, not just domestically but globally. And what we're seeing is we're growing share because we provide the best experience. And the other smaller participants in the market who are generally not doing as well and some are honestly not doing well at all, don't have our scale, don't have our analytics, don't provide a consistent value proposition for the consumer.

So we're very excited about Freedom. We did actually put in place some programs that allow people to use a portion of the entrance speed to Freedom as a credit to enter boating. We have seen some uptake in that. So we are experimenting a bit with and a cross-sell, upsell between Freedom and our boat brands, but I would say predominantly people are pretty comfortable in Freedom.

Our next question comes from Tristan Thomas Martin at BMO Capital Markets.

Just a question a different way. How are you -- how does like-for-like pricing going to be on the boat side and also on the upward engine side next year?

I think our pricing on the boat side this year I would say we took moderate pricing. I don't know -- I think we were in the 3% to 4% typically across product line. One of the things that has really helped us, I think, is our ability to absorb commodity costs, some of our competitors, particularly on the aluminum side to larger pricing actions, which is certainly helpful for us. I don't know exactly, but based on the input costs, discussion that we recently had, I would expect similar levels of price increases next year.

On the outboard engine side, we just took a couple of points of pricing really, the competition is not taking a lot of pricing. either. So I think given our market position, and the benefits we have from premium pricing and increased absorption. I think we have some flexibility, but I would imagine modest pricing on the output side as well.

And maybe just 2 things. If you see ASPs growing, a big component of that is just the mix shift to premium and less sales of value products. So don't treat or think about that as pure price. The other thing to remind yourself of is we continue to support our dealer networks with discounting and our discounting at the retail level to ensure the pipeline remains lean and fresh. And so the price that is actually being paid by our consumer may be even less than that it increased just because we are opting them along the way. And that's something that we had anticipated discounting to be actually down this year.

But in actuality, it's flat, slightly up and a bit of that is related to the wholesale finance that we use and help our dealers with on the floor plan side, but a chunk of that is still retail support that we're getting our dealers.

Okay. And then just a quick follow-up. You mentioned mix. Is there a further value both rationalization next year?

I think there's some more to be done. and we continue to evaluate the portfolio in that regard. And I think kind of prudently reshape it towards the biggest value pools. It's not as simple as he's premium and he's value and trim value. There are some parts of the market that we're really going after like the expedition of venture category, which is more on the premium side. So you'll see of new products in that space. But yes, I would expect to see modest additional rationalization of the value part of the portfolio. really on the fiber side obviously.

Our next question comes from Craig Kennison at Baird.

Sorry about that. I'm Noel dog with the new trade here. Can you hear me? I just want to echo James' comments to you and also to you on now. It's going to be a pleasure to work with you as well. I guess I wanted to ask about Navico and to me, it feels like 1 of the biggest opportunities you have that's still within your control to expand margin and then drive better profitability. And I wonder if you just maybe size the top 2 or 3 drivers to the margin expansion that you see? And help us understand the cadence of that as well. .

Yes. So I think a good chunk of the margin expansion here is really around kind of the new product vitality. So as we launch new products, they typically are launching with higher margin profiles. And as you know, especially in the electronics space, the life cycle is quite short. And so the cadence of new product refreshes and new product launches is quite quick. And so that helps drive the margin expansion. Another key element would be this increasing content per vessel concept. So as we're launching more complicated integrated systems, that, by nature, drives up the -- our share of wallet on every boat that we sell.

And then I would probably also call out the increasing aftermarket component. The more we're penetrated on the OEM side, the more that flows through to increasing aftermarket sales and over the life of the vessel. And of course, people will upgrade their electronics and their paramount systems for many times over the life of a vessel hull and that helps drive up our margin profile as well. and of course, operational efficiency. And as I mentioned earlier, the role of artificial intelligence as we think about things like our supply chain and our customer service processes are also certainly enabling us to increase efficiency and drive down the cost structure growth, which helps improve the margin profile also.

And I think, Greg, Aine has done a fantastic job. I would -- we talked a bit earlier about the physical footprint consolidation, but that is a precursor to digital operations consolidation as well. So you'll see a big emphasis in that area that can yield efficiency and I know it's kind of incumbent on everybody to say something about AI in a call. But I would tell you, it is really yielding some significant efficiencies for us now, and we have moved from kind of targeted use cases, low-hanging fruit, if you like, to fundamentally reshaping a lot of our end-to-end processes, and that is going to yield significant benefits for Navico Group and the Hall enterprise. So we really are very excited about that possibility as well.

next question comes from Joseph Altobello at Raymond James.

Dave, best of luck. Congratulations Aine, saying to you, looking forward to working with you as well. So question on the industry. Given the downturn or the duration of this downturn we've experienced, just curious how your OEM and dealer partners are thinking about the year ahead? Are they generally taking a wait-and-see approach on retail given we've had some optimism. It seems like every January for the last 5 years, and it hasn't panned out. So I'm just curious how they're thinking about 2027. .

Yes, I would say that the dealers are in pretty good spirits. We mentioned in on -- in the slide deck and possibly in the release as well that more than 50% of our dealers have more than 50% of the credit line still available. So clearly, we are seeing no distress in amongst our dealers. I think they are behaving fractionally. I think that they have learned over time. You mentioned it's -- it's been a period for us to kind of rethink how we approach pipelines and balance and make sure we don't try and kind of take profit over the short term at the expense of the long term.

So I think they're generally behaving extremely well. I think they're very comfortable with that. I think the other thing, Joe, is thinking about -- I know it's important because there's an industry data point, but the overall unit sale -- retail sales is really a very broad and measure of new boat sales and does not reflect where the real profit pools are over time, and we are reshaping towards those profit pool. It's almost like Ferrari's performance is not reflected in whether we -- the U.S. industry is 16 million units or 15 million units.

You have to go to where the profit pools are and growing those pools and whether it's engines or premium and coal boats or electronics or even shared access, we are finding and commanding the major profit pools. So this is a bit of a morphing of -- and to some extent, a bit of decoupling, I think, of our business performance over the long term from that single number unit sales, I think you'll see that continue over time.

Thank you. This completes the allotted time for questions. I will now turn the call back over to Dave for any closing remarks. .

Well, before we go back to Dave, I did want to take a moment to recognize and thank Dave for his outstanding tenure at Brunswick, 19 years in total, the last 8 years as our CEO. And Dave, this is our 26th earnings call together, and I want to thank you for the outstanding leadership, partnership in front that you have provided to me, the rest of the Brunswick leadership team, and the over 14,000 Brunswick global employees, you have supported and led during your tenure. Congratulations on your retirement. You will be missed, but your legacy will continue. And lastly, congratulations to Aine Denari, who will assume the CEO role starting January 1, Aine, we all look forward to working with you to execute our strategic plans while continuing to deliver strong shareholder value.

And I personally look forward to our first call together in Jan. Congrats again.

Thank you very much, Brian. That was very meaningful. Thank you very much. Thank you to Ryan. Thank you to Steve Will. Thanks to Profit and their teams who have done a fantastic job referring for this call and in previous calls, and I'll follow-up on investor calls and analyst calls that you guys work on, you do a fantastic job. Thank you. I am pleased that my final call as a beat and race call that -- we've got a few of those in recent history, but it's always nice to see that. It's nice to lead the business with such strong momentum. and in the hands of such an exceptional leadership team, congrats Aine. I am looking forward to Brunswick's success in the future. Thank you all very much, indeed.

Thank you for joining the Brunswick's Corporation's Third Quarter 2026 Earnings Call. This concludes today's conference call. You may now disconnect. Thank you.

Hi, everyone, and thank you for joining us. I'm Dave Foulkes, Brunswick's Chairman and Chief Executive Officer. And on behalf of our entire leadership team, I'd like to welcome you to our 2026 Investor Day presentation. We are very excited to share the powerful story of a business that has continued to execute consistently and outperform the market and sector through a series of external challenges and that has multiple durable, well-established paths for organic growth, as well as exciting new paths that do not depend on a lot of help from the market.

During this presentation, I'll remind you who we are, why we win, why the next few years will be very exciting and how we intend to create significant value for you, our shareholders, in the years to come. But let's start with the video that brings to life our business, our unrivaled market positions and our incredible stable of industry-leading brands and technologies.

[Presentation]

Hope you enjoyed that video. It always energizes me. Now before diving into more detail, I'd like to remind everyone that our comments today will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For the factors to consider, please refer to our recent SEC filings, all of which are available on brunswick.com. In addition, during our presentation, we'll refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures are provided again at brunswick.com.

Now I'd like to introduce the multi-award-winning members of our leadership team presenting today, a team that I firmly believe is the strongest leadership team in our industry and sector. You'll hear from our division presidents, John Buelow, who leads Mercury Marine and Engine P&A; Aine Denari, who leads Navico Group; Brenna Preisser, who leads Boat Group; and Will Sangster, who leads Business Acceleration. And you'll also hear from Lauren Beckstedt, our Chief Marketing Officer; and Ryan Gwillim, our Chief Financial and Strategy Officer. This is a deeply experienced and committed team that has been tested in multiple roles over many years and continues to deliver at an exceptional level.

For those of you who may not be as familiar with our business, Brunswick is the world's largest recreational marine company with 5 operating divisions positioned for growth and synergy. As you saw in the video, we hold the #1 market position in multiple categories and geographies. In 2025, we generated $5.4 billion in net sales. 60% of our earnings came from recurring sources, and we delivered $400 million of synergy sales between our businesses, value that only Brunswick can unlock, and which ultimately results in expanded margins.

Since 2019, when we exited our last non-marine business and became a pure-play marine company, we've delivered total shareholder returns of 112%, which is in the top quartile for consumer recreation companies. And our cycle-resistant portfolio delivers strong cash flow throughout the cycle that represents a foundational element of the unique and compelling investment case we will build out for you today.

Before I leave this slide, I'd like to highlight our tagline, "Next Never Rests," that is a reference to our continued investments in new products, technologies and innovation and our relentless pursuit of operational excellence.

Now let's talk quickly through our 5 businesses, each a leader in its own right. First, Propulsion. In 2025, our Mercury Marine Engine business generated revenue of $2.2 billion. Mercury is the outboard market share leader in all major global boating markets, and by far, the #1 global supplier of high-performance and racing engines as well as sterndrive gasoline engines.

Mercury also operates the #1 eFoil brand in the world, Flite. That strong market share position has been achieved through sustained investment that has driven more than 15 years of market share gains. And the sustained nature of the share growth in multiple markets against strong competitors tells you everything you need to know about the focus, capabilities and strength of this business and the unique technologies behind its products.

Next, our Engine Parts and Accessories business that generated revenue of $1.2 billion in 2025. It's one of the world's largest suppliers of marine propulsion parts and the world's largest marine distributor through our Land 'N' Sea business, which accounts for roughly 43% of the U.S. marine distribution market. Our Engine Parts and Accessories business will continue to grow with Mercury's increasing share of the outboard market, and is a high-margin recurring revenue business that drives high earnings and cash flow through the cycle, exactly the kind of predictable annuity earnings that investors value and that provides resiliency through economic and market volatility.

Through its well-known Simrad, Lowrance, B&G, Attwood and other go-to-market brands, Navico Group, our $800 million marine technology business, is a leading supplier of integrated marine electronics, power management, connectivity and other technical subsystems, which represents some of the fastest-growing product categories in the marine industry. Around 60% of Navico Group's earnings are from recurring aftermarket sales, and its content is increasingly deeply integrated into both brands and models across the global industry. Navico Group has an unparalleled capability to deliver the advanced autonomous, connected and electrified solutions at the leading edge of marine technology.

With 2025 revenue of $1.4 billion, Brunswick Boat Group is the largest recreational boat manufacturer in the world and includes 17 market-leading brands serving every major segment of the recreational market. Amongst our iconic brands are 3 of the 4 most recognized boat brands in the world, Boston Whaler, Sea Ray and Bayliner. And they provide us pricing power and customer loyalty earned over decades that cannot be replicated. And we're shaping our portfolio and investment toward the most resilient categories in the boat market, including premium, fishing and adventure.

And finally, Business Acceleration. At $200 million in revenue, excluding synergy sales, it's our smallest but fastest growing division, and one of our most unique and exciting. It's an ecosystem of synergistic marine service and shared-access businesses, anchored by Freedom Boat Club, the world's largest boat club with 450 global locations. Freedom is a high-growth recurring revenue platform that brings new customers on to the water, creates demand for our boats, engines and P&A and generates operating margins accretive to the enterprise. Overall, it's a future leaning, powerful and differentiated growth engine.

With that background on our divisions, here are some of the overall themes you'll hear about today at an aggregated enterprise level. Our overall growth is powered by our leading premium brands and by sustained product leadership and innovation, driving share gains and increased share of wallet. Underpinning our business and growth are our recurring revenue businesses, our unrivaled scale, operating excellence and enterprise synergies and our deep vertical manufacturing integration, especially in the U.S., as well as our ongoing supply chain optimization efforts. And our growth and progress are being further accelerated through our efforts to provide superior customer experiences at all stages of their journey by accessing an expanded demographic and new recreational and commercial markets and by further embedding our already successful AI and robotic process automation or RPA efforts.

Now I want to show, using a couple of slides, how our strategy allows us to outgrow the new boat market even through a local trough in unit sales and how it also allows us to capitalize on the very robust long-term trends in boating participation. The dollar value of the U.S. boat market has grown roughly threefold since 2010 as the mix shifts towards premium boats, higher horsepower engines and more technologically advanced systems, with only a modest recent decrease in the dollar value of the market despite unit declines since the pandemic to levels well below recent pre-pandemic highs and the natural replacement rate.

Brunswick outgrows market unit sales trends by driving share gains in engines, boats and Navico products, increasing our share of wallet on every boat through greater content and integrated systems, shaping our portfolio towards secular trends, leaning into the most robust boat categories, including premium, fishing and adventure boats, driving more Brunswick boats into Freedom Boat Club and creating new pathways to the water through Freedom, Flite and certified pre-owned boats.

Beyond new boat sales, the installed base of registered recreational boats in the U.S. is a powerful source of growth, earnings and cash flow for us. The total U.S. boat park has held steady for many years at around 10 million units, with the average useful life of a boat being around 25 years. And around 7 million of those units are in growing categories in which Brunswick participates. This huge and growing installed base drives our annuity parts, accessories and service businesses. And the scale and richness of Brunswick's participation is increasing with our high and growing share in high horsepower outboard engines, which have a high proportion of captive parts.

We're also growing our aftermarket presence and share through Mercury repower and through Navico Group's aftermarket sales as well as continuing to expand Freedom Boat Club, both domestically and internationally, growing our certified pre-owned or CPO business and expanding our finance, insurance and warranty offerings. The M&A we've pursued over recent years has also over-indexed towards boating participation and annuity earnings. And we're accelerating our commercial and government activity, which will also drive service and replacement parts revenue streams. This chart shows in more detail the recurring revenue earnings contribution from each of our businesses and product categories.

Brunswick's operating model, scale and capabilities allow us to pursue existing and new growth factors across multiple time horizons, while continuing to optimize and protect our core business. We continue to build and benefit from genuinely wide and deep competitive moats, including our scale, industry-leading global brands and market share positions as well as our large U.S. manufacturing footprint and deep vertical integration.

Our technology leadership enables us to confidently pursue the most technologically comprehensive, integrated and advanced solutions, which we protect with an extensive intellectual property portfolio. We're also quickly growing our AI capabilities. Despite our scale, we are agile and able to pursue organic and M&A paths to new opportunities and growth. And we have experience and a right to win in most attractive marine spaces, including through our ability to leverage many great partners.

I want to use this slide to punctuate our unrivaled capability to innovate and launch exceptional new products at scale. In 2025 alone, across our businesses, we launched more than 100 new products and recently won 15 of Boating Industry's top product awards as well as European Powerboat of the Year, European Motorboat of the Year and many other awards, and we continue to accelerate.

With the launch of the award-winning Simrad AutoCaptain autonomous boating system, all pillars of our ACES, autonomous, connected, electrified and shared strategy are now fully commercialized and ripe for future development. In addition, we've recently completed the launch of an all-new lineup of Simrad and B&G multifunction displays, and we have 5 new Mercury outboard programs in Flite. This is product leadership at scale and Next Never Rests come to life.

I'd also like to bring to life the synergies that mean Brunswick is much more than a sum of its parts. In 2025, we delivered roughly $400 million in financial synergies or internal sales. These synergy sales arise from Mercury Marine and Navico Group sales to our Boat Group and Boat Group, Mercury Marine, Engine and P&A sales and Navico Group sales to Freedom Boat Club. In addition to these hard financial synergies, our divisions collaborate to develop, refine and launch new products and technologies like AutoCaptain and our integrated power management solution, FATHOM, which are also now available and integrated into new products produced by our other OEM partners.

Looking now at the core of our business. Our focus on growth is matched by a relentless pursuit of business optimization for productivity and efficiency, which includes multiple concrete actions to reduce our fixed and variable costs and further improve free cash flow. Rightsizing our manufacturing and distribution footprint while retaining capacity for foreseeable upside is a continuous focus, with recent actions, including the closure of 2 boat manufacturing facilities and housing Navico Group production for some product lines and a regional Land 'N' Sea distribution operation in a single common U.S. facility.

A stream of structured continuous improvement projects across the enterprise, mainly using Lean Six Sigma processes, continues to drive cost savings and avoidance. While vertical integration and supply chain optimization drives resilience and tariff exposure optimization.

Finally, we are actively leveraging offshore resources to reduce the cost of routine business processes and also rapidly implementing robotic process automation and AI for productivity and cost reduction, which I'll cover in more detail on the following slides.

We believe Brunswick is at the leading edge of AI implementation in our space with an already experienced team, strong partnerships and many successful enterprise use cases. Phase 1 of our implementation plan, which we executed over the last 2 years, was directed at building capability and unlocking near-term value through enhanced products and smarter, more streamlined operations. Throughout our operations, from product development through go-to-market, manufacturing and supply chain, we now have more than 20 scaled use cases in production, and estimate we've captured $5 million to $10 million in value.

In our products, we've launched the highly acclaimed and award-winning Simrad AutoCaptain autonomous boating solution. And later this year, we'll introduce on-boat agents. And we have the governance and procedures in place to ensure our applications are all trusted, secure and responsible.

We're now in Phase 2 of our implementation, which involves scaling our capability to tackle end-to-end transformation of our core processes, embedding durable AI solutions, with an expectation of delivering more than $50 million in value over time across the enterprise.

In addition to optimizing our business, we are continuing to aggressively accelerate our core growth factors, which our division presidents will cover in more detail. Leveraging new products, technology, service and digital marketing capabilities to increase OEM, aftermarket and retail market share and share of wallet in our propulsion, distribution and Navico Group businesses as well as the most profitable and resilient parts of our boat business and by continuing to grow Freedom Boat Club in its core markets, while further increasing synergy capture.

But beyond these longer-term durable growth factors, we're also creating entirely new value from a set of earlier stage but high potential opportunities that leverage our core capabilities assets and synergies. At an enterprise level, we're developing new commercial and government opportunities, facilitated by our ability to deliver integrated solutions and assisted by a U.S. domicile, including entering the uncrewed surface vessel or USV market, which we'll discuss later. Mercury is pushing the boundaries of high-horsepower propulsion even further as well as developing plans to grow its repower share to match its leading OEM share and scaling its Flite eFoil business globally.

Navico Group is extending the capabilities of AutoCaptain into broad-based autonomy and advancing new integrated solutions. And Boat Group is rapidly expanding the model portfolio for our NAVAN adventure boat brand and reimagining entry-level boats, while Business Acceleration is growing Freedom into new international territories and building out our certified pre-owned business. Collectively, these new opportunities provide the diverse seeds for an exciting new phase of growth.

One of the most rapidly developing opportunities for new growth is in commercial, government and defense categories, with rising defense investment worldwide and the potential of remote and fully autonomous operation, boosting and reshaping markets in which we already participate and are uniquely well positioned to win. The division presidents will share more on this set of opportunities, but in aggregate, we anticipate them yielding more than $80 million of annual incremental revenue and more than $20 million of additional operating profit by 2030.

Before we transition to our division leaders, who will more deeply explain their respective strategies, I will preview what these strategies are designed to deliver in aggregate. Our financial targets are anchored on a conservative future U.S. retail market of 145,000 to 160,000 units. As you know, the U.S. represents about 70% of the global recreational boat market, and we also use it as a general proxy for the overall performance of international markets. At the low end, 145,000 units represents only about a 5% market rebound from 2025 over time. At the high end, 160,000 units would represent roughly a 15% rebound, but even this higher scenario still represents a market approximately 20% below the most recent pre-pandemic peaks which occurred in 2018.

Said simply, we are not asking investors to underwrite a return to anything close to recent peak conditions. To further emphasize this conservative assumption, a point in the presentation we somewhat arbitrarily refer to 2030 as the year when this unit recovery will be achieved, implying market unit CAGRs of approximately 1% to 3%, far below those achieved in the pre-pandemic period. In this range of market scenarios, we would expect Brunswick to generate $7 billion to $8 billion in annual revenues and $8 to $12 of earnings per share. Importantly, the majority of the earnings growth is firmly within our control, driven by our share gains, mix to premium, pricing and inventory discipline, cost actions and a synergy capture, with market recovery serving as an accelerant, not the primary driver.

Now I'd like to hand over to Brunswick's Chief Marketing Officer, Lauren Beckstedt, to review the state of the consumer and how Brunswick's deep consumer insights help inform and shape our strategy.

Consumers have experienced nearly 5 years of macro and geopolitical volatility, and here's what we're seeing. It has influenced how consumers engage but not whether they participate. In an increasingly digital world with rapidly accelerating change, consumer participation is remarkably strong in this uniquely physical experience of boating. When we look at the modern marine consumer, we see a marketplace defined not by a single macro trend, but by distinct evolving consumer mindsets. Our portfolio breadth allows us to meet these buyers exactly where their priorities are shifting.

The Brunswick Consumer maintains an average household income of $140,000. While not insulated from economic turbulence, their discretionary spending is increasingly shifting towards high-value experiences. The affluent buyer remains focused on advanced technology and top-of-the-line options, and that is exactly where the majority of our portfolio is positioned to serve. In fact, the standard for premium performance itself has shifted. Over the last 5 years, the average horsepower per boat has increased by nearly 30%. The consumer isn't just looking for a product. They are demanding a highly advanced and seamless experience, and only Brunswick can answer the call, with a steady stream of pioneering technologies that make boating more approachable and easier than ever.

We also see proven resilience within our core and value segment buyers, though how these consumers define value is changing. Data from Brunswick's Consumer Pulse, an always-on boater sentiment survey, highlights a deep lifestyle commitment. More than 80% of boaters surveyed report no plans to change their time on the water. However, their purchasing behavior is evolving. For this consumer, value means versatility. These buyers are gravitating towards multiuse hybrid products like the Sea Ray SDX Surf Series and our new NAVAN brand, maximizing their investment by opting for a single quality vessel that supports a multi-activity lifestyle.

Finally, we continue to expand our addressable market by reimagining entry pathways to on-water recreation as home to the #1 global boat club franchise, Freedom Boat Club, and the definitive leader in the eFoil category, Fliteboard, Brunswick offers new ways to experience life in the water at lower price points or through alternative payment models.

Participation across all segments remain strong as people continue to find ways to unplug and reconnect with reality. Every year, more than 135 million people go boating worldwide. And just in the U.S., more than 58 million people fish, both on and off boat, a record high. Boat Club memberships continue to grow, with 63,000 Freedom Boat Club members across 450 global locations, and trips are up more than 12% year-to-date. Our Ripl boater community also continues to thrive, growing by more than double since 2024 with more than 25,000 members. Getting out on the water today often translates into lifetime passion for boating, with the vast majority of current boaters, 93%, telling us that they are committed to boating for the long term.

Because the marine lifestyle has such strong staying power, boating attracts a more diverse community every day. Women now represent more than 1/3 of anglers and 1/5 of boat buyers, both historic highs. And in the last 5 years, Hispanic and African-American representation has increased by more than 55%. We aren't just welcoming the new consumer to the water, we are translating our expanded reach into long-term incremental revenue.

With our portfolio breadth, we engaged 1 of every 2 boat owners and maintain the largest boat club membership base in the industry, earning Brunswick the widest consumer reach in recreational marine. Our unique consumer access and advanced digital ecosystem allows us to guide boaters through our portfolio along a personalized path.

By matching their lifestyle needs, whether through membership, a new or pre-owned boat purchase, or a technology upgrade, we maximize the consumers' long-term satisfaction and their lifetime value to Brunswick. In fact, more than 36% of our revenue can be attributed to our consumer marketing, with some brands like Lund and Freedom Boat Club, boasting a much higher percentage of marketing attributable sales. By shifting value creation beyond the point of sale towards lifetime engagement, Brunswick can serve the boater across various lifestyles and life stages.

More than 60% of consumers surveyed identify smart technology and connectivity upgrades as the primary driver of ongoing category spending. Spending on parts and accessories is also up by more than 15% year-over-year, a credit to Mercury's global distribution and broad assortment. Brands like C-MAP navigation charts grew subscription revenue by 25% in the past year. And financial services products like certified pre-owned offerings, competitive financing and extended warranties, enhanced versatility and affordability for the consumer while reinforcing our ability to retain and support a captive audience.

The strength of our brands fuels a lifestyle frequently becoming a symbol of the individual themselves. Affinity for Brunswick brands is so strong that we've also expanded our brand collaborations, launching 8 new collections, selling out limited edition drops with Tombolo, Salty Crew, Marsh Wear and in-market now with Abercrombie & Fitch.

At Brunswick, we are just winning with a changing consumer landscape, we are actively shaping it. By meeting boaters exactly where their lifestyles evolve, Brunswick has built a community that stays with us for life, unlocking predictable, compounding value across our entire ecosystem.

And now we'll hear from John Buelow, President of Mercury Marine.

I'm John Buelow, President of Mercury Marine, the global leader in marine propulsion and parts and accessories. With more than 20 years of experience with Mercury in leadership roles worldwide, I've had a direct hand in shaping the strategy and story of Mercury's sustained success, one of market leadership, relentless innovation and disciplined execution.

Over the next few minutes, I'll show you how we will continue to extend that lead, turning our scale, technology and leading brands into sustained revenue growth and margin expansion. We'll start with Propulsion, the clear global leader in marine propulsion systems, then turn to Parts and Accessories, a high-margin recurring revenue business that keeps Mercury resilient through every cycle.

Let's get started. This is Mercury in a single view, an established leader that keeps using its position to drive innovation, not to coast on it. Start with scale. Today, roughly 1 in 2 recreational boats in the U.S. is powered by Mercury engines. But what matters most is not just the size of our share, it's the direction and quality of it. Since 2023, we've gained 250 basis points of U.S. outboard share in engines of 200-horsepower and above. That's the premium end of the market where our technology is most differentiated, and it shows in our mix. More than 70% of our 2025 U.S. outboard revenue now comes from engines of 150-horsepower and greater. We are winning at the premium high-value end of the market.

Along with engine sits an equally powerful recurring revenue business. Roughly 95% of our Parts and Accessories revenue is recurring, generated by the large and growing population of Mercury engines already on the water, and that business runs at around 20% operating margin. We're also the #1 P&A distributor in our relevant global markets. Together, that's clear Propulsion leadership plus a recurring base that keeps working regardless of the backdrop.

Mercury's leadership isn't just a U.S. story, it's a global one. And we're not only leading, we're growing. In our largest market, the Americas, we hold the #1 outboard share, and the momentum is strong. Year-to-date, unit sales are up meaningfully versus prior year. So even from a position of clear leadership, we continue to grow. That momentum extends beyond the Americas. We're #1 in Europe, with unit sales also up year-to-date. And in the markets where we're not yet the share leader, we're continuing to grow and closing the gap quickly.

Every region points the same direction, and that breadth gives this business durability. We're not dependent on any single geography or economic cycle. We already lead the world in outboard propulsion. And as the title on this slide says, we're ready to go further.

So how will we extend our lead? By leading from the front across 4 pillars. First, we're expanding our winning network, deepening the OEM channel and consumer relationships that lock in demand and widen our share of the market. Second, we're defining what comes next, a relentless cadence of new product and technology that sustains pricing power and keeps the industry chasing us. Third, elevating experiences and earning loyalty, making boating simpler and more connected from prop-to-helm, earning repeat high lifetime value customers. And fourth, building smarter and delivering faster. A stronger, more resilient supply chain and operations that compound cost advantage and expand margins. Together, these 4 pillars convert our lead into sustained revenue growth and margin expansion.

Let me walk you through both segments, starting with Propulsion. Propulsion is the heart of Mercury and the foundation of our right to win. Growth starts with our winning network, and we're expanding it at every level from the boat builder to the dealer, to the consumer. Start with our OEM partners, where Mercury is the propulsion of choice. 17 of the top 20 boat builders partner with us. These are deep, long-term relationships, and we're committed to helping our partners win. And when our partners win, we win with them.

Already at key strength, our global network is getting stronger, too. We've added roughly 500 new dealers and distributors since 2023, each equipped with the tools and support to sell and service Mercury the right way. And we're winning consumers in new ways too, including as the #1 eFoil brand in the world. Flite is a genuine growth engine, introducing Mercury to an entirely new audience on the water and opening up a fast emerging market.

Across the business, we see a number of exciting growth opportunities. Let me highlight 2 where our right to win is exceptional, and we can accelerate growth. The first is repower. Years of steady share gains and market leadership have built a large and aging installed base of Mercury engines, especially in the pivotal high horsepower segment, with only about 1% of the U.S. installed base repowered each year. That is a substantial sustained runway of demand, one that only grows as the fleet ages, and it powers our Parts and Accessories annuity along the way.

The second is government and commercial, where rising government spending is opening real opportunity. It's poised to outpace recreational by more than 2 to 1, and it plays directly to our strengths, an unmatched product portfolio and a channel and partner network built to win. Both are natural extensions of our business today and both are already showing promise. Together, these 2 platforms are a meaningful part of how we bridge the 5% to 8% Propulsion revenue growth.

We're committed to driving the future of marine propulsion, and nowhere is that clear than in our latest expansion of the Verado outboard family. This past year, we introduced an enhanced V10 350 and introduced the all-new V10 425. The upgraded 350 adds top-end speed and midrange acceleration. The new 425 delivers class-leading acceleration and a light compact package. Together, they set the standard for high horsepower outboards, with overwhelmingly positive OEM and dealer feedback as the V10 family remains the engines of choice. Innovations like this reflect our commitment to boaters, greater performance and exceptional power with the industry-leading premium experience Mercury is known for.

Few companies can match our reputation for relentless innovation. Since 2018, nearly 600 patents and more than $700 million in R&D investment have fueled a string of industry-defining product introductions, a track record we intend to extend. What you see here are some of the more recent breakthroughs from the world's first V10 outboards to our game-changing V12 600 horsepower with steerable gear case. Everyone raises the bar, and everyone starts with a boater in mind. Our innovation is purposeful. We set new standards not for their own sake, but to make the boating experience better for consumers around the world. And most importantly, we are not slowing down. We intend to continue to innovate and keep leading. 4 of our next 5 mid- to high horsepower programs launch within the next 2 years as we keep defining what comes next.

Increasingly though, the engine is only part of the story. Mercury is building a complete and connected ecosystem that elevates the experience and earns loyalty. It spans the entire boat from propellers to helm, tied together by the SmartCraft Connect ecosystem. That integration unlocks next-generation vessel control with our innovative joystick offerings, automotive-like experiences such as our keyless system and software-enabled performance upgrades like Boost, that extend value well beyond the point of sale. The result, innovation that simplifies the boating experience, deepening the relationship our customers have with Mercury.

Our strategy only matters if we can build and deliver. So here's what's behind it. Our supply chain is already an advantage, and we're advancing it further. Here's where we're taking it. China-sourced parts down 75%. Tariff exposure down 70%. Internal capacity utilization up roughly 20% and at least 7 more core operations brought in-house. Just a few examples of what gives us confidence to achieve more than 400 basis points of margin expansion, more control, stronger margins, faster scale. That's our end-to-end supply chain strategy at work. We control quality and cost, we protect margins against persistent tariffs, and we hold the capacity to scale as demand grows. World-class today, and we're not standing still. We're building it to be even better tomorrow.

Put it all together, and Propulsion is delivering superior financial outcomes, fueled by focused strategic execution over the next 5 years. We're targeting a revenue compound annual growth rate of 5% to 8%, more than 400 basis points of operating margin growth and U.S. market share of greater than 50%. These aren't aspirations, they're the natural result of the leadership, innovation and execution I've just walked you through.

Let me now turn to the second half of the Mercury story and one of the most attractive parts of the entire enterprise, Engine Parts and Accessories. This business is high margin, durable and positioned for growth based on 2 strategic layers. Our portfolio of critical parts and accessories under the brands of Mercury, Quicksilver and Seachoice, products that keep boats running and boaters on the water. Second, our leading distribution business, including BLA, Land 'N' Sea and Lankhorst Taselaar, serving a wide network of partners around the world.

Our reach spans 150 countries and more than 20,000 B2B customers, serving a global installed base of about 12 million boats, a source of recurring nondiscretionary revenue that grows every year. Mercury's global reach is by design. With 25 strategically placed distribution facilities across the globe, we're with an arm's length of every major boating market in the world. And at the center of that distribution network is our facility in Brownsburg, Indiana.

We started this operation in late '22 and have ramped and optimized it significantly since. It's a state-of-the-art 512,000 square foot purpose-built facility with modern technology deployed and additional capacity ready for growth. Its location is a real strategic advantage, from the crossroads of America and Central Indiana, we reach roughly 70% of our U.S. customers within 2-day standard ground service, a clear example of how we invest to give customers unparalleled access and speed.

What makes this business so powerful is how naturally it follows the consumer across the entire ownership journey. It starts with the engine. Every engine we sell unlocks a long-term relationship of support and value, adding roughly $25 million of recurring P&A annuity from new engine sales each year. From day 1, our captive parts and service capture share, more than 90% at engine launch. And as ownership continues, our portfolio spans every price point, from Mercury OEM parts to Quicksilver and Seachoice, to our distributed brands with more than 100,000 P&A offerings covering every state of ownership for virtually any boat on the water.

And we're focused on meeting the consumer where they shop and when they shop and that means 3 things: first, optimizing the business, driving a faster, leaner distribution engine. Second, strengthening partner collaboration, expanding our network and empowering partners with the right tools to succeed. And third, connecting retail and digital, creating a seamless aftermarket experience, whether a customer is standing at a dealership counter or shopping online. It all comes down to a simple promise, the right part through the right channel at the right time, which is why we're confident in this business' trajectory. By leveraging our strong market position to accelerate growth across the Engine Parts and Accessories portfolio, our 5-year targets are a revenue compound annual growth rate of 4% to 5%, more than 300 basis points of operating margin growth and a Land 'N' Sea U.S. market share target of greater than 45%.

The strategy for the P&A segment and Propulsion segment is simple, clear market leadership, new growth platforms and a recurring P&A annuity that pays through every cycle, all underwritten by a supply chain built for performance. Our plan generates attractive revenue growth alongside meaningful margin expansion from a position of strength. This is what makes Mercury Marine such a durable, high-performing business and one that I am extremely proud to lead. Thank you.

Hello. My name is Aine Denari, and I'm President of Navico Group as well as Brunswick's Chief Technology Officer. I'm delighted to share the Navico Group story with you. Navico has moved from integration to execution, with a simplified platform built for scalable, higher-margin growth. We have delivered this through portfolio optimization, footprint simplification and brand consolidation. Today, we operate from a stronger platform. 18 leading brands across electronics, power solutions and performance solutions, creating one of the industry's most comprehensive bow-to-stern marine portfolios.

That breadth enables differentiated products, integrated systems and connected experiences that increase customer value while expanding our share of wallet opportunity. It is also supported by a balanced business model across marine OEM and aftermarket channels globally and adjacent end markets, including RV and specialty industrial. Combined, this stronger portfolio, more resilient business mix and simplified operating model positions Navico to accelerate profitable growth and margin expansion.

We are delivering this profitable growth through 4 key strategic pillars. First, we continue to optimize our portfolio, concentrating resources in areas with the highest growth potential, strongest profitability and greater strategic importance. Second, we are investing aggressively in differentiated technologies and integrated solutions that strengthen our competitive advantage and increase customer value. Third, we are creating world-class customer experiences across every stage of the customer journey. And finally, operational excellence remains an important differentiator, and we continue to improve efficiency while delivering margin expansion. Combined, these pillars position us for durable value creation.

Starting with our industry-leading technology portfolio. Since 2025, we have launched over 30 significant new technologies across our portfolios, including electronics, power management, connectivity, software and automation. Many of these innovations are award-winning and patent protected. In addition to deepening our competitive moat, these solutions address specific consumer needs and pain points to deliver frictionless consumer experiences. Our disciplined product innovation cadence, particularly within our electronics portfolio, fuels a robust aftermarket upgrade cycle. You can see some of the recent innovations here, including hardware and software products across several of our key categories.

We believe the future of boating will be defined by ACES and AI, transforming boats from static products into intelligent connected partners that continuously improve throughout their life cycle. What differentiates Navico is the way we bring our technologies into a seamless, integrated ecosystem. We deliver experiences that are more intuitive for consumers, simpler for OEMs to install and easier to service over time.

At the center of this transformation is the conversions of 5 key technology areas. Integrated systems allow technologies across the vessel to work together seamlessly. Connectivity extends the experience beyond the water, enabling remote monitoring, control diagnostics and AI-enabled assistance. Intelligent power management solutions help consumers confidently manage increasing onboard energy demands.

We are also leading the industry in autonomy. AutoCaptain addresses one of boating's most significant pain points by autonomously docking, undocking and maneuvering vessels in close quarters. Importantly, AutoCaptain is a software platform that will continue to gain capabilities over time through new feature enhancements. And underpinning all of this is our transition towards software-defined vessel architectures.

As vessels become increasingly software-enabled, features and capabilities can be added throughout the life of the boat through over-the-air updates. And remote diagnostics can support easier maintenance and service. For Navico, ACES and AI are the engine behind higher content per vessel, deeper integration and more sustained technological differentiation.

Electronics, automation, power management and connectivity are all increasing in content and importance, enabling us to expand our share of wallet and also to strengthen the durability of our OEM relationships. Today, we capture approximately 20% share of wallet with our largest customers, and more than 55% of our OEM customers have increased their Navico content since 2023. We complement our product leadership with industry-leading support, having trained over 10,000 technicians since 2023 and deployed AI-enabled service tools and on the ground, deep technical experts. Together, these capabilities strengthen customer partnerships, increase retention and create a compelling avenue for long-term growth.

This momentum is translating into double-digit sales growth across our marine OEM business. Today, we serve more than 600 OEM customers globally, with our products installed on approximately 70% of boats in the market. We continue to expand our footprint, having added more than 100 new OEM customers since Brunswick acquired Navico and secured integrated systems wins with 30 customers in the last 6 months alone. And we see significant runway for continued share gains and growth.

Aftermarket, which represents approximately 60% of our revenue, exhibits lower cyclicality than OEM demand and creates recurring upgrade opportunities throughout the life of the vessel. We support more than 1,000 retail, distribution and e-commerce customers globally, and we drive strong end user demand through data-driven marketing, premium content and channel partnerships. Importantly, we complement our product leadership with differentiated service and support capabilities for our aftermarket customers, including expanded Pro Staff coverage and AI-enabled tools. These investments have driven more than 25 points of NPS improvement to date. Combined with the natural pull-through from our OEM installed products, these channels provide a durable platform for recurring revenue growth and long-term market share gains.

Commercial, government and defense markets represent a disciplined adjacency for Navico. They are large, fast-growing, have different demand cycles in recreational marine and are highly synergistic with our existing solutions and capabilities. By 2030, we see a $1.7 billion addressable opportunity for Navico across 5 segments. Our right to win is based on a certified professional grade portfolio, a strong innovation pipeline and a global foundation of certified service partners across 55 countries to support our more than 300 customers.

We are already seeing momentum, with commercial and defense revenue up 7% year-to-date and a plan to deliver 75% operating profit growth in these markets by 2030. This is a clear example of how Navico can leverage its existing strength into attractive adjacencies to expand growth, improve resilience and support margin expansion.

Unmanned Surface Vessels are an emerging opportunity within commercial, government and defense marine. This market is growing rapidly, driven in the near term by increasing global defense demand. We see a Brunswick-wide addressable opportunity of approximately $2 billion by 2030. This opportunity is highly synergistic with existing products and capabilities from across the Brunswick Enterprise.

We are already participating today, including through components sold to many leading USV players and via our partnership with Textron's TSUNAMI platform. Our strategy is to scale in a disciplined way through 3 models: first, continuing to grow component sales; second, developing a modular Brunswick USV-ready platform for military applications; and third, selectively expanding into full USV solutions for commercial applications. Our distinctive right to win comes from our portfolio breadth and technical capabilities in parallel with our manufacturing scale, our reliable supply chains, our global sustainment capabilities and our advantaged cost position. Our plan will enable Brunswick to capture significant share as USV scale across defense, government and commercial applications.

The final pillar of Navico strategy, operational excellence, continues to be a significant driver of gross margin expansion and long-term competitiveness. Since 2022, we have consolidated 16 locations. We deployed more than 20% of resources into growth-focused functions, have reduced portfolio complexity by 7,000 SKUs, mitigated $35 million of tariff costs and improved warranty performance by more than 15%. These actions are creating a simpler, more efficient business while improving quality and customer experience. Operational excellence is now a core capability at Navico.

Looking forward, we have a clear path to more than 400 basis points of incremental gross margin expansion by the end of the strategic plan period. The next wave will come from further footprint optimization, AI-enabled process redesign, supply chain leverage, tariff mitigation and expanded best cost country and make-versus-buy strategies.

To wrap up, Navico enters this next chapter from a position of strength, with a clear strategy to deliver a revenue CAGR of 7% to 12%, with more than 600 basis points of operating margin expansion and gross margins in excess of 37% by the end of the strategic plan period. Most importantly, we are building a business that is strong, resilient and well positioned to create value through the cycle. Leveraging the scale, capabilities and advantages of the broader Brunswick enterprise, we are confident in our ability to deliver sustained, profitable growth and increasing value for our shareholders. We are excited about the opportunities ahead, and we look forward to delivering this next phase of growth together. Thank you for your time and your continued confidence in Navico Group.

Now I'd like to turn it over to Brenna Preisser, President of Brunswick Boat Group.

I'm Brenna Preisser, and I'm excited to walk you through the Brunswick Boat Group. Our message today is simple. Boat Group has repositioned itself as a resilient growth engine with expanding margins, a clear right to win and the assets to deliver. Together, our strategy, scale and execution are driving both growth and margin expansion, and I'll show you exactly how.

What truly sets Boat Group apart are structural advantages that reinforce each other. The first is product leadership, with iconic brands holding leading positions in every major segment and a unified product design and engineering organization that amplifies capability and efficiency. The second is unmatched consumer reach, with one of the largest global channel partner networks in the industry and an ecosystem that fuels the demand generation flywheel. The third is scaled capabilities, with first-to-market technology powered by Mercury, Navico Group and a flexible global manufacturing footprint, which enables revenue growth and gross margin expansion.

In addition to a more cycle-resilient business structure, we are well positioned to capture upside as the market rebounds. We partner closely with our channel to ensure healthy inventory levels. Today, field inventory sits at its lowest average level per rooftop in over 8 years. That means that our dealers are healthy. And as retail rebounds, wholesale pulls through with lower discounting required. We also see an opportunity to capture existing customers who may have delayed purchases longer than the industry's historical experience, particularly as post-COVID pre-owned valuations now stabilize and unlock trade-in cycles. At the same time, the surge of first-time buyers that Boat Group captured during the COVID years is now entering the replacement window. Combined with significant product investment and leading brand loyalty, there is a build-in tailwind for new boat sales.

So how do we win? Our strategy is anchored in 4 reinforcing pillars. First, we leverage our portfolio for competitive advantage, focusing where we see the strongest profitability and brand strength, while also leveraging our portfolio strategically to access new markets and win in a category. We will share some examples.

Second, we win in premium, where the gross margin profile is the strongest, differentiating through innovative products, quality and technology integrations.

Third, we structurally strengthen gross margin through value engineering, manufacturing efficiency, procurement leverage and footprint consolidation.

And fourth, we earn customers for life through best-in-class service, ecosystem engagement and providing lifetime customer value. Each pillar reinforces the next. Together, they drive growth and margin expansion that compounds over time.

Let me walk you through each. We start with portfolio. What sets Boat Group apart is our breadth and depth. We have a leading brand in every major segment, breadth that provides a pathway for every boater and a natural trade-up pathway across the full ownership journey. And our reach extends globally. We are home to 4 of the 5 most recognized boat brands in the U.S., and we hold leading brand positions in Canada, EMEA and Oceania. I think it's notable that we have the portfolio to win in the largest segments of every market that we serve.

Now to our second pillar. While our portfolio is broad, make no mistake, our investments are deliberately skewed to premium. Premium categories attract a more resilient consumer segment, one that is willing to pay for brand differentiation and higher option content. That's why premium and core brands deliver 90% of our net sales and over 90% of our gross margin. We hold the #1 share position in premium under 50 feet, and that share continues to climb. Our deliberate portfolio planning, combined with value engineering, is the force behind 250-plus basis points of gross margin expansion across the portfolio, with more to come.

Our portfolio also enables us to pursue growth organically and capital efficiently through cross-brand synergies. And I'm so excited to share that we have 5 growth platforms already activated and delivering. Lund Heavy Gauge, stretching Thunder Jet's expertise into a high-demand category, with dealer orders running 3x our plan in year 1.

Harris, expanding their portfolio into high performance with the launch of twin-engine Crowne and Grand Mariner models later this year.

NAVAN, built on Sea Ray's manufacturing and premium dealer network, growing U.S. retail over 170% year-over-year, and with the C38 launching fall of 2026.

Sea Ray Surf, leveraging brand equity to shape a new multipurpose category with incredible white space, particularly in Europe. 300-plus units have been sold globally.

Boston Whaler, investing in large boats where the redesigned 290 and 330 Outrage are already 105% sold through, with the flagship 460 launching this fall.

These are 5 real platforms already accretive and with significant runway ahead. None of this works without relentless product execution, a deep predictable pipeline that keeps our portfolio fresh. 70% of product model families have been refreshed or had a new model launched over the past 3 years. 40-plus model launches planned in 2026 alone and an ever-richer forward pipeline. Let me bring this to life with a few new products.

[Presentation]

That brings me to our third pillar, strengthening gross margin. A product story alone isn't enough. We've also built a leaner, more flexible global cost structure. Enabling expanded gross margins, our footprint spans 11 manufacturing sites worldwide. Most recently, we consolidated 2 facilities which will generate $10 million in recurring annual savings starting in 2027. And we have additional levers in play to support growth: 15 automation projects already deployed or in deployment, value engineering initiatives and broader productivity programs are all underway across the network, structurally lifting our gross margin going forward. Most importantly, our U.S. retail unit breakeven sits well below the current market demand. And we are well capacitized to support reasonable growth in market units in the coming years, downside protected, upside ready.

Which brings me to our fourth pillar, earning customers for life. It starts with reach. Our consumer marketing scale creates a virtuous cycle. Broad reach generates high-quality leads for our dealers, while portfolio breadth drives spend efficiency for a single brand. In the first 5 months of 2026 alone, we delivered 18 million organic social impressions, up over 50% year-over-year and 40,000 organic shares and saves, amplified by partnerships and influencer collaborations across every brand. Every marketing dollar we spend works harder because of the portfolio behind it.

Reach is just the front door. We are also focused on earning customers for life. 4 ingredients reinforce each other. Best products, and I think it's notable that the product awards we've already earned year-to-date in 2026 exceed the total number of Boat Group awards won in all of 2025. Best partners, a 1,000 global dealer partners and growing. Best-in-class service, top quartile NPS with double-digit improvement over the past 2 years. And our ecosystem advantage, a proprietary database of 3.5 million unique customer profiles, spanning owners, prospects and Freedom Boat Club members, including an estimated 2,000 Freedom members expected to purchase a boat over the next 3 years. Only Brunswick is positioned to deliver this, and it's how lifetime customer value compounds.

That ecosystem is in a slogan. It's a highly integrated business system that provides leverage over our outcomes. Roughly half of Boat Group's bill of materials comes from Mercury and Navico, and we sell 800 units a year directly into Freedom Boat Club. No competitor can integrate propulsion, electronics, hull and shared access at this scale. And we're activating it in new ways.

This summer, we launched a new rebate program with Freedom Boat Club, designed to convert club members into Boat Group boat owners. And even in the first months, the early traction has been very encouraging. The whole is much greater than the sum of the parts. And that is how we accelerate innovation, lock in margin and amplify every Brunswick capability into a competitive advantage.

The ecosystem extends to technology and what we call Boating Intelligence, only Brunswick can deliver this. It includes AutoCaptain, our autonomous docking system first introduced on Boston Whaler's 405 Conquest, now reaching broader parts of the portfolio. It also includes a new AI-powered assistant, very soon available on Boston Whaler's and Sea Ray's apps, with plans to expand across other brands. It monitors both systems in real time and flags maintenance needs, giving Boat Group direct access to the consumer to grow and nurture that relationship, while also creating new opportunities for our dealers to better serve and service their customers. And underpinning all of it is connectivity, an always-on link between the boat, the owner and the brand, creating seamlessly integrated technology experience.

Which brings me to the financial outcomes, clear and actionable. Over the strategic plan period, Boat Group is targeting high single to low double-digit revenue CAGR, 600 basis points of operating margin growth and 20%-plus operating leverage. These targets are achieved through structural levers already in motion, portfolio mix, scale efficiencies and enterprise integration. Boat Group has the strategy, the scale and the execution to deliver. As the marine market rebounds, Boat Group is not just positioned to participate in the upside, but to lead it. Thank you.

Now I'll turn it over to Will Sangster, President of Business Acceleration.

Hi. I'm Will Sangster, President of Business Acceleration. And I'm excited to discuss why Business Acceleration is one of Brunswick's most compelling growth stories, a high-growth recurring revenue platform built on shared access and services that expand our market and compounds value across the entire company.

Business Acceleration is Brunswick's fastest-growing and one of its most resilient recurring revenue platforms. In 2025, we generated more than $200 million in revenue, the product of a roughly 40% revenue CAGR since 2019. That growth is durable and less cyclical because it's anchored by Freedom Boat Club, the world's #1 boat club and the global leader in shared marine access. Our members stay, retention runs near 90%, giving us predictable recurring cash flow through any market environment. And this platform just doesn't grow on its own. It has already delivered over $300 million in synergies to the broader Brunswick portfolio. So from the outset, think of Business Acceleration as 3 things at once: a growth engine, a resilient annuity and a flywheel that accelerates growth for the whole company.

Here's additional detail to better understand the power of this business through a full industry cycle, one in which the broader recreational marine market saw unit declines. Freedom didn't just grow, it compounded, expanding 2 to 4x across every key metric. Membership climbed from 20,000 to more than 63,000. Trips and reservations grew even faster, from 160,000 to over 640,000, meaning members are just joining, they're using the club more. Our footprint more than doubled, from 170 locations to over 450 worldwide, and our fleet scale from 2,000 to 5,000 boats to meet that demand with disciplined utilization. This is the signature of the model. We grew members, usage per member and access points simultaneously. That's a flywheel, less cyclical, more recurring and increasingly network-driven with every location we add.

That momentum runs straight into an expanding market, and the story here is about runway. The Boat Club category is a roughly $500 million market today. On a steady adoption curve, we see it reaching about $750 million by the end of the strategic plan period and $1.5 billion over the long term. And critically, that expansion doesn't depend on the marine cycle, just on more households gaining access to the shared boating ecosystem.

And despite Freedom's leadership, we are still in the early innings. Today, in the U.S., we serve approximately 60,000 member households, less than 1% of the 20 million-plus global recreational marine households that go boating. We operate in around 440 marinas, yet there are more than 30,000 marinas worldwide, meaning we've penetrated less than 2% of the available marina footprint. The category leader has barely scratched the surface of the opportunity. Freedom leads that category today with about 60% market share across the entire Freedom network. So as the market grows, we capture a disproportionate part of it.

The takeaway is a credible, capital-efficient path to more than $250 million in Freedom revenue by the end of the strategic plan, growing at a 10% plus annual rate and throwing off over $60 million in annual synergies to Brunswick. Category expansion, clear leadership and operating leverage, all compounding together.

So how do we keep expanding the market? By making boating radically more accessible than ownership ever allowed. Our membership mobile app turns discovery and booking into a modern on-demand experience. Global expansion and reciprocity let our members boat across our worldwide network, not just their home dock. Elite Boat Access provides exposure to premium marine technology and curated VIP experiences with on-dock white glove service and unlimited training to remove any consumer friction. So even a first-time boater steps aboard with confidence, and the data proves this is expansion not substitution.

In our 2025 member survey of more than 9,300 members, roughly 45% have never owned a boat, and roughly 38% had less than 5 years' experience on the water. We aren't trading existing boaters between brands. We're bringing brand-new consumers into the category. That's what makes this a structural growth story, not a cyclical one.

Now Freedom's value extends well beyond its own earnings, and this is the flywheel that makes the whole company stronger. Every boat we put into the Freedom fleet generates more than $60,000 in annual Brunswick revenue while it's in service. That includes about $55,000 of recurring Freedom revenue per boat, roughly $5,000 in high-margin parts and accessories, plus engine and product revenue that a traditional onetime boat sale simply never captures. Upfront franchisee purchases drive boat segment engine and product revenue. And while upfront Freedom corporate purchase revenue is eliminated from the financials, it drives absorption, cash on disposition and many other strategic synergies.

Ultimately, Brunswick makes more money putting a boat in Freedom than a third-party sale. Compounded across the fleet that has already delivered over $300 million in synergies to date, this is the self-reinforcing loop. Brunswick scale and product ecosystem improved Freedom's economics, while Freedom drives embedded recurring demand into Brunswick's engines, parts and brands. Shared access doesn't just serve members. It multiplies the value of every asset in the network.

The flywheel extends to adjacencies that give consumers options at every price point. Through Boateka, we've professionalized and digitized fleet disposition and created a certified pre-owned product category, turning used boats into a structured high-margin business. In 2025, we sold more than 700 pre-owned units across all channels, with total retail unit sales compounding at 32% over the past 2 years. And because Freedom supplies that inventory, it's a structurally advantaged position in a roughly $2 billion pre-owned market.

Alongside it, our financial products business already earns EBIT margins above 50% across more than 600 U.S. dealer partners, with real runway to expand consumer financing and warranty attachment. Specifically, our strategic joint venture with Wells Fargo secures our competitive edge by ensuring consistent capital for dealer inventory growth and delivering unmatched operational efficiencies that deepen partner loyalty and reinforce our market leadership. Together, Boateka and Financial Services extend Freedom beyond access into a full life cycle platform, capturing more margin, deepening customer relationships and compounding value across the ecosystem.

So let me bring it together, Business Acceleration is a unique business unit whose success rests on scaling and improving the member experience, not on the marine cycle. We're targeting more than $300 million in business acceleration revenue by the end of the strategic plan period, driven by growing Freedom to over 550 global locations and more than 75,000 members. The strategy is straightforward: scale the core, optimize pre-owned and deepen integration across Brunswick. That's high growth and expanding market, the unique advantage of shared access and a flywheel that accelerates growth for the entire company. Disciplined execution that makes Business Acceleration a durable growth platform for Brunswick. Thank you.

And with that, Ryan will take you through the financials.

Thank you, Will. Hello, everyone. My name is Ryan Gwillim, Brunswick's CFO and Chief Strategy Officer. Brunswick is the best investment option in the consumer recreational space. As you've heard throughout our presentation, we have the strongest stable of premium marine and technology brands, a unique vertically integrated business model that drives synergies and captures value across the entire global marine ecosystem, and we lead with product, innovation, execution and talent. We have proven that we can perform in an uncertain macroeconomic environment and have made prudent portfolio decisions focused on growing our less cyclical businesses, resulting in a raised earnings floor. The result is a collective enterprise that generates above-market revenue and earnings growth, robust free cash flow and a strong balance sheet that provides investment continuity and flexibility and delivers sector-leading shareholder returns to our investors.

The bottom of this slide shows our strategic plan targets, reflecting a U.S. industry retail rebound of 5% to 15% from today, which we believe are both aggressive yet believable, and would result in historically strong shareholder returns. The most significant portfolio decision we have made in recent years was to invest heavily both organically and through targeted M&A in our recurring revenue businesses. The success of these businesses, which include our Parts and Accessories portfolio of brands, Mercury Marine Repower, Navico Group's aftermarket and Freedom Boat Club, hinges on boating participation which remains resolute and does not mirror the cyclicality of new boat sales.

A few proof points to underscore this fundamental aspect of the Brunswick story. Since becoming a pure-play marine company in 2019, we have increased our percentage of recurring revenue by approximately 10 percentage points, while the contributions to earnings has increased by over 15 percentage points. Our strategic plan, recurring revenue and earnings targets remain strong, with our OEM businesses exhibiting slightly stronger growth given a lower relative starting point. And since the global financial crisis, the revenue of our P&A businesses, which are by far the largest recurring revenue component, have more than tripled, and the earnings contribution has doubled over the same time period.

When you combine the growth of our recurring revenue businesses with the improved enterprise-wide operating performance, the result is a portfolio with an elevated earnings profile and less variability that drive shareholder value in any environment. To that end, this slide shows the immense improvement in Brunswick's financial performance in 2025 versus 2010, the last time the U.S. retail boat market was at approximately 140,000 units. Last year, our current portfolio delivered $2 billion more revenue and close to $4 more EPS versus 2010, with continued aggressive spending on product and innovation growth initiatives and prudent pipeline inventory management.

For this strategic plan, we have assumed conservative growth in the U.S. retail boat market, with 145,000 new boat sales or essentially a 1% market growth CAGR on one end, and 160,000 units on the high end, which represents only a 3% annual market growth. Note that these market sizes still represent a retail market operating at tens of thousands of units below a normalized replacement rate. Note that we are not making a market call here. We are basing our targets on a conservative market assumption with any betterment supporting planned upside. We are confident in this plan because we know that we can drive revenue and earnings growth through our own organic initiatives.

Supporting our anticipated mid- to high single-digit revenue CAGR includes annual pricing providing approximately 2% of growth, more premium product mix delivering another point and market share together with new products providing 2 points. This top line growth should lever up between 20% and 25%, with additional volume helping get to the top end or beyond. Note that we are assuming a tariff regulatory environment consistent with 2026, with approximately $130 million of tariffs this year and approximately 75% of that inside Mercury.

As discussed earlier, we are reducing our China exposure to 2% of COGS by 2027 and plan on further improvement going forward. The result is sales of $7 billion to $8 billion, EPS of $8 to $12 and annual free cash flow in excess of $550 million by plan end. These targets assume systematic share repurchases and debt repayment, but no significant M&A.

Now I will briefly discuss the updated targets by reporting segment, starting with Propulsion. Propulsion revenue growth is led by new product launches over the strategic period, which allow us to take price and gain market share. OEM conquests continue to generate new opportunities around the globe, while Mercury remains focused on attacking the repower, government, commercial and international markets, where Mercury has an immense right to win. Strength in controls and riggings, focused on technology that makes boating easier, rounds out an exciting revenue growth story.

New products also drive better gross margins as new product margins are increased with better technology and manufacturing efficiencies. With ample capacity available to cover any reasonable growth scenario and an institutional focus on minimizing OpEx expansion, we expect strong incremental margins from this segment. The result would be a $3 billion or more top line segment with low to mid-teens operating margins. Mercury will continue to mitigate its tariff impact with actions already discussed, and should the regulatory environment abate, we are confident that Propulsion could reclaim high-teens margins with an upside towards 20% in a stronger market.

I've already spoken about the importance of our Engine Parts and Accessories business, but here, you can see it's evident financial strength. Revenue growth of mid-single digits or better, as anticipated from growth in the global installed base, significant right to win with Mercury captive parts and market share gains through the world's largest marine distribution network. Steady boating participation provides a supportive backdrop for improving customer experience through investment in service and digital assets. Engine P&A delivers $1.5 billion top line with operating margins in the low 20%. The consistency and stability of the engine P&A growth story make this segment critically important to Brunswick's overall performance.

Moving to Navico Group. We have already laid the groundwork for a growth profile exceeding our overall enterprise expectations. This growth will be led by product and resulting market share gains in both OEM and aftermarket channels, where innovation, advanced technologies and new markets support strong revenue and earnings expectations. The product-led growth is only possible through improved operating capabilities, which Navico Group has already demonstrated the last several quarters. A leaner footprint, better internal systems supporting simpler interactions with channel partners and a general focus on operating improvements create an opportunity for the highest operating leverage growth in the enterprise. We anticipate outsized revenue growth of 7% to 12% annually from Navico Group, with margins progressing into the low teens by the end of the plan.

Finally, our Boat segment, which includes our Business Acceleration business, is primed for growth with our leading boat brands outperforming the industry and a strategic investment focus on premium products targeting the strongest part of the market where dollar growth continues. New premium-led products will generate revenue and market share increases at margins that exceed the products being replaced. These new products will be welcomed by dealers into a disciplined channel that starts this strategic plan with healthy and fresh pipeline levels.

Combined, the new product benefits with the far improved operating performance, leaner footprint and unmatched scale in enterprise integration and margin growth then returns Boat segment back to around 10%, achievable with lower market support than when previously at similar market levels. Finally, this segment will continue to benefit from Freedom's accelerated growth story and related business acceleration assets, the collection of which, while still a small segment contributor, have top line and margin growth prospects in excess of the enterprise average.

Moving next to capital strategy. Our core tenets have not materially changed from our recent strategic plans, with a keen focus on strong cash flow generation, which supports our investments in growth and allows us to both retain our strong financial position and return capital to shareholders. CapEx is expected to settle at approximately 3% of sales throughout the plan, with R&D spending also estimated to be approximately 3% of sales. With significant capacity projects at all our businesses behind us, CapEx will center on spending for new products, technology and innovation, along with system improvements and AI initiatives. Our capital strategy metrics remain strong and should strengthen moving forward through the strategic plan. We have a very attractive debt maturity profile with no near-term maturities and long-dated, low-cost fixed debt.

However, lowering our net leverage remains important in keeping our investment-grade credit rating with our strong free cash flow, enabling us to retire debt and reduced interest expense. By the end of this year, we will fulfill our recent commitment of retiring $400 million of debt over the last 2 years, having already retired approximately $240 million last year. We forecast net leverage of approximately 2.4x by the end of this year, and under 2x by the end of 2027, on path to below 1.5x net leverage.

Lastly, investors are already aware of our consistent track record of strong shareholder returns, delivering approximately 70% of our net income to shareholders since 2019. And our plan assumes continued share repurchases and consistent dividend increases. While we had a greater emphasis on debt retirement in 2025 and this year, our plan reflects $100 million of repurchases per year starting in 2027, and will remain opportunistic for increased amounts consistent with past practice. We also plan to reliably increase our dividend as well.

I'll finish on my favorite slide that shows Brunswick's leading TSR over the time period since becoming a pure-play marine company in 2019. Since this time, Brunswick's TSR of 112% far exceeds the average returns of our peers and is greater than all relevant indices, except the S&P 500 that is uniquely fueled by the tech sector. We believe that our TSR outperformance will continue from outstanding operating execution, clear and transparent communication and consistent delivery against our financial targets. Now is the time to get into Brunswick stock. If you assume that we deliver this strategic plan at the midpoint of our targets and we hold even 75% of our current PE multiple, you get a share price in excess of $140. We are excited about the future growth that Brunswick is positioned to deliver for its investors.

Dave will now wrap up the presentation with concluding remarks.

Thank you, Ryan. At Brunswick, next never rests. That mindset guides us to constantly push the boundaries of innovation, operational excellence and financial performance. I hope this is evident from this presentation, and it will certainly be reinforced at our upcoming Investor Day at Mercury Marine's headquarters in Wisconsin.

We are, by far, the largest, most balanced recreational marine company in the world. In the hands of our exceptional, experienced and collaborative leadership team, a unique integrated portfolio and operating model allows us to capture and amplify value across the marine ecosystem, while our industry-leading brands and leading edge innovation drive our business and the industry forward. Our strong operating leverage allows us to capture market upside, but we have also proven that our recurring revenue businesses and product lines are capable of delivering strong earnings and cash flow through this cycle. And as Ryan just highlighted, this unique blend has resulted in sector-leading total shareholder returns.

But we're still only partway through our journey. We have an exciting future and believe that our strategic plans, including new products, further share gains and continued operational and financial discipline, will drive compelling organic growth and even stronger financial performance. The support of our shareholders with whom we engage frequently and with clear transparent communication is not in any way taken for granted. We commit to continuing to be careful, balanced, but ambitious stewards of your investments. Thank you for the opportunity to share our exciting and compelling vision with you and for your continued support.

Good morning, and welcome to Brunswick Corporation's Second Quarter 2026 Earnings Conference Call [Operator Instructions]. 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 of Brunswick Corporation.

Good morning, and thank you for joining us. With me on the call this morning are David Falz, 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. Fronted 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 bias 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 remain very healthy and drove gains for Mercury Marine and Navico Group.

Voting participation also remains very strong and continues to drive our recurring revenue parts and accessories aftermarket and subscription voting businesses.

Bolton engine pipelines continue to be lean and fresh with balanced channel dynamics. With global bulk pipelines down approximately 1,800 units for the year, we are 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 EPA benefits, 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 IE per refunds on our results and guidance for the year. Finally, we repurchased $35 million of shares year-to-date, and we'll 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. Both fuel prices have clearly not dampened enthusiasm for both in 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 IPA refunds of approximately $60 million to $70 million.

We recognized approximately $30 million of submitted and accepted refunds in the quarter, with the remaining expected Phase II refunds of approximately $10 million reflected in full year guidance. The window for the balance of our refund submissions beyond Phase 2 is not yet open and not yet reflected in guidance. We're also monitoring the newly introduced Section 301 in 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 an 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 2 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 5-horsepower registration declines of 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 5 new engine platforms are on track with 4 launching in the next 2 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. Engie 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.

The engine P&A business and Navigo Group continue to work together to exploit combined footprint opportunities. Navigo 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 EPA 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 Saks store for Simrad Auto 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, it 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 boco. 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&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, EPA 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 EPA 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 IEFA benefit of slightly more than $0.20, which is the gross IPA 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.

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

Absent the net AEP 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 cost 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 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&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 EPA refund offering a very slight benefit.

Now turning to Navico 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 operating earnings increased 143% and propelled by leverage on their higher revenue and their net IEFA refund with the adjusted operating margin expanding by 680 basis points.

Absent the net EPA refund impact both adjusted earnings and margins were still up significantly. Navico 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.

GreetBot Club had a very strong quarter, announcing its 450th global network location and continued increases in members and trips. EPA refunds had a de minimis impact on this segment.

I will now share our updated guidance for the third quarter and full year. While certain new boat retail markets remain pressured due to continued elevated macro and geopolitical uncertainty, our portfolio of leading premium boat and engine products continue 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 continued to drive strong operating leverage and our expected results 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 impact 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 billion 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 EPA refunds.

Given all the moving pieces, we thought 1 last bridge would be helpful to show the components of our adjusted EPS guidance range. 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 IEFA benefit of a little more than $0.30 which includes the refunds accrued in Q2 plus the remainder of our Phase II refunds, which we believe will be approved in the second half of the year.

We are not anticipating or including in guidance any Phase IV refunds in 2026 which could add more than $0.20 once approved.

Offsetting these benefits are 2 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 Abaco gold.

Second, we believe that 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 rest, and there is a lot more to come, which we will share at Brunswick's Investor Day on August 11.

We will release a prerecorded video strategy presentation on our website next week and address questions on those materials at the events live Q&A session.

The event, which will be held at Mercury Marine's headquarters in Fonda, Wisconsin will also include facility tours and onwards of 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.

We will now be conducting a question-and-answer session. One moment, please, will be poll for questions. The first question is from James Hardiman from Citi.

Real shocker, I have a question on tariffs. There's a lot of moving pieces there.

Obviously, the incentive comp makes it 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 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 refunds?

James, maybe I'll take this. And maybe I'll be it just a little bit broader to start just so that everyone gets the full picture. I think we consider the tariffs paid in '26 and then the EPA refunds, pretty different animals.

So maybe I'll take them in sections, and that will help kind of everyone on the call. So on '26, really the only major change in the quarter was the elimination of $1.22. It was replaced by Section 301.

And then the additional potential Canadian tariffs. 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 is embedded in the guidance. We will continue to mitigate. We'll continue to lower 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 a neutral positive in the second half of this year due to that timing.

And then maybe on EPA refunds, we think about it in a couple of ways. We've been pretty public with a gross number, so just a growth before any other impacts to the P&L of $60 million of EPA refunds. You saw today in the materials, that looks to be now between $60 million and $70 million, but 2 very key things here.

So first, this is a gross number. We understand 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&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 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. ICA refunds are really in 3 phases. There's Phase I which is very small, received and recognized in the quarter in Q2, but very, very small.

Phase 2, which is about 60% of the refunds and I'll get to that in a second. And then Phase 4, which is the remainder.

And importantly, we are not anticipating currently any Phase IV refunds to be accrued or any benefit in 2026. So have not included that number in any guidance. So that's part of the million to million of gross that will eventually be received, but it is not included in any 2026 guidance.

So that leaves the treatment of Phase II IPO and simply about $30 million of that, as you correctly mentioned, $30 million was accepted in Q2 and therefore, included the results and once netted for enterprise-wide variable comp impacts represented about a $0.20 benefit in the quarter.

So that's what you saw on the bridge. The remaining about $10 million of Phase 2 was not accepted in Q2 due to some 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, we had a $0.20 beat in Q2 that had nothing to do with tariffs.

We had another approximately $0.20 of net EPA, which we talked about resulting in the $0.40 overall beat versus our midpoint of $1.15 from April.

And then if you look forward 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 2 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 IEFA goodness in the quarter is for $0.30, so a raise from $4.25 to $4.55 at the midpoint. So long answer, but lots of things covered there. I hope that answers your question.

That's really good, and it's -- I think it's a good way to frame it. I guess on a or what should really matter and that's sort of the demand environment. You talked about retail all-in being down 4%, I think, flattish ex 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 up meaningfully and then March was weaker and then here in 2Q, 2Q was weaker than 1Q.

Is there anything that we should be drawing from that? And I think the tide breaker is always 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 data points that you have?

Yes. Thank you, Jim, I'll take that one. Yes, I think -- I mean, we clearly are continuing to see this case shaped economy effect that we've seen some times some time now.

And it's almost like there are 2 distinct markets at the moment, and maybe we should work to frame them as best we can going forward.

That clearly is a premium market, which is very stable. We said that premium fiberglass was roughly flat, but in fact, it was almost exactly -- it was exactly flat basically almost to the unit.

So Boston Whaler and Sea Ray and Novan are very solid, continue to be very solid. Also our core portfolio was very solid, flat almost exactly which includes kind of premium pontoons, premium fishing.

But what we are seeing that we illustrated -- we talked about earlier, really is that the kind of fiberglass runabout boats where people are not maybe as committed to voting as part of their lifestyle. They're not typically fishing boats, they're not premium boats. That's where we're seeing the softness and it's not new. It's exactly what we talked about and exactly why we rationalized the product line in that area and also rationalize the manufacturing footprint in that area.

So we kind of rightsizing our business in the softer part of the market, with still potential for rebound but group actually probably sacrificed some revenue to do this, but gained about 100 basis points of margin, which is exactly what we intended.

So I think we will continue to look at both parts of the market going forward, a part that is very solid and resilient and has good momentum.

And we actually I think you'll see some positive things going on, particularly in saltwater fishing in the balance of the year.

But this part of the market that we're, I guess, leaning away from, which is the less committed part of the market, that kind of general run about fiberglass, but we are seeing people just more cautious and more fragile, I guess, from the overall economy.

Next question is from Randy Konik from Jefferies.

I guess, Ryan, for you, what I wanted to try to get to understand, maybe qualitatively, if you don't want to give quantitatively, is just how we should be thinking about the long-term margin power of the business.

You talked about it in the answers to questions or a script in terms of continuing to work on things like reducing your manufacturing footprint, i.e., fixed cost expense in the business.

So I'm just trying to understand, as we think about over time, the demand environment improving, not focusing on what's going on in the next 90 days over the last 30 days for the next 2 to 3 to 5 years, I just want to understand that in an assumption of an improving long-term detail of demand, how you -- how we should be thinking about the margin power of the company overall?

And maybe just high level how we think about the different segments as it compares to prior cycle high margins may be achieved during Covert, et cetera? How do we want to think about that similar or not similar this time around versus last time around? That would be super helpful.

Yes, Randy, I'll take that. The very good news is in 4 days, you can get a whole lot of detail on exactly that, which is what do we think our earnings power is in a market that we think is going to be may not provide as much help as maybe in previous plans anticipated.

We agree. We think there is still growth in the market. We think we're at a trough in terms of units. But there's different views on how fast that returns to a more normalized view.

And the one constant is that Brunswick can continue to drive earnings and a variety of market conditions as we've proven already.

Without getting too detailed because I do want people to see all the specifics that will be in our investor materials, no one's going to be surprised to see the operating leverage that's embedded in our plan. It's north of 20%.

It can get to something that's north of that in various conditions. And that's really across the portfolio. There's not one single business unit that is a laggard or far ahead.

I will give you a couple just things to think about Navico Group continues to grow and have gross margin growth.

That has the highest product and variable margins of anything across our company, and that will continue to be a strength, I think, as we progress through the next strategic plan, our parts and accessories business also continues to be extremely strong from a margin standpoint, but just consistent as can be.

I mean this year, boding usage, we know is up, and that's been reflected then in a very strong year from the P&A side. And then propulsion and as both continue to grow margins throughout any conditions you've seen the boat business at a wholesale level that they haven't really seen in a decade, still grow margins this year.

As Dave mentioned a second ago, while propulsion continues to be flat to slightly up and will be up for the full year despite strong product spending and the tariff impact.

So you're going to -- I think the investor community is going to be very pleased to see the innate growth across all of our businesses that would be supercharged -- in the event there is just a little bit of industry help or market help, also given that the pipelines are kind of in historic flows across our portfolio.

So I hope that helps. And certainly, Monday morning, the additional information, it will be very helpful.

Super helpful. And then just can you just maybe quantify and remind us, you just mentioned it, the extra spend and pull forward that is related to I think some of these higher horsepower engine programs, I think you said 4 or 5 programs are in process, a couple or 4 or the 5, I think, are launching in the next 1 or 2 years.

Just curious on how we should be thinking about that extent of the pull forward and the duration of that expense, such that when we get to, let's say, I don't know, second quarter, first quarter, 2027, is that an expense relap and that those pull forward expenses start to kind of pull off a little bit? Just high level, how we should be thinking of that as well.

Yes, it's about $20 million to $25 million of spend, and that's been spread across a couple of quarters. So yes, by the time you get to next year, the product spend may not be dramatically lower, but this is a lumpier time. Remember, these engine programs ebb and flow over time, and you may get to a point which we have over the last couple of quarters where each engine program is in a spot where it's a little heavier spend.

And so that's what you're seeing, but do not take away that we're going to stop spending on engine product development because that is a core competency of ours and keeps us well ahead of our competition. So a little bit lumpy.

Think about it is about $20 million spread over a couple of quarters. But again, it will soften but not dramatically so as we go to the out years.

The next question is from Matthew Boss from JPMorgan.

So Dave, could you just elaborate on the progression of Boat retail sales to the core summer selling season with retail sales tracking down 4% year-to-date.

Any change to flat to up slightly for the year? Or any change separately in your outlook for wholesale units this year?

Yes. On the retail side, I think given the soft of value, value part of the market, I think flattish is probably where we'll end up, it could be slightly down on a unit basis.

But entirely due to the value part of the market, we still see the premium and core parts of the market as very solid at the moment. So we would say that they're likely to be flat, those parts of the market through the balance of the year.

By the end of July, which is where we're at right now, it's about 75% of retail for the year. So that will be modest kind of changes going forward.

I think maybe what I didn't say earlier is, although we're -- we have to recognize that the markets behave -- different parts of the market behave differently.

If you're looking in the automotive market at the moment, pickups and SUVs, you're having a pretty good time of it. If you're looking at past cars, having quite such a good time of it.

And that is very analogous to what's going on in the boating market at the moment.

And we lean into premium and core. That is where the vast majority of our profitability is. So that remains very steady with plenty of upside opportunity, which we'll also talk about in Investor Day.

The other thing I didn't really say was, of course, we are participating in the, if you like, the value part of the market through Freedom Buckle. There are alternative ways to get at that consumer in ways that are less subject to inflation, less subject to interest rates, all those kind of things.

So I think that we are mixing our approaches to the market appropriately exactly for how the market is behaving and we'll continue to do so. And we did see really strong performance from Freedom Boat Club this year.

And the other part of the market that we don't talk about enough, even though we try to is voting participation, which has been incredibly strong.

So if people own a boat, they are using it extensively despite fuel price increases as we anticipated. So there is no shortage of interest in going boating. We're just seeing this 1 part of the market, which is a bit less committed and a bit more economically fragile showing some softness.

But that is really not super material to our results, as you've seen.

And maybe just to add on that, you did have a wholesale question and just to piggyback off of what Dave is saying, wholesale sales for our premium core products as we look at the 2027 model year, which we're now in continue to be very strong, especially at Whaler.

So as we think about wholesale assumptions for the year, I don't think there's any material changes. If there'd be any changes in the numbers, just the raw numbers, it would be premium and core continue to be strong and maybe up a little bit over expectations while value would be slightly down.

So really good momentum on wholesale as we think about the back half of this year.

The next question is from Joe Altobello from Raymond James.

I guess, first on shipments in the back half of the year. How are you guys thinking about wholesale versus retail with respect to both boats and engines, would you expect dealers to end the year higher in terms of weeks on hand?

Yes. I think it will be flattish on a weeks on hand basis. Joe, I think what we are seeing from dealers and actually, you see it in the dealer sentiment studies, we think -- they think that they are approaching the right level of inventory, and I speak about that on a total market basis.

And for us, we are very lean and fresh inventory levels. So we have not seen any diminishing trends in wholesale orders.

We believe orders will remain very solid, which will probably mean that weeks on hand will probably be pretty flat through this year.

Got it. And just moving on to the U.S. outboard market. Are you seeing any shifts in terms of pricing from some of your competitors at this point?

No, we are not seeing any material shifts in pricing. We continue to see very modest pricing and we are continuing to follow that.

As you know, we price at a premium. So we're continuing to maintain that premium, but we're not seeing a lot of pricing activity at the moment.

The next question is from Anna Gaskin from B. Riley.

I'd like to ask on the vote segment rationalization, do you expect that you would continue to see rationalization spill into 2027? Or should 2026 the end of that impact?

I think we'll continue to look at it, to be honest. I think we did -- I mean, really, the product lines that we took out, I think with the right product lines at the time, but we'll continue to see how the market develops.

We don't believe that there aren't new opportunities in the value part of the market, and we're looking at different kind of model architectures and ways to approach that part of the market that might offer something that the market is desirable in that market and a little bit different.

So we're going to continue to be innovative. But if we need to rationalize more, then yes, sure, we'll rationalize some more. And trying to make sure that we maintain scale but lean into the growing parts of the market and the higher margin parts of the market.

So yes, it will be dynamic. I can't say it's complete yet. We're continuing to look at it.

Got it. And then just 1 clarification. You've seen some pretty significant operating margin expansion in Navico through the first half of the year but the full year guide, I believe, is up 200 basis points. Is that $200 million excluding the IESA refunds that hit so on like an organic basis because otherwise, it seems to imply a potential compression in the back half.

No. Anna, that's just not that -- I'm sorry, yes, the IEFA refunds are included in all of our guidance kind of as anticipated. Navico benefited from that in the quarter.

But even if you take that out, right, even if you take out any IPA goodness, they were still up 260 basis points in the quarter.

So still an outstanding result. If you think about the remaining portion of the year, Q3 and Q3, we anticipate should be up and Q4 probably closer to flat to get to your guidance for the full year.

So was a onetime kind of good guide for the quarter that will be then spread out for the full year. But to be clear, they are growing margins absent the EBA refund throughout the -- for a full year basis. similar than they did last year.

Okay. Got it. Thanks, Ryan. -- helpful.

The next question is from Gerrick Johnson from Seaport Research Partners.

Some questions on the associated variable comp related to the tariff refunds. One, can you explain the mechanics, I mean, is everyone getting like a retroactive bonus set at Brunswick? And how much of this variable comp, what's the dollar number that were offsetting these refunds with in the second quarter and then also in the back half. And lastly, on this, of those refunds, how are they spread across the segments?

Are. Well, maybe Ryan and I can tatemthis a bit. No, nobody is getting a retroactive bonus of any kind. Our variable comp plans depend on free cash flow, which was stronger.

And also on earnings or earnings per share long term is cash flow return on investment. Essentially, we did not -- typically, we have some form of linear variable comp curve of almost linear comp curve where roughly 100% of kind of forecast earnings and cash flow for the year equals 100% of variable comp.

When the tariffs hit last year, we did not ask for any adjustments to our variable comp. And so as they flow through the P&L, we did not hit our target and we did not get paid at 100% variable comp.

In fact, we took a pretty big hit to variable comp. Now as the refunds flow through the P&L again, they drive our financial performance to above target, and therefore, people get paid at or above target. So it is simply our kind of linearity working from 1 year to the next.

Last year, we got paid lot because of tariffs running through the P&L this year, we get potentially paid more due to tariffs running through the P&L.

And our curves are typically linear or close to linear.

And then, Garik, just on some of the technicalities in terms of spread across, I mean, it's pretty even between Mercury and NAVCOGroup and boat and then obviously, corporate and remember that there's -- it's not just incentive compensation on cash. There's the impact on equity as well as the impact on profit sharing, our profit sharing, which goes to all of our employees.

So this will support a payment that we obviously made this year that we hope to make next year again that goes to not only the salary folks but also hourly as well. So there's a lot of components here, but Dave had the had to mechanics correct.

And the nature -- the nature of the KPIs are all publicly available.

Okay. Okay. We can go over those later. As you know, I like to do my own math, but I appreciate the explanation. Thank you.

The next question is from Craig Kennison from Baird.

Dave, I'm curious what indicators do you track that give you confidence, marine usage remains healthy? And then what signals do you need to see to believe that both usage ultimately will lead to a stronger replenishment cycle? .

Yes. Craig, yes, we have a number of indicators. Obviously, some of them are more real time than others.

The most real time really is Freedom Bulk Club data, which shows member boat trips up 13% in the half of the year.

And the interesting thing there is if you wanted to design an experiment to look at the effect of fuel prices on boating, you couldn't have a better experimental design of Freedom Boat Club because it's the only variable basically people pay their monthly fees and then they pay fuel costs, you couldn't design a more pure experiment really.

And what you've seen is that the effects of fuel prices do not have no effect on boating participation and in fact, Freedom boating is up substantially.

So that's a nice unique insight that we have of Brunswick. But you can also see indirectly the strength of our P&A business.

And we can look into and analyze that more closely at what kind of categories are being sold. And that certainly supports the fact that people are using their boats extensively.

We also track other indicators after the year, but unfortunately, it's really -- a trailing indicator, obviously, we get registration data that, as you know, has been very solid and in fact, is growing in terms of the parts of the market in which Brunswick participates. That's the kind of 7 million units out of the 10 that are registered, which has grown from around 6.5% over the past years or so.

And then a follow-up on mercury. It's been taking share, I think, for several years now, and that typically comes with the P&A annuity maybe with a lag. So are you seeing any evidence that some of the share gains you've had in recent years are starting to impact P&A demand this year and beyond?

Yes. I think that it's a very positive trend. And certainly, we'll talk more about it at Investor Day. As we gain share, particularly in high horsepower, we have more and more captive parts. .

And as you know, Craig, and as others will see during Investor Day at the facility, there is almost -- it's almost impossible to create knockoffs of any of those parts.

So any replacement is going to come from us as the products get more sophisticated, it is very, very difficult for anybody to do anything independently to replace our own parts as well.

I think at one point in time, a sterndrive engines became less popular, there was a bit of a fear that the P&A annuity would be diluted a bit.

But in fact, that's not the case. And those large outboards have really taken the place of stone largest sterndrive engines with a lot more captive content.

So yes, we're excited about the future of P&A if we're talking about hundreds of tens of thousands of units being added to the kind of P&A annuity every year so that it is a little bit diluted but yes, it's -- there are a lot of very positive trends about the strength of our P&A annuity, both in terms of volume and margin. Obviously, the more captive content we have, the more margin opportunity we have as well.

I would just actually -- even though you didn't ask for it, Craig, maybe I'll throw in there, part of the fastest-growing part of the market in a lot of ways is the electronics part of the market. And so Navico's aftermarket is another really exciting part of the business that we'll obviously are now participating in more.

The next question is from Tristan Thomas Martin from BMO Capital Markets.

Just wanted 1 question on the P&A trend. Is there a way to think about a potential West Marine kind of bankruptcy store closure benefit as have you -- was that a benefit in the quarter and any way to think about it moving forward?

Well, I think -- yes, I mean, a little bit of a short-term headwind, I would say, but the reality is we are the biggest mean marine distributor in the world.

And so people are going to get that parts and supplies somehow. And so for the for the parts of the market that are more dealer and distributor orientated, some of that business could certainly translate to our laden and Kellogg and other parts of our distribution network. So yes, that's a possible team.

At this time, we would like to turn the call back to Dave for some concluding remarks.

Well, thank you, everybody, for your questions. Another very encouraging quarter, completing a very strong first half of 2026, solid retail revenue up substantially across all businesses, margin expansion, strong leverage and continued really strong free cash flow generation. .

Despite the new boat market that has stabilized but is certainly seeking a solid rebound. We are clearly firing on all cylinders, great new products, structural cost reductions coming through. Our portfolio is orientated towards and leaning into exactly the right parts of the market and our recurring revenue businesses continue to really thrive and had a particularly strong first half.

As I've said earlier, you'll hear more about that, a lot of exciting new growth opportunities for Brunswick at our Investor event on August 11 of Mercy Mara's headquarters -- you meet the leadership team, your for Mercury's facility and get some fantastic on-water experience as well. So if you haven't registered, please do soon.

And we really look forward to seeing you all. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to Brunswick Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. 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 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. We delivered an excellent start to the year, building on the market recovery in the second half of 2025, with first quarter results significantly ahead of expectations despite the dynamic geopolitical and tariff environment.

Global and U.S. boat retail were approximately flat on a unit basis compared to the relatively strong first quarter of last year and premium sales were up. Q1 was the third consecutive quarter of improved relative retail performance, building confidence in our retail forecast for the year as we move into the core selling season in our largest markets. Strong OEM order patterns drove gains for Mercury Marine and Navico Group, while solid boating participation benefited our recurring revenue, parts and accessories, aftermarket and subscription voting businesses.

From an inventory perspective, both an engine pipelines remain healthy, lean and well aligned with demand. Global boat pipelines are down approximately 2,000 units versus last year and flat sequentially versus the end of 2025, reflecting our deliberate actions to closely match wholesale with retail.

Our overall net sales of $1.4 billion increased 13% year-over-year with growth across all segments driven by continued market share gains, strong OEM demand, accelerated new product and technology introductions and disciplined operational execution across the enterprise. Our adjusted earnings per share of $0.70 increased 25% versus last year, with strong operating leverage from higher sales, more than offsetting the impacts of the tariffs implemented after the first quarter of last year. We continue to execute our disciplined capital allocation strategy, repurchasing $20 million of shares year-to-date and delivered our 14th consecutive annual dividend increase, underscoring our commitment to returning capital to shareholders while maintaining a strong balance sheet.

In our core U.S. market, product demand and boating participation remain relatively unaffected by the conflict in the Middle East, although the health of the value consumer remains a focus. We have a relatively small direct exposure to Middle East markets, but are monitoring trends in Australia and New Zealand and other more exposed markets as oil supply tightens. Our high exposure to the most insulated markets, particularly the U.S. and Canada, which account for more than 70% of total sales, balanced portfolio, lean channel inventories and operational discipline position us strongly to effectively navigate the volatility.

Turning to segment performance, for the third consecutive quarter, all segments delivered year-over-year sales growth. Operating margin expanded across the portfolio, except for Propulsion, which absorbed the majority of first quarter incremental tariffs. The strong performance reflected improving retail and wholesale trends, sustained boater participation and disciplined operational execution across the organization.

Propulsion sales increased significantly versus last year with Mercury's global and U.S. outboard unit orders increasing more than 15% over the prior year period and record Mercury outboard share at recent boat shows, including 60% overall and 80% on the water share at Miami and 70% share at Palm Beach signaling the potential for further high horsepower share gains. Overall, R12 share remained steady at 47%, with year-to-date retail share up 200 basis points along with strong wholesale share gains. Our accelerated investments in future high horsepower outboard platforms and all new midrange high-volume models will reinforce our long-term competitive advantage.

Healthy boater participation and continued distribution gains drove higher sales and margin year-over-year in our Engine P&A business with Land and See again increasing U.S. distribution share by 150 basis points.

Navico Group delivered revenue growth and margin improvement, supported by new product launches and operational improvement actions. We introduced the Simrad NSO 4 and B&G Zeus SRX multi-function displays at the Miami Boat Show, received an innovation award for the Lowrance Active Target 2XL fish finder and continue to execute Simrad AutoCaptain implementation plans with a range of OEM customers.

Finally, our Boat Group segment grew sales and margin as wholesale shipments aligned with stable retail. Boat show revenue increased year-over-year despite weather impacts of some upper Midwest and Northern market events. At the Palm Beach premium, saltwater show, Boston Whaler and Sea Ray delivered high unit sales and a substantial 40% revenue increase versus last year. Freedom Boat Club added 4 new locations in the quarter, increased member trips by 20%, improved same-store sales by 10% and earlier this month completed the acquisition of the largest remaining franchise club in the Freedom network, which serves the Boston and Cape Cod region.

Moving on to external conditions. Rate cuts enacted late in 2025 are a continuing tailwind for retail and floorplan financing as we enter the peak selling season. While expectations for incremental rate relief have moderated, our forecast does not rely on additional cuts. Fuel prices have risen recently, due to geopolitical events, but generally remain within historical bounds, and we are not experiencing any clearly discernible direct impact on retail or OEM demand or on boating participation in our largest markets.

The tariff environment remains dynamic, and Ryan will discuss the specific impact to our guidance later on the call. The tariff on Mercury Marine's Japanese competitors remains in place representing a potential structural advantage for Brunswick. Refunds related to previously paid, IEEPA tariffs are not yet factored into our outlook. Current dealer sentiment has improved overall, but still cautious, supported by healthy and fresh inventories and lower pre-owned boat supply, which supports new boat demand. While incentives remain elevated versus historical norms, they improved approximately 100 basis points last year, and we are forecasting further modest improvement in 2026.

Looking now at industry retail performance. The latest SSI data for March shows U.S. industry main Powerboat retail down approximately 5% year-to-date. Against this backdrop, SSI reported that Brunswick outperformed the industry. Our global and U.S. internal retail unit sales were approximately flat year-over-year compared with the relatively strong first quarter of 2025 prior to the impact of tariffs with premium and core again outperforming value.

From a pipeline standpoint, conditions remain very healthy. Global Boat pipelines are down approximately 2,000 units versus last year, but flat sequentially versus the fourth quarter and benefiting from wholesale to retail alignment consistent with our plan. In addition, our global boat order backlog at the end of the first quarter represented 71% of our second quarter wholesale forecast, up 6 percentage points from last year, providing improved near-term visibility.

Turning to engines. U.S. outboard engine industry grew 6% in the first quarter with Mercury retail units of approximately 11%. With a similar dynamic to boats, U.S. outboard pipelines were down approximately 10% versus last year, but flat sequentially versus the fourth quarter reflecting wholesale to retail matching.

Overall, the combination of sustained share gains, disciplined pipeline management and improving wholesale to retail alignment, gives us confidence in our outlook for 2026 and supports our expectation for a flat to improving market as we enter the peak boating season.

Finally, I want to address the impacts of recent oil price volatility, which has been a frequent topic in recent investor discussions. From the boat buyer or boater perspective, historically, there has not been a correlation between oil price spikes and boat sales or boating participation. A primary driver of this low correlation is that fuel costs represent a relatively small portion of total boat ownership expense because on an annual basis, the typical recreational only uses about 20% to 30% of the fuel of a comparable passenger vehicle. From a boat group perspective, exposure to oil-linked materials is relatively small representing a combined 2% of total cost of goods sold and with the relevant materials being under long-term supply agreements.

Our scale and sophistication also enable hedging programs for other key commodities, such as aluminum, further reducing exposure to spot-price volatility. However, aluminum prices do remain elevated. Diesel prices have, however, impacted boats and other transportation costs, and we have implemented some surcharges.

I'll now turn the call over to Ryan to discuss our first quarter financial performance and updated guidance.

Thank you, Dave, and good morning, everyone. Brunswick's outstanding first quarter performance came in ahead of expectations with strong sales and earnings growth versus the first quarter of last year. On a consolidated basis, sales were up 13%, reflecting improved wholesale and retail trends, continued market share gains in propulsion and several boat categories, strong OEM demand for propulsion components and electronics, favorable changes in foreign currency exchange rates, pricing actions in each segment commencing in the second half of 2025, and solid boating participation driving aftermarket performance.

Adjusted operating earnings were up 15%, supported by the increased sales, favorable mix, improved absorption and disciplined cost management more than offsetting the impact of incremental tariffs implemented after the first quarter of last year. Absent the year-over-year enterprise impact from incremental tariffs, adjusted operating leverage was approaching 30%, driving adjusted EPS of $0.70 for the quarter.

Free cash flow was negative in the first quarter, consistent with seasonal and historical patterns, reflecting higher production levels and working capital investment ahead of the peak selling season. Compared to the prior year, free cash flow was down solely due to reinstated variable compensation paid in the quarter.

Moving to our segments. Propulsion delivered a very strong start to the year with sales increasing 17% versus the prior year, driven by an improved market, global share gains and strong OEM demand heading into the selling season. Adjusted operating earnings declined year-over-year, solely due to the planned accelerated investments in product development and incremental tariff impact, which slightly more than offset the benefits of higher sales and improved absorption. Absent the incremental tariffs, pro forma adjusted operating leverage for propulsion was north of 20% in the quarter even after accounting for the high single-digit million dollars of additional product development spend in the quarter.

Moving to engine parts and accessories. This segment once again delivered growth from its aftermarket high-margin recurring revenue portfolio with sales up 14% versus the prior year with significant growth across both products and distribution. Healthy early season boating participation even with the recent increase in fuel prices and continued market share gains in our global distribution business drove growth in the quarter.

The higher sales and robust adjusted operating leverage at 27% and led to a 24% increase in adjusted operating earnings with a 140 basis point improvement in adjusted operating margin.

Navico Group had another great quarter, transitioning from stability to growth with sales up 7% over prior year and up across all business lines, supported by improving OEM demand, steady aftermarket performance and operational efficiency. More importantly, adjusted operating earnings increased 64% with adjusted operating margin expanding 280 basis points, reflecting the early benefits of product portfolio optimization, operational improvements and disciplined cost control actions, which more than offset incremental tariffs. We often discuss the inherent operating leverage in this high gross margin business so it's fantastic to see 47% adjusted operating leverage in the quarter as our actions bear fruit.

We continue to see encouraging traction from recent product launches, including Simrad NSO 4 and B&G Zeus SRX, and recognition for innovation with Lowrance Active Target 2XL. While there is still work ahead, the results this quarter reinforce our confidence that Navico Group is on a sustainable path towards improved profitability.

Finally, our Boat segment also had a strong quarter with sales up 6% over prior year, driven by higher wholesale shipments matching stabilized retail conditions, favorable mix and continued momentum in the business acceleration portfolio. Boat growth was led by our aluminum fish and pontoon brands while Freedom Boat Club continued to deliver strong increases in members, trips and locations, as mentioned earlier.

Adjusted operating earnings increased 63% and adjusted operating margin expanded 130 basis points, reflecting healthy adjusted operating leverage of 25%, primarily driven by the higher sales and favorable mix.

Dealer pipelines remain very lean with mostly current model year product while positioning the business heading into the prime retail season.

Lastly, I will discuss our updated outlook for 2026. As we enter the core retail selling season in the U.S., we are encouraged by the stable market conditions and the strength of our first quarter performance. Steady dealer and customer sentiment, exceptionally healthy and lean pipelines, disciplined wholesale to retail alignment and sustained boating participation are sources of confidence as we move through the remainder of 2026. However, while direct sales and operational impacts remain limited, heightened geopolitical volatility has introduced new uncertainties.

Earlier, Dave discussed the muted impact to date caused by fluctuations in interest rates and fuel prices, but we remain cognizant of the potential impact on the health of our consumer, especially outside the U.S. from a prolonged conflict in the Middle East.

Finally, the tariff environment remains dynamic. And during the quarter, IEEPA tariffs were repealed and replaced a Section 122, and more recently, Section 232 tariffs on steel and aluminum were amended. The net impact of these changes is positive, and we now believe our full year incremental net tariff impact will ultimately land near the lower end of our original $35 million to $45 million estimate shared at the beginning of the year. Also, as, Dave mentioned, refunds related to previously paid IEEPA tariffs are not yet factored into our outlook or recognized in our financial statements.

The result is materially unchanged guidance on the sales, margin and free cash flow lines, but an increase to adjusted EPS guidance to $4 to $4.50 reflecting the lower full year expected incremental net tariff impacts I just discussed as well as the first quarter overdrive while also factoring in some cautiousness given the current dynamic macroeconomic environment.

Overall, we believe our guidance reflects confidence in our operating plan, the resilience of our portfolio and our ability to generate strong financial performance and a flat to slightly up retail environment.

I'll now pass it over to Dave for concluding remarks.

Thanks, Ryan. I want to highlight some exciting recent developments in one of our fastest-growing businesses, Freedom Boat Club. As you know, Freedom is a profitable, high-growth recurring revenue business but continues to expand boating participation by making boating more accessible to a broader demographic. The model drives extensive synergy sales across the Brunswick portfolio, including through the purchase of Brunswick Boats Mercury Marine engines, parts and accessories and Navico Group products resulting in approximately $300 million of enterprise synergies since the 2019 acquisition.

Since the acquisition, we've also grown the location count from 170 locations to 446 global, corporate-owned and franchise locations, adding 4 more locations in the quarter. Last year, Freedom members made 640,000 trips in the U.S.

Earlier this month, we announced the acquisition of the largest remaining franchise club in the Freedom network, serving the Greater Boston and Cape Cod region. This acquisition adds 21 locations for our corporate-owned total as well as a strategic maintenance operations center that will drive synergies with other nearby corporate locations. It is also day-one accretive to earnings.

Innovative new products and advanced technologies are central to Brunswick's long-term value creation, differentiation and share gain strategy. And during the quarter, we introduced many exciting new products across our portfolio, including the all-new Sea Ray SLX 360 and Boston Whaler Outrage 330 and 290 models with Mercury Power and Navico Group Electronics; Simrad's NSO 4 multifunction display with NEON Android operating system. Mercury's advanced keyless engine start system and innovative Boost over-the-air outboard performance upgrade and Fliteboard's RACE ultra-high-performance model. All these products illustrate our commitment constantly pushing the boundaries of marine innovation.

Finally, I want to highlight the continued recognition our teams and brands are receiving across our enterprise. Through the first quarter, Brunswick has already secured nearly 50 awards and remains on track to surpass 100 awards again in 2026. This recognition spans product innovation, workplace culture, leadership and corporate reputation and reflects the strength and consistency of our operating model and values. We are appreciative of having received many national awards now for multiple years but notably, for the first time in 2026, Brunswick was named the Fast Company's most Innovative Companies list, reflecting the wide recognition for our industry-leading innovation.

Thank you again to all our talented Brunswick employees who make this recognition possible. Before we open the lines for questions, I want to close by thanking our customers, channel partners, employees and shareholders for their continued strong support. We are also excited to announce our Brunswick Investor Day, which will be held on August 11 of Mercury Marine's global headquarters in Fond du Lac, Wisconsin. The event will include a facility tour, on-water product experiences and a live Q&A with Brunswick senior leaders.

In advance of the event of prerecorded video strategy presentation will be published to our website. For planning purposes, I kindly ask that you register your interest in attending using the contact information on this slide.

Thank you for your attention. We'll now open the line for questions.

[Operator Instructions] The first question is from Craig Kennison from Baird.

It really involves Mercury, you continue to pick up market share in a soft market, which could lead to a record volume and a cyclical recovery. And then you also appear to have a winning product cycle and some tariff-related tailwinds. So I'm just thinking with all of that in mind, if you could give us an update on your capacity utilization and your ability to handle additional volumes if they were to surge and then provide a framework for thinking about incremental margin in that business?

Thanks, Craig. Great question. Yes. Mercury is continuing, as you said, to gain share. And really, we have a fantastic product. And what's interesting, I think, is I think that there was some belief at a point in time, maybe a year or 2 years ago, that some of the share gain was temporary because of supply constraints and other things. But clearly, it's not. It's very structural. We have the best product line. And as you've heard, we are investing even more in 5 new outboard platforms from midrange up to new extensions to our high horsepower range. It is very exciting. We are well capacitized after the investments that we made in 2019, 2020, 2021 to support all of the foreseeable volume.

We do not anticipate any major additional investments to be able to support volume certainly in the next year or so. So yes, we're very excited about that. As you heard from Ryan and I'll maybe turn over to him. Mercury is leveraging up very nicely. And absent the tariffs, I think we're -- but, Ryan, maybe you want to take over the leverage numbers?

Yes. I mean we are obviously -- we always quote more than 20% operating leverage. Obviously, with tariffs, that number gets skewed a little bit, but we would have been approaching a 30% number in the quarter had we not had the tariff impact. And that is not encompassing the additional spend that Dave mentioned, where high single-digit million quarter-over-quarter versus Q1 of '25 to really supercharge those engine programs.

Next question is from James Hardiman from Citi.

So I was wondering if you could maybe walk us through sort of demand trends that you've seen to start the year. Last time you reported, it sounded like January was off to a really, really strong start. And I think you guys have spoken to really a continuation of that in February. And so as I think about sort of a flattish first quarter I think that means that March must have been down, but then maybe speak to what you've seen in April? And particularly, I think what everybody is just trying to figure out obviously, you had a war that started, right, the end of February, beginning of March. I don't know if the narrative is that things sort of maybe slow down a little bit and have since recovered in April. But you guys have certainly spoken to sort of stable market conditions. Obviously, from month to month, that can look pretty different. But maybe just walk us through the trends.

Yes. Thank you, James. Yes, I would say -- but of course, monthly volumes are quite a lot different as we go through the year with March volumes being higher than January and February. And I think overall, as we said, we did see some high early volumes in January, which have stabilized over the balance of the quarter. Whether there was any real impact of the conflict. It's very difficult for us to determine. But yes, for us, the quarter ended effectively flat both globally and domestically. I wouldn't -- I would also note, though, that we continue to see this trend of premium outperforming value.

And so if there was some additional pressure in the quarter or hesitation caused by the conflict, it likely impacted the value by more than the premium buyer. As we've gone into April, we are up year-over-year or month-over-month, if you like, a month this year over April last year which is what we would have expected, to be honest, given the Liberation Day pause that really happened last year.

So yes, we're encouraged by the start to the second quarter. And at the moment, that trend seems to be continuing as we look kind of week over week. Also with continued strength on the premium side, particularly. But as you saw, we did see some really good sales on the -- in our aluminum products as well, particularly our prealuminum products.

So yes, we're flat. I guess, I mean, the other thing to note is that SSI data showed some depths in the first couple of months of the year and is now kind of converging more back to a flattish market, I think, is more as they report more months, and we would expect that to continue.

Got it. And then one of the things that always stands out and sort of every year, it seems like we feel like this can't really continue. But it's the idea that the outboard engine market is again growing faster than the boat market itself. And obviously, for a long time, some of that was just stern drive to outboard.

But the bigger driver just seems to be higher attach rate at this point of engines per boat. And then obviously, on top of that, you guys are gaining share and there's a lot of mix and margin benefits. But maybe speak to that, what do you think continues to drive that outboard industry outperformance. And then in the context of your guide, I don't know if you've spoken to this before, but if we're thinking about sort of a flat to up slightly boat industry, how are you guys thinking about sort of the outboard industry. And then you're -- I'm assuming whatever your outboard industry assumption is you think that Mercury is going to do a little bit better than that, but maybe walk us through how to think about those pieces.

Yes. So I think you -- I think you've got a number of the factors in there. The most folks now, almost all recreational boats effectively are powered by outboards. And so we're just continuing to get more volume that way and then also multiple engines. And you don't necessarily see offsets in our financials because some of the offsets that are happening are between our 400, 500, 600-horsepower engines and other people's diesel engines.

The reality is there never was a 500 or 600-horsepower outboard alternative. And we didn't even sell that many stern drive gas engines in that power range. Most of the stern drive gas engines that we would sell typically in the 200 to 400-horsepower range, which would be the old OGM kind of -- so we're grabbing share away from some of the traditional propulsion like diesel engines in the bigger boats.

In terms of our momentum, we continue to outperform the market for all the reasons that I've previously discussed. I am really excited about some of the new programs that are coming to market over the next couple of years as well. They're not far away which will really extend the whole range upwards and also refresh some of the mid-range products. We can't forget that as we move upwards, we have to make sure that our mid-range product is is completely contemporary and continuing to outperform our competitors. So we're continuing to invest across the product line there.

In terms of the overall market, I would say at the moment, everything is supporting our kind of flat to slightly up scenario, and we would expect more mercury share gain and a higher outboard attachment rate and more multiple engine products since premium is growing faster than value. Value product tends to be single engine premium product is typically or frequently multi-engine product. So those are some of the things, I think, supporting.

It's not honestly just -- if you think about Mercury's profitability, though, it is not just every engine we sell is what we sell with it like the controls and rigging, and we are just selling more and more sophisticated controls. So you see that part of Mercury's portfolio growing. The more multi engines we sell, the more joysticks, we'll have also capped in all of those things increase kind of share of wallet and attachment rate for sophisticated controls.

The only other thing I'd add, Dave, is given the fact that the larger portion of the boat market now is outboard, as you mentioned, that makes it a larger TAM for repower. So we're seeing more and more repower just because there's more boats to repower over time. So that James also adds to the maybe acceleration of engine, retail versus just pure boats.

The next question is from Xian Siew from BNP Paribas.

Maybe on the slide you kind of mentioned the competitive landscape and other competitors may be having tariffs. I mean maybe could you elaborate a bit more on where you're seeing the competitive landscape in terms of pricing and offering and how that could kind of evolve and support further share gains?

Yes. I would have to say pricing is pretty muted, I would say, in outboards at the moment. Mercury got in place 2% price increase at the beginning of this year, our Japanese competitors are in that range as well. So I think what we're at the moment, seeing is essentially pricing constrained by the market. And nobody really wanting to take price even though there is margin pressure, not for us, but even more, I think, for our Japanese competitors.

As the market normalizes over time, we'll see how that goes. But at the moment, we're -- it's important for us to continue to gain share because of everything we've discussed plus the attachment rate for P&A that we get over time. So we try and think about this somewhat in the long term. I think it is clear from some of the commentary and announcements last year that the margin pressures are fairly acute amongst some of our competitors, but they're better to speak to that.

Okay. And then maybe you mentioned the repower market. Just kind of wondering if you could update us a little bit of how big that is for you guys. And I think previously, you talked about maybe 20% of engine sales are kind of repowered, but it seems like maybe it's growing a bit more. Maybe can you talk about repower and where that's going.

Yes. Xian, I can take that. It's still about 15% to 20% of units sold and that it hasn't changed materially. It does differ by jurisdiction. And then where you are. There's some markets certainly outside the U.S., which is very high in repower like Australia and New Zealand. So really no changes there. We're just seeing good volume throughout all the channels.

Yes. What I would say is our share of free power is lower than our share of OEM. And one of the reasons for that is, look, when you repower, there are more repowers typically in the saltwater markets where corrosion and higher performance tends to take more of a toll on the engines. And that saltwater market is a market that we've really been expanding into only over the last, really, 5, 6 years or so. So we would expect to have a higher right to win in that market as our OEM share becomes more reflected in the overall ballpark.

And then over the next 3 or 5 years, we would expect share gains in repower as more of our product comes up to be in the repower cycle of kind of 8 to 10 years.

The next question is from Anna Glaessgen from B. Riley Securities.

I guess I'd like to start on the commentary on guidance on the one hand, lower tariffs and flowing through the 1Q beat while also balancing with the conservative macro. I guess, could you provide a little bit more perspective on how that's informing the guidance and potentially if we don't see any disruption of what that could potentially look like for the year?

Maybe I'll start, and then Dave can fill in. So as you know and you know us well, I mean, we are 3 months into the year, and the first quarter is generally the smallest quarter, first and fourth quarter. We had a really nice start to the year, which we're very happy about. And we did get some -- a little bit of tariff goodness, right? So if we look at the -- if I look at the tariff calculation, the IEEPA going away, being replaced by 122 was a good guy. But then the changes to 232 were a slight bad guy.

What that did was it didn't really take us outside our initial tariff range for the year, but it put us from the high end of the range where we probably started the year down to the low end of the range. So that Q1 beats a good guy, and tariffs is another small good guy. But then we just look at the cautiousness in the consumer and we look at everything that's going on in the world, and we're entering our core selling season and we feel comfortable where we are with guidance. I think -- if the world stays where it is today and the other shoe doesn't drop, I think we can get to our high end of our range or better, right?

I think our point on guidance was really to move up the bottom end and certainly, to take some risk off the table from what we've seen already thus far. But it's obvious that being a little bit cautious given the world activities is prudent at this stage as we really come into the next 2 quarters where we make 55%, 60% of our sales and profit for the year. So we tried not to overthink it, but we gave some of the beat through, which includes some of the goodness on tariffs, and we also have just being thoughtful about what's going on.

Great. And then on 1Q results, thinking through the upside versus initial expectations on EPS. To what extent were potentially lower tariffs in the quarter contributing to that? I just want to understand the upside versus guide? And were there any expenses that shifted into 2Q?

No, no, not on either, no. I think tariffs came in pretty much spot as we expected. And no, we did not push any expenses out of the quarter. It was basically a straight beat based on improved revenues and really nice leverage. And obviously, we have some additional tariff headwinds in Q2 that is informing Q2 guidance. But like Ryan said, we're really -- I think this year, particularly, we'd rather be in a beat and raise cycle then take everything to the bank.

Yes. Dave, you brought -- just to be very clear on Q2, the only real disconnect between our guidance and what the Street was modeling was the tariff impact. And it's rather material still. If you remember, we said on the January call that Q1 was about 2/3 or 60% of our tariff impact for the year and the remainder in Q2, and that holds true.

And what it ends up being and there's a lot of mechanics here, balance sheet and LIFO and cap variances that nobody wants to go talk about on an earnings call. But the upshot is that the first half is a bad guy outside the 35% to 45% range. And the second half is actually a good guy that brings us back down into the range. So if you normalize Q2 just for the anticipated tariff impact, your EPS growth would be very similar to what we delivered in Q1. And so that's why the Q2 guided just slightly down from what the Street anticipated. I think they just hadn't caught up to all the tariff movements yet.

The next question is from Gerrick Johnson from Seaport.

Next question is from Joe Altobello from Raymond James.

First question I wanted to ask about the industry outlook. You still calling for flat to up for the year. And I'm curious, are you assuming any underlying fundamental improvement over the balance of the year? Or does that just extrapolate current trends and then you're lapping the post liberation day slowdown last spring. Because you did mention you're not anticipating any rate cuts -- any additional rate cuts.

Yes. Joe, I think we certainly are anticipating that at least early Q2 will be up over last year. And that's what we're seeing as we head into the second quarter. We're also seeing, I think, dealers pretty optimistic despite everything that's going on around us. So -- and they have yet to the ground. So we're continuing to get good order patterns. Show sales were good. And then honestly, the back half of the year last year was okay as well. So we just need to get through Q2, particularly early Q2 with a bit of overperformance, I think, to realize flat to up market.

And once again, premium continues to outperform value. So there are a couple of -- there's a bit of stratification inside there. But yes, I think the environment is pretty good. If you look at the interest rate environment, loan rates are still kind of 200 basis points down, maybe a bit more than from that peak, about 7.5%. Our dealers still getting flow-through from last year's cuts into the floorplan financing. So that tailwind is definitely present. And we are also seeing that slightly improved discount environment, which is a good indicator of some retail strength.

Well, that was sort of my next question, Dave, which was last year, inventories were a little bit heavier across the industry than they are today. And obviously, there was a lot of spending behind that. So how much of a benefit do you think you'll get this year from the lower promotional spending?

We still think our estimate of about 40 basis points is a good one, and we got about 100 basis point benefit. But even with another 40 basis points, we'll still be a couple of points above historical norms back, if you look back to 2018 or 2019, something like that. Yes, so there's good room to -- we think we'll grab some back this year. That's what we're seeing about 40 basis points -- but we still think that there's some room to run in a more normalized market situation as we move forward. .

The next question is from Gerrick Johnson from Seaport.

I wanted to dive a little bit deeper into trends in your boat group, better sales growth in aluminum. We've seen that in the numbers. And then was kind of okay and then down in saltwater. Saltwater has been down for a number of quarters. Can you talk about what's going on within the Boat Group and the segments there?

Yes. Gerrick. Yes, we're seeing particularly a strength in our Lund brand, which is our premium fresh water brand, which is driving a lot of the increase. We're also seeing really good performance with our Harris pontoon boats, which is also outperforming the market. In both cases, we have strong premium end of aluminum brands with a lot of recent investment in new products. So good outperformance.

If you think of the characteristics of the freshwater markets as well, typically pretty dedicated to fishing, not of very high leverage of fuel prices, for example. They don't go a long way. They go to a fishing spot and hang out or on a pontoon something similar. So I think our brands, particularly the premium end of our aluminum brands are performing very well.

As you said, Rec Fiberglass is up a bit. What I would say, as you know, we rationalized our value portfolio in Rec Fiberglass. So that is really a product of our Sea Ray brand and to some extent, on the band brand being up both of those are premium brands.

And then in saltwater, Whaler, which is our premium saltwater brand, is actually up year-over-year and the bit of softness that we're seeing is more in the value side of our salt water. So those are some of the kind of trends behind the trends, if you like.

Next question is from Molly Baum from Morgan Stanley.

My first question, I just wanted to ask a little bit about some of the operational efficiencies that you saw in the quarter. Where you're seeing the most room in the business to take cost out? And if you've seen any benefit from the footprint rationalization on the value side of the boat business and if not, when can expect to see some of that as well.

Yes. Well, I think the biggest businesses that are experiencing efficiency benefits at the moment from footprint and other sources of Navico Group and Boat group. I'll do Boat group first because you mentioned it earlier. The process of rationalizing those facilities is on track, but they're all actually a headwind to us from a cost basis this year will flow through to, I think, more than 10 million of efficiencies next year. So we would expect to see the majority of that.

Then -- but we continue to work on consolidating production lines and introducing more operational efficiencies in various ways in the Boat group, notably a lot of work on on value engineering across all of our product lines, making sure that what we're putting in the boat is really what consumers want and making sure we deliver it as efficiently as possible.

Navico Group continues to rationalize footprint and close to smaller facilities within the last, I think, at the end of the fourth quarter or early this year. So it continues to benefit from that and a whole range of other operational efficiencies. We're getting Navico Group now to the point where the footprint is just about right, the investments in new products are coming through strongly with some market share gains as you saw.

And so we're getting -- we got that really nice pop in margins, which I think we believe is sustainable and will continue to grow. So yes, I would say Boat Group is proceeding to plan, but we won't get full benefit this year. We'll get some benefit in the second half of the year. Navico Group continues on its journey, but we've done an awful lot of work, including in the recent quarters.

Got it. And if I could just ask one follow-up on boiler plate one. Can you remind us what level of IEEPA tariffs you've actually paid on an annualized basis? And if all of those are eligible for refunds should they get paid out? I know that's not included in guidance, but if you do get a pay out if all of those would qualify.

I think the answer is yes. Yes. So yes. So we have begun the process of applying for IEEPA tariff refunds. It's happening in phases. We've made our first applications. The total value of IEEPA refunds that we now estimate is something like $50 million. And we expect at the moment, we would plan to recognize it as we receive the cash, which we would expect to be some over the balance of this year and some next year. .

The next question is from Tristan Thomas-Martin from BMO Capital Markets.

Just wanted to ask about the value boater. We kind of remove all the macro pressures? What do you think it takes for them to kind of come back to market? Or is it truly just the macro pressures that are keeping them up?

Well, I think what we're trying to do is meet them why they want to be met. And I would differentiate between the fishing-related boating and general purpose boating. And fishing, as you saw, is actually up, aluminum boats are up, certainly on the premium end, but also pretty strong in the value end. If it's part of your lifestyle if it's what you do outside work and other things, then you keep doing it, and they keep being enthusiastic boaters.

On the fiberglass side, on the value end, it tends to be more general purpose run about type voting. And that's where we think there is a bit more fungibility between people spending on boating and people spending on other leisure alternatives, and/or being potentially more pressured with discretionary spending.

However, that is where our Freedom Boat Club can play a very big role in changing the kind of spending patterns, if you like, for boating. So instead of a large capital outlay, joining fee and then monthly dues and that does give you access to a wide variety of boats. And it's very convenient, which is often what that kind of boater is looking for. They're maybe not as dedicated to the lifestyle as somebody who goes fishing and maybe just looking for a bit more convenience. So we're trying to meet those boaters with alternatives. But we have obviously taken a step to rationalize our product line in that area and invest more in for your boat love.

Okay. And then just really quick, maybe if you could provide an update on kind of how you're thinking about normalized boat demand.

In the short term, our expectations remain kind of flat to slightly up market. I think at the I think we clearly have seen what we believe is an inflection, the market is stabilizing. There are so many external factors, just exogenous factors at the moment that it is very difficult to deconflate everything that's going on.

But there appears to be a stabilization versus some of the declines from 2020 through to about 2024. So we're excited about that. We still see this stratification between premium and value. But absent some other major external change, and of course, we've been hoping for that for several years now. We don't see any reason why the market can't return to growth as some of the things that are causing people to be a bit more cautious, hopefully begin to alleviate. So we would anticipate in subsequent years modest regrowth of the market in the low to mid-single-digit range.

And maybe I would just add, supported by 2 other things. One, the used market right now is actually in really good shape. If you've been tracking used product on -- gently used product on most dealer lots is actually relatively light. And that then supports my second point, which is the value calculation for folks trading up and trading in is actually much improved today than it was a couple of years ago. People have more equity in their boats. If you -- if you bought a boat around COVID, you have more equity, you've had more years and your ability to get more for that trade and has improved. And so the dynamics to trade up and trade in has improved, which we believe are getting some folks off the sidelines. So that would continue.

And then lastly, I would just offer that even in a very conservative U.S. boat market, we are at half or 60% of replacement value as new boat sales. So we've got a lot of room to run and that is a part of the calculation that we'll discuss on our Investor Day in August.

Next question is from Noah Zatzkin from KeyBanc Capital Markets.

Just on the guidance range, what are kind of the -- at a high level, the kind of differences between the $4 and the $4.50. Is it fair to say like the retail environment expectations are consistent on both ends of the range? And I guess, relatedly, could you remind us what sort of shipment tailwind you expect in kind of the flat to up slightly retail environment this year?

Yes. On the range, I think Ryan really said it earlier. If no other shoe drops, the top end of the range is or even we could do better than that. We're really at the moment trying to trying to just overlay some caution based on some of the external volatility, which would potentially begin to create some additional caution, not necessarily in the U.S. market, but in some of the markets in which we operate around the world.

So that is just an overlay of caution, I think, that gets us to the bottom end. Obviously, we can link that with specific revenue assumptions from around the world and margin assumptions, but that's really what it is.

And then just on your specific question on balancing retail and wholesale. If you assume a flat boat market, then wholesale is going to be up mid-single digits on a unit basis. And that's just to match retail and wholesale, given lower wholesale at the start of the year last year.

And on the engine side, it's actually a little bit greater than that. It's probably up mid- to high single digits on units. Given that engine pipelines continue to be lower, even certainly in high horsepower as well. I mean we took out -- we've taken out 10% of 175-horsepower and above pipeline each of the last 2 years. So the balancing retail to wholesale there is a good dynamic even in a flat market.

This concludes the question-and-answer session. At this time, we would like to turn the call back over to Dave for some concluding remarks.

Thank you, everyone for your questions. Another very encouraging quarter for us. Solid retail revenue up substantially across all of our businesses, margin expansion, really good earnings leverage and continued really solid free cash flow. We continue to outperform the market, and I think the external environment, I think our -- we're clearly firing on all cylinders now. All of the parts of our businesses are really doing well. So we're very excited about that and excited about both this year and the future in general.

Our recurring revenue businesses still are doing great, providing extremely strong earnings and free cash flow. As we have said a couple of times in response to the question, setting guidance in this environment is a little bit trickier even than normal, but we would prefer to be in beaten raise cycle then take everything to the bank right now, given how early we are in the year.

And then finally, please reserve a spot at our investor event in August. We're very excited about it. It will be at our Mercury Marine headquarters in Fond de Lac. You will see all the production of those fantastic engines that are leading the market right now. From the leadership team and be able to experience some of our latest products on the water. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

All right. Good morning, everybody, and thank you for joining us. I'm Joe Altobello, Leisure Equity Research Analyst here at Raymond James, and I'm very pleased to introduce our next presentation of the morning from Brunswick Corporation. Brunswick is a leader in the global marine industry with a comprehensive product portfolio that includes some of the best-known boat brands in the world, including Boston Whaler, Sea Ray and Bayliner, just to name a few. These are powered by its Mercury engines, which have been gaining meaningful market share for several years now, while complemented by its Navico Technology segment as well as its parts and accessories businesses.

Here to tell us all about it is CEO, David Foulkes along with CFO, Ryan Gwillim. I believe David has a few slides he'd like to go over, after which we'll dive into a fireside chat. And with that, let me hand things over to David.

Thank you, Joe, very much. Good morning, everybody. How is everybody doing? Thank you for your interest in Brunswick. Thank you for attending this morning. We have a lot of positive developments to share, and then we'll do some questions.

Before I leave this slide, I always like to point to our tagline, Next Never Rests, which is a reference to our continued investments in new products and technologies and innovation, and I will talk about that during the presentation. A little bit of admin to start. Presentation contains certain forward statements about future results. Actual results may vary significantly. For the factors to consider, please reference our SEC filings on Brunswick.com. I'll also use certain non-GAAP financial measures for reconciliations of non-GAAP to GAAP, check our 8-Ks also on Brunswick.com.

All right. I will kickoff here with a video that brings to life our business model, some key facts about our organization and our industry-leading brands and technologies.

[Presentation]

I hope you enjoyed the video. All of you are energized by it. Just pickup on a few key facts from the video here. Above 50% of U.S. recreational boats in the U.S. fleet are powered by Mercury Marine engines. That is the power behind our very strong Engine P&A business, recurring revenue high margin business. We have been awarded more than a 1000 patents over about the last 10 years that provides an intellectual property moat around our technologies.

Freedom Boat Club is by far the biggest shared access asset in the marine industry, 63,000 memberships at the moment involving more than 100,000 members. And we own 3 of the 4 most recognizable brands in the U.S. Sea Ray, Boston Whaler and Bayliner.

For those of you who are not familiar with the structure of our business, this slide helps you navigate it. We have 5 operating divisions, our Propulsion division, Mercury Marine, Engine Parts and Accessories, our Technology division, Navico Group, our Boat Group and Business Acceleration. And you can see the incredible stable of industry-leading brands in all of those divisions.

On the lower part of the chart, you see our reporting segments. For reporting purposes, we combine Boat Group and Business Acceleration into a single Boat segment. Business Acceleration, which contains Freedom and our Service businesses is our smallest business, but has been consistently the fastest growing of the businesses over the past several years.

The revenue numbers in the reporting segments include about $400 million of synergy sales or elimination or intercompany sales, that is sales of engines to our Boat Group, Navico Group parts to our Boat Group, Boat Group -- boats to Freedom Boat Club. So that is -- that ends up in very rich margins for the boat we sell -- the boats we sell and also amplifies the impact of Freedom on our overall business. We are the market leader in many areas of the marine industry in propulsion technology, boats. Mercury is the outboard market share leader in the U.S., Canada and Europe. About 47% share in the U.S., in the 40s in Canada, above 50% now, I think, in high horsepower in Europe.

Mercury Racing is really the only big player in high-performance marine and competition marine. We own the world's largest marine distribution business, our Land 'N' Sea and Kellogg businesses with market share roughly 43% in the U.S. Freedom Boat Club, as I mentioned earlier, is the world's largest boat club. And then in many boating segments, boat types and international markets, our boat brands hold the #1 position. There's a picture of a Fliteboard up there, eFoil. I believe even though we don't say it, I think we have the #1 share position in eFoils as well at the moment.

So here is a great example. This is kind of a ghosted view of a Boston Whaler showing all of the internally sourced components in one of our boats or systems, everything from propulsion to displays to radar, sonar, electrical components. On average, our boats contain -- about 50% of the BOM is internally sourced. And we supply those components to many other OEMs across the industry as well. I mentioned the $400 million of internal synergies. It looks like it's just individual components and systems, but more and more, we are providing fully integrated modular and scalable solutions for our own boats and for many different OEMs.

A couple of examples here are our newly launched Simrad AutoCaptain autonomous boating system which will autonomously dock undock a boat and perform close-quarter maneuvering. We began to show the production version of that late last year. We've demoed it to multiple OEMs now. And we've also have memorandums of understanding for implementation with multiple OEMs now. We also show Fathom, our power management system, which replaces onboard combustion engine generators with an advanced power management solution, including lithium-ion batteries, power distribution, et cetera. Nobody else can provide these kind of solutions. Only Brunswick has the capability to provide this deep level of integration.

But we keep going. We have a tremendous pace of innovation and new product launches. We also have an advantaged footprint. So we launched more than 100 new products across our portfolio in 2025, received more than 100 major awards as well for our products, our innovation, our technology, our people, our culture. You may have seen in the video. We're on many of the best list -- best companies list for Forbes, the Time, for Newsweek.

And if you think about our footprint, about 70% of our cost of goods is based in the U.S. And most of our recent investment has been in the U.S. over the past 5 or 10 years. That provides us with a significant advantage in the presence of persistent tariffs and very dynamic trade policy at the moment. If you think we are the only domestic manufacturer of outboard engines. All of our competitors manufacture in Japan and are subject to tariffs, and that is the case with some boat brands that compete in the U.S. as well.

Many of you have seen versions of this slide before. The upper portion of the slide shows unit retail sales in the U.S. power boat market from 2010 through to the latest estimate for 2025. You can see the more cyclical nature. Sales rose pretty consistently after the GFC through to the peak in COVID in 2020 and have declined, although that decline has slowed. And in 2026, we expect a flat to slightly up market. Our strategy in new boats is leaning into premium, gaining market share and also gaining share of wallet.

The bottom chart shows new boat registration -- or not new boat -- new and existing boat registrations in the U.S. over roughly the same period. And what you see here is an increase in boating participation. This excludes less than 16 feet, very small boats. So very consistent levels of boating participation. This is a part of the market that we uniquely lean into with our P&A business, with our aftermarket business with Freedom Boat Club, for example. And in 2025, about 60% of our earnings came from these recurring revenue sources of income, leaning into that participation part of the market. Boating is very sticky. If you ask consumers, which we do frequently, 90% of those currently boating expect to be boating in the next 5 years.

So our strategy is differentiated and working. We have a differentiated portfolio and business model that is winning in the marketplace. We have a stable of industry-leading brands that you just saw. We have recurring revenue, less cyclical portions to our business that deliver consistent cash flow through the economic cycle, allowing us to continue to invest. And our enterprise synergies that I mentioned earlier, capture more of those earnings internally. We have product leadership everywhere we play, and we're continuing to gain market share, including now with some of those amazing modular solutions like AutoCaptain and Fathom.

And then we have a long history of very diligent and strong execution, whether it's our supply base or dynamically adjusting our manufacturing footprint or making sure that our internal and field inventories are always at the right level.

And then finally, we have an investment-grade credit profile and balance sheet. We maximize our free cash flow. We've been strengthening our balance sheet through debt reduction of $240 million last year, back towards our target of net leverage of 2x. And we also consistently return capital to our shareholders via dividends and share repurchases.

Let's take a look at some recent boat shows and new product introductions. Mercury continues to gain market share in every new boat show. This is Fort Lauderdale, October last year, Dusseldorf and Miami Boat Show early this year. At the Miami Boat Show, Mercury had 84% of all of the outboards in boats on the water, 84%. You could not see anybody else's outboards anywhere. And we continue to launch very well-received new products. We won Motor Boat of the Year earlier this year for our Navan product.

We also won European Power Boat of the Year for a Sea Ray product. So these are not -- we're about scale, but we're about exceptional products and experiences at scale. Of course, Next Never Rests. So here are some of the recent things that we've debuted. You see in the top left, the Mercury 808 concept that we showed at the Consumer Electronics Show and at the Miami Boat Show. We showed earlier our 600-horsepower V12 outboard. Signals where we might be going next. That architecture was developed with a lot of expansion capability. So that's an exciting prospect for the future.

That's not the only thing we've launched recently. Mercury launched Boost, which is an over-the-air update that enhances the performance of existing outboards already in service on the water. And then keyless start, an entry system, you don't need keys or you need to press a button to start your Mercury engines now, you just need your cell phone.

I do want to point out the Simrad NSO 4, which is the latest and largest of Simrad's new multifunction displays. Simrad's, we've invested in this over the past 3 or 4 years. Simrad's entire lineup of multifunction displays now is on the Android-based Neon operating system. Nobody else has Android-based. Everybody else is still on Linux-based systems and is being powered by Qualcomm, very fast Qualcomm chips.

So let's come back and talk a bit about 2026 guidance. This is the guidance that we issued at the end of January, unadjusted, for example, for recent tariff developments, but we can talk about that. We're anticipating growing revenue. Actually, we grew revenue last year versus 2024 by 2%, which is nice to see. We anticipate growing about 8% to 10% this year on the top line and expanding our operating margins, delivering diluted EPS about 25% higher in 2026 than in 2025 and with still very strong cash flow.

If we look over a longer period, I became CEO in 2019. In about the middle of 2019, we shared our last non-marine business. We became a marine-focused business. We've increased our dividend now for 14 consecutive years. And since the time I mentioned earlier, returned $1.7 billion in share repurchases, which means that between dividends and share repurchases, we've delivered about 70% of our net income back to shareholders since 2019 and delivered very strong shareholder returns.

All right. I will stop there and enjoy some questions, I think.

Thank you, David. Appreciate that. I guess, first question, you mentioned this in your presentation, but your outlook for the U.S. industry is flat to up slightly this year. What factors do you think could drive that better or worse than that outlook potentially?

Yes. I would say, first of all, it's important to say that of the roughly 8% to 10% revenue growth that we see this year, only roughly 2% of that is associated with market growth. The rest is matching wholesale with retail market share gains, pricing, et cetera. So we're not depending on that share growth. But certainly, there are tailwinds.

If you think about 2025, the interest rate reductions that occurred in '25 occurred between September and December, which is after our main selling season. But they did drive retail interest rates on boat loans from 9% to 10% down to about 7.5%, which will be a tailwind into 2026 into this year. Obviously, I think what -- we are leaning into the premium part of the market. I think everybody understands the K-shaped economy. And so most of our customers tend to be on the somewhat wealthier end of that. And you'll see improving confidence in segment and sentiment in that area. A lot of things, obviously, every year could be some headwinds for us, but we continue to manage those as we go forward.

In terms of the outlook, is it including -- or does it anticipate any additional rate cuts or just what we've seen so far?

No, it doesn't specifically anticipate any additional rate cuts. I think, obviously, things are very dynamic at the moment, but we're still assuming 1 to 2.25 point cuts during the year.

And in terms of inventory, it sounds like it was pretty healthy at year-end.

Our inventory is extremely low and healthy. It came down globally about 2,000 units through last year. So I think it's about the leanest it's really been, and it's very fresh. So I think 80% to 90% of all the products we have in the field are less than a year old, which means they don't require additional discounts. They're quite easy to sell. So we've been very, very deliberate about making sure that we have the right level of inventory.

And you're assuming a one-for-one relationship between retailers.

Yes. What we've seen in prior years is that wholesale has gone down. So it's been essentially behind retail sales, which has been difficult, but we managed it down very deliberately, but we expect this year that roughly it will be one-for-one.

Okay. So in your EPS guidance, you have this little bar called strategic OpEx. Can you explain to our audience what that is?

Yes. There is a little bar in there called strategic OpEx. Essentially, that is some additional investments that we plan to make. We have 5 Mercury outboard engine programs running consecutively at the moment. So there is -- and there is a little bit of a first quarter bias to that spending as well. We hinted at what one of those programs might be, but we continue to introduce a lot of new products. So there's a lot going on.

Is that something you would expect to be recurring or...

No. It is a bit of an artifact of the fact that we have all these programs running simultaneously, and they happen to have certain things happening simultaneously like the different builds you do during a development program.

Okay. And you expect to earn a return on that fairly quickly, it sounds like.

Yes. We're excited about it. I mean I think what's been interesting is we've continued to gain market share against our rivals on the outboard side. But -- and then they've introduced new products, but we still continue to gain market share. But what we know is we want to continue to maintain that leadership position in terms of horsepower, in terms of feature and functionality and everything that matters to the consumer. So we will continue to invest and stay ahead.

That, in fact, was my next question. How much runway do you think you still have on the outboard engine market share?

A lot. I think the -- it's been interesting to watch, particularly on high horsepower in Miami, I mentioned the boats on the water which are mostly the bigger boats, 84% Mercury. I think that's a good leading indicator of where we could go. It's been -- it was interesting in Dusseldorf as well. Mercury had more than 50% share in Dusseldorf, which is the premium European show.

All of the other competitors, Yamaha and Suzuki and Honda had shares in the teens. So it wasn't even close. It wasn't like there was Mercury and then #2 and then others. We were 3x more than anybody else in the show. So I think that if we provide the right products and technology, the right attributes that matter to consumers, we will continue to gain market share.

Let's talk about capital allocation. You guys have generated a fair amount of cash in the last few years and expect to do more of that this year. You bought back some stock. You've done some acquisitions in the past, less so recently. How are you thinking about capital allocation in '26? And where does M&A play in that?

Yes. So you're right, we've adjusted a little bit over the last few years. We've continued with share repurchases. We bought back $80 million of stock last year. We still anticipate buying -- our baseline is about $50 million. It might be more than that. We don't know. We'll continue to pay down our debt. We expect to be less than 2.5x leverage by the end of the year on our way back to 2x. We'll continue to increase our dividend. Obviously, continuing to invest in new products and technology remains a top priority for us. But we maintain a very balanced capital strategy, adjusting as things develop during the year, but we will continue to return capital to shareholders certainly.

Are there any areas of the portfolio that you want to strengthen or add to?

In terms of M&A, there are some tuck-ins that we are evaluating. We've done some acquisitions with Freedom Boat Club, essentially taking some of the franchises and making them corporate locations, which gives us a much richer margin stack than just the franchise fees. There might be some other tuck-ins that we evaluate. We do not anticipate any large acquisitions in the near future.

Okay. You mentioned tariffs earlier. So last year, I think it was $75 million of incremental tariffs. The guide this year is $35 million to $45 million. How much of that is IEEPA -- and how much -- how does this Supreme Court decision impact you?

Yes, it was $35 million to about $40 million of incremental because in 2025, there were no tariffs in Q1. In 2026, there are. If -- so IEEPA obviously was ruled illegal, although not all of the customs and border patrol systems catch up very quickly with those decisions. So there's still some of that in development. But if IEEPA continues to be replaced by Section 122 at 10% or 15%, that will probably be in the $15 million to $20 million. So with effectively half that incremental tariff that we anticipated and be roughly worth about $0.20, something like that improvements.

Yes. But as of now, you're still paying the full tariff.

Well, we're trying to manage it. For those of you who are interested in the minutia, you can have a Supreme Court decision, but the customs and border patrol systems don't necessarily click to a different rate overnight. There's an implementation period. So we're assuming that the 122s will be effective as soon as they can do that.

There's always a period where we're trying to manage making sure we don't pull too much inventory out of our free trade zones, for example, until we're clear what the tariff regime is going to look like. So there's some kind of short-term management that we can do to minimize our tariff exposure and take advantage of a lower anticipated future regime.

Okay. We've got about 4.5 minutes left, if anybody has a question.

How the boat shows been so far?

Really good. It's been very exciting for us, continue to, as I mentioned, show the strength of Mercury. Our premium products have done very well. At Fort Lauderdale, our premium rev up, boat sales were up about 15%. At Dusseldorf, I think they were up 6%. So a nice string of boat shows, particularly associated with our premium brands. And it's been exciting to demonstrate some of our new technologies like AutoCaptain. We demonstrated that probably to 25 OEMs and have begun to sign MOUs around implementation. So it's been a very exciting period for us.

Okay. Last chance before we go to the breakout. Anybody has a question?

[indiscernible]

Yes, we do. The exact timing and mechanism for that is not completely clear, but we have continued to do the appropriate filings to make sure that we are up to date and eligible for those refunds. I think you've probably seen that a number of companies are taking legal action. We may do that or it may become a little bit clearer if there is an alternative mechanism to do that. That it could be worth $25 million-ish to us total refunds on IEEPA.

Anybody else? All right. Thank you, David. Thank you everybody. Thank you, and enjoy the rest of the conference.

Thank you. Thank you everybody for your attendance.

Good morning, and welcome to the Brunswick Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's meeting will be recorded. [Operator Instructions]

I would now like to introduce Stephen Weiland, Senior Vice President and Deputy Chief Financial Officer of Brunswick Corp. Please go ahead.

Please go ahead. 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 of 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. 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 3 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 products. 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 us 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 the 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 3 business lines: outboard, sterndrive and controls, 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 Axopar, Saxdor and DeAntonio Yachts adding to the more than 100 new or renewed OEM agreements in the last 12 months.

Our recurring revenue, high-margin Engine Parts & 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 voting 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 codeveloped 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 trends 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, resulted in approximately $75 million of net incremental tariff impact. While the Supreme Court decision regarding the IEEPA 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 IEEPA decision, with the 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 million to $45 million in 2026 net of continuing mitigation actions.

OEM, dealer and customer sentiment is improving with healthy pipelines and increasing boater 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 2 years. Global but 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 2x 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 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 or an additional $160 million or more 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.

Thank you, Dave, and good morning, everyone. Brunswick's fourth quarter performance came in ahead of expectations with sales and earnings in each of our segments exceeding fourth quarter 2024. On a consolidated basis, sales were up 16%, reflecting improved market conditions, increased wholesale shipments to our channel partners, pricing actions taken earlier in the year, a lower discounting environment and continued solid boating participation, driving growth in our P&A and aftermarket businesses. It's also worth noting that this growth was not only broad-based across all segments in the quarter, but also across all global regions.

Q4 earnings improved 41% versus prior year as the impact of higher sales, along with increased absorption from comparatively higher production levels and operational improvements, more than offset the enterprise headwinds of incremental tariffs and the restatement of variable compensation, which affected each business.

Lastly, we generated $88 million of free cash flow in the fourth quarter, wrapping up a tremendous year of cash generation. As expected, free cash flow was down from the unseasonably high fourth quarter of 2024, reflecting a more normalized working capital environment and higher production levels across our businesses.

On a full year basis, sales increased 2%, driven by improved second half market conditions and resulting stronger wholesale orders together with strong P&A and aftermarket performance, helping to overcome the impacts of the challenging first half retail environment.

Full year adjusted operating earnings and diluted EPS ended slightly above expectations, but below the prior year, mainly reflecting the impact of incremental tariffs and the reinstated variable compensation. Outside of these 2 impacts, we would have shown strong adjusted earnings growth for the year. The earnings impacts of the sales growth, inclusive of pricing and improved discounting levels, together with tariff mitigation efforts, helped partially offset these earnings headwinds.

We generated $442 million of free cash flow in the year, up 56% year-over-year and exceeded our increased guidance from the last quarter. In one of the most challenging years for the industry since the GFC, we generated the third highest full year free cash flow in Brunswick's history.

Now we'll look at each reporting segment's performance for the quarter, starting with our Propulsion business, which grew sales for the third consecutive quarter. Sales were up 23% with double-digit increases in all product categories resulting primarily from strong OEM orders heading into the early 2026 retail season.

Segment adjusted operating earnings and margin also increased significantly compared to prior year due to the impacts of increased sales and higher absorption from increased production levels, offsetting the incremental tariff impact and the reinstatement of variable compensation.

Our aftermarket recurring revenue Engine Parts & Accessories business also grew sales for the third consecutive quarter, with fourth quarter sales up 15% versus prior year. Sales growth accelerated from the third quarter for both products and distribution, reflecting strong voter participation, favorable weather in many regions in the back half of the year and continued share gains in our distribution business. Q4 adjusted operating earnings increased 7% with slightly lower margins due primarily to the mix impact from the stronger growth in distribution sales.

Despite the compensation and tariff headwinds, a sluggish first half retail environment and a slight mix shift towards our distribution business, our full year adjusted operating earnings for the P&A business were essentially flat to 2024, continuing to validate that prioritizing recurring aftermarket revenue is essential to driving performance through the cycle from our differentiated balanced business model.

Navico Group grew sales for the second quarter in a row, increasing 4% over the prior year, driven by solid OEM orders and steady aftermarket performance during the important holiday selling season. Improving Navico Group's financial performance remains a critical focus for our entire team, and we are seeing the results of strategic actions, including continued investment into new products, product portfolio optimization and operational measures. While many new exciting products are still to come, we believe that we are now seeing the early benefits of our recently developed and launched, competitively priced new products winning in the market, especially in our electronics portfolio.

The Navico Group's outstanding operational performance in the quarter helped translate the sales growth into strong adjusted operating earnings and margins, which were up 180 basis points from the prior year as benefits from higher sales, new product investments, portfolio optimization and cost control measures more than offset the enterprise headwinds.

Finally, our Boat segment had a strong quarter, reporting an 11% sales increase over the prior year with growth from both boat sales and the business acceleration portfolio. Our Boat group sales were led by increases in our recreational fiberglass and aluminum boat brands, while Freedom Boat Club continued its growth journey, with network-wide increases in trips, members and locations during the quarter. Note that the Boat group increased sales in each of the premium, core and value categories, continuing the success from the third quarter.

Segment adjusted operating earnings and margin were both up significantly. Adjusted operating margin expanded 290 basis points benefiting from the impact of higher sales, including annual model-year pricing actions and improved discounting levels, along with increased production driving improved absorption, which handily offset headwinds from the enterprise factors.

As Dave mentioned earlier, we finished the year with very healthy dealer pipelines, with retail sales outpacing wholesale, setting us up favorably for 2026 in a variety of market scenarios.

Moving to our outlook, as we enter 2026, Brunswick is extremely well positioned to benefit from the building market tailwinds that were evident in the retail market stabilization experienced in the second half of 2025. Given the very dynamic geopolitical and trade backdrop, we plan to continue to relentlessly drive operating efficiencies and are encouraged by the strong reception for our many new and exciting products, our low and fresh boat and engine field pipelines, the improving sentiment across our network and the market's anticipation of further interest rate cuts during the year.

Our guidance assumes a flat to slightly up U.S. retail boat market, with anticipated wholesale sales to more closely match retail throughout our businesses, along with continued stable boating participation. It also assumes the recent relative macro environment stability continues through the year.

These assumptions translate into the guidance you see on this page, with anticipated revenue of between $5.6 billion and $5.8 billion, adjusted operating margins between 7.5% and 8%, and adjusted EPS in the range of $3.80 and $4.40. We continue to expect strong free cash flow in excess of $350 million representing at least 125% free cash flow conversion as benefits from earnings growth and continued net working capital management help offset the over $100 million cash impact of the reinstatement of variable compensation earned in 2025 and paid in the first half of 2026.

We anticipate improvement in wholesale ordering patterns in Q1 given season retail strength, including steady boat show performance and low dealer pipelines. Directional guidance for Q1 reflects growth in net sales versus the first quarter of 2025, with adjusted EPS between $0.35 and $0.45 being burdened by a majority of the full year incremental tariff cost as 2025 tariffs did not materially begin until April, together with increased investments in the first quarter on critical product programs.

Next, we'll take a closer look at the components of our guided $4.10 adjusted EPS guidance midpoint, which reflects approximately 25% growth over 2025, consistent with the initial 2026 thoughts that we shared last quarter.

The main driver of the earnings improvement is the impact of the anticipated sales increases, which should carry incremental earnings north of 20%. Included in the sales increase are benefits from annual pricing actions and a lower discounting environment, continued mix benefits toward more premium products and higher content and volume increases as we better match retail and wholesale throughout the year. We also anticipate favorable earnings impacts from currency, capital strategy and continued cost reduction programs across the enterprise, mainly improving gross margins.

In part to drive the sales improvements, we do anticipate an increase in full year operating expenses but believe OpEx spending will remain consistent with 2025 on a percentage of sales basis. The large majority of the OpEx increase relates to growth investments in critical product and technology programs, sales and marketing efforts to drive demand, and necessary systems and infrastructure upgrades.

The only other anticipated EPS headwind would be the continued impact of incremental tariffs, which under the current legislation, we estimate to be between $35 million and $45 million or approximately $0.60 of EPS. This is a net tariff headwind resulting from the full year impact of the tariffs instituted in 2025 and assumes that we will continue to be successful in our aggressive tariff mitigation strategies as we continue to use self-developed AI tools, sourcing optimization, value engineering, trade provisions and other methods to reduce tariff impacts.

As you can see, we remain quite bullish about our opportunities for success in 2026.

I'll end my prepared remarks this morning with a quick review on other P&L and cash flow assumptions underlying our annual guidance. We believe that our capital expenditures spending and annual depreciation expense will be similar to 2025 levels as we remain in harvest phase for most of our recent capital initiatives and believe that we have sufficient capacity available for a multiyear growth vector. We plan to generate approximately $50 million of net working capital as we drive continued inventory and balance sheet improvement even with anticipated stronger production.

Finally, as Dave mentioned earlier, we anticipate retiring no less than $160 million of debt throughout the year, resulting in a total of $400 million of debt retirement between 2025 and 2026, which would leave us with net debt leverage of 2.5x or lower by the end of the year.

Returning capital to shareholders through dividends and share repurchases is always a priority, and our plan anticipates a slight dividend increase later this quarter, while continuing our systematic share repurchase program with approximately $50 million of repurchases planned for the year, while remaining opportunistic should cash flow and valuations continue to be supportive.

Lastly, please see the appendix for segment level guidance and other assumptions. I will now pass the call back over to Dave for concluding remarks.

Thanks, Ryan. As we wrap up the call, I would like to highlight some exciting events, new product launches and awards from a very busy January.

At the beginning of the month, Brunswick again exhibited at the Consumer Electronics Show in Las Vegas where we leveraged this unique global technology stage to showcase our full portfolio of industry-leading products and technology, including our ACES and Boating Intelligence solutions.

We launched the all-new Sea Ray SLX 360, our first-ever boat launch at CES, which is packed with Mercury Marine and Navico Group technology and was fitted with Simrad's AutoCaptain autonomous boating system.

We also debuted the FLITE RACE eFoil, a collaboration between Fliteboard and Mercury Racing. Capable of speeds over 30 miles per hour, this product sets a new industry performance benchmark for electric watercraft.

In addition, we debuted the Mercury 808 Concept, based on the current, very capable and expandable 600 horsepower V12 outboard platform, which provides a vision for the future of ultra-high horsepower outboard propulsion.

Brunswick was recognized with several awards at CES. Simrad AutoCaptain was honored with a CES Pick Award. Our overall exhibit was recognized as a Top 10 Best Both Experience. And Brunswick is a finalist for the Best of Show Awards, which recognizes the best experiential exhibits.

Moving on to recent boat shows, we are encouraged by the high levels of engagement and positive customer sentiment observed at recent major shows. This was reflected in our performance at the Fort Lauderdale Show where our premium boat brands delivered 15% overall revenue growth versus the prior year show and Mercury had a record-breaking 61% overall outboard share.

At the world's largest boat show in Dusseldorf, Germany, we debuted the Navan T30 model and our premium fiberglass brands recorded year-over-year sales growth. Mercury had more than 50% share of all outboards at the show, almost triple the nearest competitor and added to its recent run of signing multiyear, exclusive supply agreements with some of Europe's largest and fastest-growing boat OEMs.

We were also proud to receive award recognition at these various boat shows. Our Navan S30 model won Motorboat of Year and our Sea Ray SDX 270 Surf model was awarded European Powerboat of the Year, in their respective classes. At the Minneapolis Boat Show, Princecraft earned its second consecutive NMMA Innovation Award for the all-new Platinum 190 model, which is recognized for its premium engineering and class-leading fishing features.

Finally, as you all know, we pride ourselves on being an employer of choice, an innovator in our space and a responsible and trustworthy company. For the fourth consecutive year, we surpassed 100 awards for our people, our culture, our products and our innovation. Notably, many of these awards are national awards from media outlets such as Newsweek, USA Today, Time and Forbes that we've received for multiple years. However, for the first time in 2026, Brunswick was named to Forbes America's Best Companies list.

Thank you again to all our talented Brunswick employees who make this recognition possible.

Before I finish, I would like to remind you of our investor and analyst event during the upcoming Miami Boat Show which will include a tour of Brunswick's many exhibits and products at the show followed by a cocktail hour at the Ritz-Carlton on South Beach. We look forward to offering you the opportunity to see our exciting products and technologies as well as meet with members of our management team.

Thank you for your attention. We will now open the line for questions.

[Operator Instructions] Our first question is from James Hardiman with Citi.

So I think given your track record, I think most investors have a high degree of confidence that you can deliver given sort of whatever the retail assumptions are. I think the retail assumptions are ultimately what so many investors struggle to underwrite at this point. And so maybe, I guess, to start, what specifically was the retail performance in the fourth quarter? Obviously, we get some of the SSI data which showed certainly November and December down. You talked about flat for the second half. But I'm curious specifically sort of how you finish the year, and as you carry that forward to 2026, what gives you confidence that flat to up is the right way to think about the full year?

Yes. James, as you mentioned, on a unit basis, we were flat, basically within 10 units or something. It was particularly flat, if you like. And as we noted, I think we saw continued strength in premium and core. Obviously, that's about 75% of our portfolio and about 90% of our gross margin. So that is a tailwind for us.

We did, though, see some recovery in the value part of the business, which is nice to see. As you know, that has been the major source of weakness in the first half of the year. That is a more economically sensitive customer, I would say, probably a bit more unsettled by some of the events in the first half of the year.

But in terms of tailwinds into the -- into 2026, in the latter part of 2025, as you know, we got about 75 basis points of rate cuts, but they all really occurred too late in the season to be very material for 2025. But they will affect 2026. I think there's some uncertainty over the timing of further rate cuts, but I think they are likely to come. So probably through the season, we'll end up with at least 100 basis points of year-over-year rate improvement, which is helpful for our end consumers.

We have clearly seen retail financing rates response to this, and retail rates are down around 7.5% now versus 9% to 10% at peak. And then it's very helpful for our dealers as well. Equity markets remained strong, which is helpful for our premium buyers. And then we did see somewhat of an acceleration, I guess, as we went through the quarter. And that is retailers continue -- as you know, we're always very cautious about closing numbers for when it's such a -- when the volumes are so low at this time of the year. But retail is up double digits so far this year despite the inclement weather and a few other things going on around the country. So I think overall material tailwinds and evidenced on a small scale at least so far in the year, that that is translating to solid to positive retail.

Got it. That's really helpful. And just to clarify, I think you just said, just to underscore, retail up double digits so far in January. I just want to make sure that that's sort of on the record here.

That's right.

Okay. And then as we think about inventories, obviously, good work bringing down global pipeline, I think, 2,200 units in 2025. How should we think about that number for 2026? Is that a 0 in 2026, i.e., wholesale equals retail? Or do we expect a little bit more of a reduction? Obviously, one of your big, if not biggest, customers is speaking to stubbornly high inventories at least around the industry with maybe 1 more quarter remaining. Maybe square that with how you're thinking about things.

Yes, James, I'll take that. So we have taken pipeline units out each of the last several years. I would say in '26, we expect that to be probably flat to maybe taking out a couple of hundred units at most. I mean our goal really is to match wholesale and retail this year, which would mean wholesale growth, obviously, year-over-year versus last year.

And as it relates to maybe your last comment, I would say -- I think our biggest distributor would say that our inventory in their hands is quite fresh and in very good levels. So the pockets that are -- maybe were mentioned are, we don't believe, are Brunswick inventory. And in fact, Sea Ray and Whale specifically in our hands are in really good shape and lean to start the season.

Got it. And just if I could just squeeze in one more. Obviously, your specific brands are all that matters for you, right, given your Propulsion business, your P&A business. Do you think sort of competitive or, I guess, a better way to put it, industry inventory levels even to come down is at all a headwind as we think about some of those other segments?

I don't think so, James. I mean in terms of flow-through to us, we've seen very solid ordering. We mentioned on the call that our wholesale orders so far satisfied close to 80% of our Q1 production, which is up 13 points versus last year. So thus far, in terms of dealer pull, we are not seeing any evidence that they are holding back on orders kind of on a year-over-year basis.

Our next question is from Craig Kennison with Baird.

I'm trying to understand the dynamics that might push retail back to at least closer to historical trends. What can you tell us about, I guess, repeat buyer behavior and any deferred trade-up cycle that could eventually be released based on any consumer data you have?

Yes. Craig, thanks for the question. Yes, as you know, I mean, we still have a huge gap between industry new boat sales and replacement rates. And we think the natural replacement rate in the fleet is probably in the $225,000 plus range. And this year -- or 2025 will be in the 130-something range. So that is a kind of natural pull.

I also think that there is some deferred purchases from the depressed kind of overall industry sales in the past few years. So people have waited for the right buying [indiscernible] to reenter the market. Generally, we continue to see new boaters come in around the historical pace, I would say, of 25-ish percent of new boat sales. But as you think about the shocks that we've experienced over the last several years, some -- certainly on the interest rate side, conditions have not been positive and constructive. We are beginning to see that normalize. I think if you look at inflation, obviously, the Fed would like it to be 2%, but compared with where it was 2 or 3 years ago, we're in a much more normalized situation.

So I think that we -- based on depressed sales over the last few years, we likely have some buyers waiting for the right point to come back into the market. We will see the full effect of those 75 to 100 basis points of rate cuts this year. And we have a kind of replacement -- we're well below replacement rate. So I think all of those suggest pull forces for retail. But of course, we are -- if that happens, that will be great. But at the moment, we're forecasting at least some uplift in the market.

I would also add, Craig, that we've been very thoughtful and really the industry about pricing over the last handful of years. And now you're seeing a more balanced dynamic between trade-in values for people that bought around 2020 or 2021 and what they can purchase today. So I think people are getting a little bit more value for their trade-in. They've held it for a little bit longer, so their ability to trade up and trade back in has greatly improved now over maybe where it was 2 or 3 years ago.

Our next question from Gerrick Johnson with Seaport Research.

I wanted to ask you about Propulsion. Outboard was up 26%. Your Boat business was up [indiscernible].So I'm just going to infer here your sales to OEM customers really expanded nicely. Can you talk about that, your business to OEM customers and how much of your growth there is coming from existing customers and how much from new wins?

Gerrick, good questions. So yes, Brunswick's boat brands are performing very well in the marketplace. In fact, we're gaining share. But we focus a lot on the U.S. market, and we chose to add a few more details on Europe in particular this time where -- while Mercury is gaining share in a lot of markets, a lot of parts of EU.

So I think we have -- we signed multiyear agreements with some of the biggest and fastest-growing OEMs in Europe recently. In fact, some of these are 5-year agreements, which is quite unusual. So if you think about Mercury's strategy, obviously, it's to get best products and technology in the marketplace, advanced share, but then fortify that share by putting in place multiyear agreements.

And so I think the implications of those 5-year agreements are these large and fast-growing OEMs, not just in the U.S. but in Europe, are putting their trust that Mercury is going to be the leader for a long time. And they have seen some of our new product plans, so I think that trust is extremely well placed.

So yes, I think that we are growing share with new customers. We've gone exclusive with a number of customers now, that we weren't explicit with before. And we're signing longer agreements that fortify our position. Connecting what you just discussed a bit with some of the kind of strategic spending that we referred to, clearly, a significant portion of that is in Mercury. We hired 60 new Mercury engineers in 2025. So despite the fact that we're continuing to watch our spending, we are loading up for another product blitz in Mercury. We have 5 new outboard programs going. Obviously, we shared some details of those with some of those customers. So I think that yes, we're getting more customers, our existing customers are [indiscernible] signing long-term agreements with us and a number of customers who are not exclusive to us are going exclusive. All of those effects will be posted, I think.

And then, Gerrick, and it relates to just kind of the near-term Q4 and as we move into '26. So engine pipelines, which we talk a lot about both pipelines and the ability to put more wholesale into the field when pipelines are lean, our engine pipeline, so our engines that are sitting both with our dealer network and with our OEMs, are kind of at historical lean levels. We took mid-20,000 engines out in the U.S. alone in '24. Our pipeline is about 17%. And last year, we took another 10% out just in the U.S. alone.

And so you're seeing build rates with our OEMs remain pretty static, if not improving a little bit. And their need to buy engines follow that trend. So you have the share gains and you have the benefit of low pipeline inventory sitting at the OEM leads to a pretty nice outlook that you've seen.

Our next question is from Anna Glaessgen with B. Riley Securities.

I'd like to continue along the track of talking about pipeline and expectations for retail versus wholesale. We're expecting flattish -- flat to slightly up retail, now getting a little bit of a break on interest rates. I guess what would you think it would take to see some pipeline replenishment for wholesale to exceed retail? Or do you think we're at kind of like a new normal of lower inventory versus pre-COVID?

Anna, thanks for the question. Yes, I don't think that we're at kind of normal as such. I mean, clearly, there are a lot of things in the last few years that have caused our channel partners to be cautious about ordering. But I would say you see sentiment across OEMs, dealers and end-customers continuing to improve and confidence to build. One of the things that's helpful for our channel partners about just holding inventory is the double effect, if you like, of interest rate reductions. The carrying cost is lower because float line is lower. And the margins tend to be higher because discounting is lower.

So I think that as either our OEMs or channel partners calculate the carrying cost or marginal benefit, if you like, of inventory, those positive effect on both ends, the carrying costs and the demand, are both constructive at the moment. So yes, I think it's nice to see that we are getting strong pull-through from our channel partners in this early point of the year, as evidenced, as I mentioned earlier, by a stronger fill rate, if you like, than at this point last year. So it's a case of gradually building confidence, and I think that confidence certainly is building at the moment.

Thanks, Dave. And Ryan, one on the tariff math. I guess for the full year in '25, which was partial because you didn't have 1Q impact, it was a $75 million net impact, and then for 2026, it's an incremental $35 million to $45 million, with the majority of 1Q. I guess that implies kind of a step-up in that quarterly rate, if I'm thinking about that correctly. I guess is that a function of mix, with Propulsion expected to grow more in 2026 which carries more tariff impact? Just any help there.

Yes. I wish it was really straightforward, Anna. But the upshot is Q1 takes the brunt because there was basically no tariffs in Q1 of last year. And then if you remember, there is balance sheet and capitalized variance. There's some kind of accounting math that plays into this as well. And there's some of that impact in Q1. But really, if you think about it, the first half is going to take all the incremental tariff costs, call it, [ 1/2 to 2/3 ] of that in the first quarter, which is really that combined with accelerated product spending, which we wanted to do really in the quarter, that can be a $30-ish million number in total. So if you normalize Q1 just for those 2 items, you're at an EPS growth of 25-plus percent, which looks similar to the rest of the year.

So yes, that's the tariff math. It's really the continuation of what happened in '25 with a little bit of accounting treatment roll off given the inventory valuations.

Our next question is from Scott Stember with ROTH Capital.

Can we talk about the IEEPA tariffs? Obviously, we're going to get some kind of rolling in the coming days from the Supreme Court. Just trying to get a sense of how much of a benefit you could get if they get eliminated. Could you just size up how much of your tariffs are IEEPA driven?

Scott, I'll take this one as well. Yes. I mean if you look at a full year of IEEPA, call it $20 million to $25 million is the impact. And so again, that's a full year impact. You don't know when it would be effective or when it would -- if there'd be a look back and all of the above. So it would be a material good guy for us, but it's only a portion of the tariffs given all the reciprocal 232 and other impacts that we're facing.

Got it. And then, Dave, just following up on your comments about interest rates, financing rates for the consumer, sits at about 7.5% currently. Can you just maybe frame out how much rates have actually gone down as of late given the 75 basis points of cuts from the Fed? Just trying to get a sense of how much relief we're talking about in the actual financing rates for the consumer versus 6 months ago.

Yes. So maybe I'll start a bit further back, Scott. So if you looked in 2019 of what the financing rate would be, it would be in the kind of 5.5% to 6% range. It peaked in '24 at about 10%, and now it's down to about 7.5%. So very material improvements versus peak rates. Still 150-ish basis points above kind of pre-pandemic levels. But that is overall still a tailwind versus the last couple of years, certainly.

And on top of that, as Ryan mentioned, there are a couple of other tailwinds, include the fact that our price increases over the last couple of years and this year will be pretty modest. And the trading values are beginning to normalize versus some of the kind of peak prices that people paid in COVID. So they have more equity in their existing product, which is encouraging in terms of the ability to trade up. But yes, I think we've got a couple of tailwinds there.

Our next question is from Xian Siew with BNP Paribas.

Maybe given the competitive advantage of Mercury on the tariff front versus maybe the Japanese OEMs and the recent momentum, I mean, how are you thinking about market share opportunities for '26? What's kind of baked into expectations for that for Propulsion?

Xian, I think it's difficult to know at the moment. The reality is we think we have a long-term structural advantage here. But in terms of what happens in the market, it depends on what the pricing policy to some extent of the competitors, turns out to be how much pain they're willing to take on margins. We have a pretty dynamic situation with the yen as well.

We did see that, obviously, they took some pain on margins in the back half of 2025. So I think we will see a steady march on new products. We have a very exciting product plan at the moment, I think. And so I think we see selective gain. Some of that is targeted at what we've come to refer to as ultra-high horsepower. Some of it is more refresh and upgrade to more mid-horsepower engines as well, which, although not quite as glamorous, do represent high volume for us.

So yes, we have a very solid product plan, a lot of products coming to market over the next couple of years. And then I think we'll see this steady march as OEMs continue to move towards us and, in some cases, become exclusive.

The other factor -- yes, just real quick. The other factor, we've had really strong wholesale share here the last several months. And so that's a good prediction really of where we think the '26 share will continue to grow.

Makes sense. And then maybe just as a follow-up, '26 guidance, I think, implies something like 20% incremental margins, which is inclusive of, I guess, the incremental tariffs. So underlying, if we kind of set that aside, quite strong incremental margins. I guess how do you think about the potential for incremental margins in the flow-through as you kind of continue to recover from here?

Yes, you're exactly right. Your math is correct. So nothing's really changed. Even in a tariff impact, we haven't talked about Navico, but what a great fourth quarter and early year that Navico had here in '25 and to start '26, just because their product and variable margins are the highest in the company. And the Boat group is taking all the right steps to take cost out and deliver on their margin targets as well.

So north of 20% is always the goal. But as you've seen in past years, with value, some supercharged incrementals, and we think that '26 and beyond is going to be a period where we have more value, and you're going to see things improve and increase.

Our next question is from Jamie Katz with Morningstar.

I just want to stay on that margin topic. And I think in our model at least, absorption isn't really benefiting the P&L as much as we thought it would be, right? You're looking at 7.5% to 8% operating margins in the year ahead. So you guys talk about, I guess, outside of tariffs, what's the biggest sort of cost headwind holding that adjusted operating margin back and then maybe where the top opportunity for upside resides in the cost structure?

[Audio Gap]

Is really the accelerated spending on investments necessary to grow the top line. We believe that we're in a spot where the industry is probably primed to grow and increase, and we want to be there with the right products [ to customers ]. And so you've seen on the bridge that we showed kind of a big chunk of OpEx increase. I mean most of that is strategic investment in products, in growth initiatives that will support us moving forward, inclusive of things like sales and marketing, IT and necessary systems that will enable us to service our customers even better.

So the good news is there's no year-over-year wonkiness with comp, right, because that will be kind of a zero factor year-over-year. So think of it really as just growth initiative spending, which we're happy to do to continue to drive our market share and our leading products.

Yes, Jaime, I'll just add to that. I think -- I mean, obviously, as a management team in the business, we're thinking about '26, but we're also thinking about '27, '28, and how do we grow the business long term. We think that we are at an inflection point at the moment. And so we took the decision to accelerate investment in certain areas that we think are going to grow us not just in '26, but well beyond. And that is new products, to some extent, AI. And I don't throw that out there lightly. I know it's a very kind of topic -- topic of the year.

But AI can be a big influence on efficiences in our business and also strongly influence and improve our kind of products and overall go-to-market. So there's just some spending. But as you know, we offset a lot of that by really laser-focused on operating efficiency. You know about the footprint reduction actions that we're taking software. So we're very balanced. But I think the strong cash flow and through-cycle performance that we have allows us to make investments maybe ahead of where other people might be able to make them. And this is not just about growth in '26. It's about long-term growth, medium-term growth as well. And we think we are well positioned to achieve that.

Thank you. This concludes our question-and-answer session. I would like to hand the floor back over to Dave for any closing remarks.

Yes. Thank you all for the great questions as usual. This is another very encouraging quarter for us with improving retail, revenue up across all our businesses and global regions, very solid earnings and continued exceptional free cash flow generation. Full year revenue being up over prior year for the first time in 3 years was very nice, a real, I think, a tangible signal of an inflection point. Early 2026 retail is strong and wholesale orders are also strong from our dealers. So that's really encouraging.

We continue though to be laser-focused, as we mentioned, on our structural cost reduction actions, but we are and have accelerated some investments in new products and technology, notably in Propulsion.

We tend to focus on big picture things, but don't overlook the fact that we won the 2 big awards in the European boat shows early this year. European Powerboat of the Year, Motorboat of the Year. We don't just win because of scale and technology. We win because we have the best products. And we will continue to do that. And on that note, we'll be introducing quite a few new products at the Miami Boat Show. So I'm excited about that. Please join us if you can. We will be launching and debuting more new products across the businesses than I can remember for quite some time. And I look forward to seeing many of you at that investor and analyst event on February 12. Please make the time. We'd love to see you. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to Brunswick Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

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 is 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.

Thanks, Steve. Brunswick delivered strong third quarter results, with each reporting segment generating revenue growth over the prior year quarter and overall financial performance exceeding expectations and guidance for the quarter. The sales growth reflected strength across all our businesses despite a challenging, albeit improving macro environment and industry backdrop. Our market-leading propulsion and boat portfolios outperformed their respective markets, and our recurring revenue, parts and accessories and other aftermarket focused businesses, along with Freedom Boat Club, continued to benefit from healthy boating activity.

Brunswick's third quarter boat retail sales were flat year-over-year, a notable relative improvement from the first half of the year driven by resilience in our premium and core categories. We continue to drive forward with financial and operational efficiencies through the announced margin-accretive footprint actions in our boat business, continued enterprise-wide tariff mitigation initiatives, prudent pipeline management and excellent capital strategy execution. Our third quarter sales of [ $1.4 billion ] were up 7% versus prior year. Our adjusted earnings per share of $0.97 were impacted by the reinstatement of variable compensation and tariffs, but were up year-over-year, excluding those items, and we had another quarter of outstanding free cash flow generation, providing us with the flexibility to simultaneously invest in our business, return capital to shareholders and strengthen our balance sheet.

With $111 million of free cash flow in the third quarter, we have generated [ $355 million ] year-to-date, an exceptional $348 million improvement over the first 3 quarters of last year. For the first time since the first quarter of 2022, revenue grew in all our segments. The Propulsion business delivered significant sales growth, with revenues in each of its 3 businesses: outboard, sterndrive and controls, rigging and propellers, up over prior year as OEM order strength continued later into the boating season.

Mercury continues to be the clear U.S. outboard market share leader, with 49.4% share of outboard engines sold in the quarter. Given the volume of Mercury competitor engines shipped into the U.S. in advance of the tariffs on Japanese imports, we have not yet seen the full potential impacts of those tariffs on competitive product pricing, but we continue to be well positioned.

Strong boater participation in our core markets continues to benefit our high-margin annuity Engine Parts and Accessories business, which posted strong sales growth over the prior year with sales in both the products and distribution businesses up solidly and segment operating margin also up sequentially from the second quarter, reflecting the strong operating leverage in the business. In the U.S., our market-leading distribution business gained 140 basis points of market share year-to-date over the same period last year.

Navico Group reported modest sales growth and steady adjusted operating margin over prior year. Growth was led by strong performance in marine electronics product lines, but continued to benefit from investments in technology and new product introductions, while strong boating participation drove aftermarket sales that represents 60% of Navico revenue. Continued restructuring actions, a leaner, more focused organization and new product investments are bearing fruit. And Navico Group's strategic importance to the Brunswick portfolio was recently reinforced by the introduction of the Simrad AutoCaptain autonomous boating system, developed by Navico Group in collaboration with Mercury Marine and Brunswick Boat Group.

Lastly, GAAP operating earnings were impacted by $323 million of noncash intangible asset charges for Navico Group. These impairment charges reflect the impact of the current trade and economic environment despite our plans for continued growth and margin improvement in this important part of our portfolio that is an increasing source of integrated solutions and differentiated innovation.

Our Boat business grew both revenue and adjusted operating margin over prior year as our premium brands continue to perform well, and our aluminum boat businesses delivered a very strong quarter. Dealer inventory remains historically low, and coupled with flat retail, allowed for steady wholesale shipments. In September, we announced the strategic rationalization of our fiberglass boat manufacturing footprint, exiting our facilities in Reynosa, Mexico and Flagler Beach, Florida by the middle of 2026 and consolidating production from these facilities into existing U.S. facilities.

Moving on to external factors. The U.S. Fed cut the Fed funds rate by 25 basis points in September, with expectations for several additional cuts through the balance of 2025 and/or in early 2026. Lower interest rates have a compound benefit in reducing the cost of both dealer floor plan financing and consumer retail financing, which will be a tailwind for both wholesale stocking and the 2026 main selling season. Additionally, while we're still analyzing how best to take advantage of the tax provisions of the One Big Beautiful Bill Act, the cash flow benefits will most likely be realized in 2026.

We continue to actively manage our tariff exposure in what is still a dynamic situation and are slightly increasing our estimate to approximately $75 million of net tariff impact for the year, mainly as a result of the expanded scope of Section 232 tariffs. I will again highlight that because of our primarily U.S.-based vertically integrated engine and boat manufacturing base and predominantly domestic supply chain and the fact that we manufacture almost all our boats for international markets within those markets, we remain competitively well positioned in an environment of persistent tariffs. We also stand to potentially benefit from the tariffs of our engine competitors who import their engines from Japan, now subject to a 15% tariff.

Dealer sentiment remained stable with historically low and fresh dealer inventory, and boating participation has increased considerably during the third quarter, benefiting our aftermarket businesses and driving Freedom Boat Club trips up 2.5% year-to-date versus prior year. OEM build rates have remained solid, and in combination with lower inventories, have supported strong wholesale engine shipments. Retail incentives remain elevated compared to historic levels, but are lower than in the same period last year.

Looking now at industry retail performance, which has steadily improved in recent months after the macroeconomic shocks from early spring. As of the latest SSI reporting for August, U.S. main powerboat industry retail was down a little more than 9% year-to-date, with Brunswick boat brands continuing to outperform the industry and Brunswick's internal retail performing better than SSI. Despite the U.S. outboard engine industry that is down slightly year-to-date, Mercury market share remained stable with a 49.4% share in the third quarter, even in the face of significant competitive promotional activity. Internationally, Mercury drove strong share gains in the majority of its markets.

From a global boat retail perspective, our core and premium brands outperformed the market during the quarter, and our value brands performed steadily. Overall, Brunswick's boat retail was down mid-single digits in the first half of this year compared to prior year, while this quarter, overall, we came in flat to prior year, a significant relative improvement. While still down, we saw notable strengthening in our value segment as we took actions to streamline our model lineup and improve profitability through manufacturing consolidation, which we'll discuss on the next slide.

Lastly, we continue to drive healthy and very lean dealer inventory pipeline levels. Global pipelines are down over 2,200 units compared to the third quarter of 2024 and down over 1,500 units sequentially from the last quarter. In the U.S., pipelines are down over 1,200 units compared to the third quarter of 2024 and down over 700 units sequentially from the last quarter. While the performance of our fiberglass value brands improved in the third quarter, this has remained our most challenged category.

Last quarter, we reported that we streamlined our value fiberglass model lineup by 25% for the 2026 model year, which began in July. And in September, we announced a strategic consolidation of our Reynosa, Mexico and Flagler Beach, Florida facilities into existing U.S. locations. This consolidation will reduce fixed costs, drive improved profitability in our Boat segment and generate a strong return on investment. The transition is expected to be complete in mid-2026, with some inefficiencies during the transition but with anticipated run rate savings of over $10 million a year after completion, even at current volumes, and with the benefits increasing when the industry rebounds and production volumes increase.

This quarter, Brunswick has again delivered outstanding free cash flow. With $355 million year-to-date, we have delivered $1.6 billion of free cash flow since 2021 and a record $635 million over the last 12 months in very dynamic and challenging market conditions with a significant contribution from the recurring revenue components of our portfolio, but also with diligent focus on working capital reduction, and we expect this strong performance to continue into the fourth quarter and next year. Our investment-grade balance sheet remains very healthy, with no debt maturities until 2029 and attractive cost of debt and maturity profile and net leverage that continues to improve.

We are, therefore, again, increasing our debt reduction guidance for 2025 by $25 million to $200 million for the year, up $75 million since the beginning of the year. By year-end, we are on track to retire approximately $375 million of debt since the beginning of 2023 and are committed to achieving our long-term net leverage target of below 2x EBITDA. We are accomplishing this while maintaining significant financial flexibility. And at quarter end, we have $1.3 billion in liquidity, including full access to our undrawn revolving credit facility. We also anticipate retiring $200 million or more of debt next year while continuing to return capital to shareholders.

I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.

Thank you, Dave, and good morning, everyone. Brunswick's third quarter performance came in ahead of expectations, with sales growth in each of our segments versus the third quarter of 2024. On a consolidated basis, sales were up almost 7%, reflecting strong orders from OEMs and dealers, pricing actions taken in recent periods and steady boating participation, driving [ G&A ] and other aftermarket business strength, which was helped by favorable late season weather in many regions.

Adjusted operating earnings and EPS also exceeded expectations, but were down versus the prior year due to the enterprise-wide impacts of tariffs and the reinstatement of variable compensation, which were partially offset by the positive earnings generated by the increased sales. Lastly, as Dave highlighted, we continue to drive robust free cash flow, up 166% from the prior year. On a year-to-date basis, sales are down 1%, primarily due to planned lower first half production levels in our Propulsion and Boat businesses, mostly offset by P&A and aftermarket stability throughout the year and third quarter sales growth in all of our businesses.

Year-to-date adjusted operating earnings and EPS are also ahead of expectations, but remained below the prior year as expected due to the previously mentioned enterprise factors and lower first half production. Year-to-date free cash flow of $355 million remains a continued strength of the entire enterprise, reflecting the overall steady performance of our higher-margin aftermarket businesses and our focused inventory and other working capital initiatives. As noted, while sales were up 7% this quarter versus the prior year, adjusted EPS was down $0.20. However, outside the impacts of tariffs and the variable compensation reinstatement, we would have shown strong adjusted earnings growth in the quarter.

The aggregate third quarter EPS impact of reinstating variable compensation back to target levels and incremental tariffs was approximately $0.70. These costs were partially offset by the earnings benefits from the higher sales and positive absorption, primarily in our Propulsion business, along with lower discounts in our Boat business.

Now we'll look at each reporting segment, starting with our Propulsion business, which grew sales by 10% in the quarter, reflecting increases for each of its product categories of outboards, sterndrive and controls, rigging and [ props ]. Mercury saw strong OEM orders in a low field inventory environment, together with continued robust market share, resulting in their second straight quarter of strong sales improvement. Operating margin was down compared to prior year due to tariffs and the variable compensation reset, but benefited from improved absorption driven by higher production in the quarter.

Healthy boater participation continues to drive strength in our Engine Parts and Accessories segment, with sales up 8% overall compared to the prior year. Sales were up solidly for both products and distribution, benefiting from favorable late season weather in many regions, helping to make up for a slower start earlier in the year, and market share gains in our distribution business. Operating earnings were down slightly compared to the prior year solely due to the enterprise impacts already discussed.

I'm delighted to share that the Navico Group sales increased by 2% in the quarter, led by growth in its electronics portfolio, with adjusted operating margins decreasing only slightly as compared to the prior year. As Dave mentioned earlier, GAAP operating earnings were impacted by a $323 million noncash intangible asset impairment charge for the Navico Group. As we have previously discussed, driving improved performance in this segment is a key focus for management and the entire Navico team. And while we still have more work to do, we are starting to see the benefits from these efforts and our investments in new products, as reflected in Navico's consistent sales and earnings performance throughout the year.

As compared to the third quarter of last year, gross margins improved significantly as we took out almost $5 million of cost from Navico facilities and continue to execute a multiyear initiative to consolidate and optimize our global network of warehouses and distribution centers. This strategic program is designed to deliver meaningful improvements across customer experience, operational performance and financial outcomes. We also continue to improve the balance sheet with lower inventory and increased turns.

Lastly, our Boat segment reported sales growth of 4% over prior year, with growth in both boat sales and the business acceleration portfolio. Our aluminum boat brands, led by our premium fishing brand, Lund, had an especially strong quarter and drove strong top line and earnings performance. And Freedom Boat Club continued its growth journey, contributing approximately 13% of the segment sales. With low dealer pipelines, flat third quarter retail pulled through steady wholesale performance as we ended the quarter with lower pipeline inventories, as Dave discussed earlier. Segment adjusted operating earnings benefited from the increased sales, a lower discount environment and focused cost actions, which resulted in greatly improved segment gross margin, which more than offset the enterprise factors and flowed through into a 65% increase in adjusted operating earnings compared to the prior year.

My last slide shows our full year guidance, which remains unchanged for revenue of approximately $5.2 billion, adjusted operating margins of approximately 7% and adjusted EPS of approximately $3.25. We remain comfortable with our full year EPS guidance despite the slightly increased estimated net tariff impact, as we believe we can carry forward our slight third quarter beat and continue to drive sales and earnings growth as we close out the year. Given our exceptional free cash flow generation year-to-date, we are increasing our full year free cash flow estimate to in excess of $425 million and our debt reduction target to $200 million, which will continue to progress our goal of lowering our debt leverage to under 2x.

I will now pass the call back to Dave for concluding remarks.

Thanks, Ryan. I always like to highlight some of our exciting product launches, [ Freedom ] expansions and awards. During the quarter, we enjoyed strong momentum at the European fall boat shows, which provides positive indicators for next year's retail season and reflect the strong market position of many of our brands. In addition to Mercury's strong showing at the Cannes and [ General ] Boat Shows, two of our most recently launched boats earned notable awards, with the Bayliner C21 named the 2025 Motorboat of the Year in the very competitive under 7 meters category and the Sea Ray SDX 270 Surf collecting the Motorboat Magazine Innovation Award. These two [ posted ] new accolades add to many previous product awards this year.

Amongst the many new boat models introduced this year, during the quarter, Lund introduced its all-new Explorer model lineup, which combines Lund's legendary fishability with smart functional features. Powered by Mercury and equipped with Lowrance technology, the Explorer lineup is another embodiment of the power of Brunswick synergies. Lund continues to be the leader in the premium aluminum fishing market.

Navico Group's integrated and connected solutions continue to drive OEM penetration, and the team worked with several large OEMs to introduce a full turnkey cloud and mobile app solution designed to enhance the boating experience. This end-to-end platform unlocks powerful information for OEMs and their dealers by using real-time telematic data to gather valuable insights to serve their customers. In addition, Lowrance launched the all-new Ghost X Trolling Motor in September as the next evolution in the Ghost lineup. Ghost X delivers 20% more thrust with ultra-quiet operations, GPS anchoring and seamless sonar integration.

Flite debuted the FLITELab brand, which leverages the same innovative Flite product design and technology to provide [ foilers ] with unmatched versatility to customize their ride. And finally, Freedom Boat Club recently reached 440 global locations and announced a new franchise location in Christchurch, New Zealand. Freedom continues to be a key contributor to Brunswick's growth, allowing more people to get on the water through its unique, convenient subscription-based boating model.

This quarter, though, we took a genuine step forward into the future of boating with the official commercial launch of the Simrad AutoCaptain autonomous boating system. We have showcased development versions of this technology at some previous events, but formally launched the production system at the International Boat Builders' Exhibition and Conference in Tampa a few weeks ago and conducted demo rides for the media and 9 OEMs. We have scheduled additional OEM demo rides at the Fort Lauderdale Boat Show next week.

At launch, AutoCaptain offers fully autonomous and dynamic docking, undocking and close quarter maneuvering, delivered with precision and reliability. The integrated sensor suite counters wind, waves and currents, and with 360-degree awareness, recognizes and reacts to its surroundings, avoiding obstacles and hazards such as passing boats to safely execute maneuvers. Post launch, we are working on expanding the capabilities and features offered by AutoCaptain, with the intention that these additional features will be delivered via software upgrades.

AutoCaptain reflects innovation only possible through the combined power and capabilities of our Navico Group, Mercury Marine and Boat Group divisions working together to deliver this seamless integrated solution. It's also a milestone in representing the first commercialized solution under the Autonomy pillar of our ACES strategy, and the final pillar of ACES to be commercialized.

Docking is routinely cited as one of the most stressful aspects of boating, and our comprehensive, capable and intuitive system was reported by the media and OEMs who experienced it to be clearly the most advanced and capable system available.

Before wrapping up, I'd like to share some preliminary thoughts on guidance for 2026, which I know is top of mind for many investors, especially given the multiple headwinds and tailwinds. While the trade and economic environment remains extremely dynamic, we believe that we are well positioned to benefit from any industry recovery due to the operating leverage inherent in our businesses. Our tariff mitigation strategies are working to reduce our net exposure, and we believe that our substantial vertically integrated U.S. manufacturing base positions us relatively well in an environment of persistent tariffs.

Interest rates are coming down, with further cuts expected, reducing the cost of financing for both end consumers and dealers as we approach the fall boat show season and the restocking cycle for what we anticipate at the moment to be a modestly stronger 2026. This is a very early look subject to change. Embedded in these initial thoughts is the assumption of a U.S. retail boat market that is flat to slightly up versus 2025, driven by relative macroeconomic stability, no material negative changes in the tariff environment and continued interest rate improvement. In this scenario, we believe that we can grow revenue by mid- to high single-digit percent, resulting in more than 25% growth in adjusted EPS, with continued significant free cash flow generation.

That is the end of our prepared remarks. We'll now turn it back over to the operator for questions.

[Operator Instructions] And the first question comes from the line of James Hardiman with Citi.

So I don't have to tell you guys that sort of over the course of the quarter, a big topic of debate was sort of how you're thinking about retail and what's showing up in the SSI numbers. I don't really care to go down that rabbit hole, I feel like we've been there before. But maybe if you could give us an indication of where you think we are now in sort of a -- from a run rate perspective, most notably as we think about how you're thinking about 2026? If the expectation is that 2026 is going to be flat to up, where are we today relative to that? And how do you see sort of the building blocks to us getting to that positive inflection?

James, yes, thank you for the question. Yes. We obviously had the kind of shocks in early Q2. The tariff announcements and the subsequent kind of capital market impacts that have progressively stabilized, that significantly affected early Q2, particularly. And then towards the end of Q2, we began to see some recovery and stabilization.

Through this whole process, as we've noted, the kind of premium and core parts of our product lines have performed better than the value parts of our product lines. And that continues to be the case. In Q3, we're essentially flat year-over-year, with premium and core still outperforming and value catching up a bit, but still underperforming. We're obviously now in a part of the season where we're talking about hundreds of units and not multiple thousands of units, but that strength has continued through the first couple of weeks of October was slightly up through the first couple of weeks of October.

So I think last year -- at the end of last year, we were commenting that we thought the shape of the year would be slightly weaker in the first half, strengthening in the back half. We did not know about tariffs at that time, but that has turned out to be the shape of the year. And with interest rates improving and impacting positively both end consumers and our dealers and obviously, their willingness to take stock, we don't see any reason why that can't that momentum can't continue into next season.

So that's really the background. Obviously, if there are currently a [ novel ] exogenous issues, that may change. But just based on a feeling that we're kind of a bit of an inflection point at the moment in a positive way and that we do have a retail momentum, we're feeling that next season should be at least flat and at least slightly up.

Got it. But just to clarify, as we think about sort of flattish for 3Q, that you guys, it seems like the more relevant number might be the industry. Do you think the industry is flattening out for 3Q? And then, I think just a quick follow-up. Yes, I'm sorry, go ahead.

Yes, I think is the answer. SSI -- you appropriately like -- I think probably, we always have this process of reconciliation with SSI. SSI typically comes up. It typically underreports the Upper Midwest states early on, where we have strength typically because of brands like our Lund brand, which is very strong in the Upper Midwest. So there is a process of just reconciliation because of partial reporting. I do get a sense though, since we have a broad range of brands that participate in pretty much every sector, that we should be -- our performance is probably representative of a generally improving market.

And I would say, in some of our premium areas, including Lund, James, we are probably taking a little share as well. So you may see at the end of the year where the industry -- we may outperform the industry by a point or 2 in certain places where our share continues to be good for us.

Got it. And then just the inventory question. It seems like you guys are encouraged with where you are. How do we think about sort of the wholesale to retail ratio into 2026? A lot of other industry participants not only talking about maybe weaker trends -- retail trends than what we're hearing today, but elevated retail level. How do you think about that heading into next year?

Yes, James, I mean, we have the benefit of having our joint venture with Wells Fargo, our BAC venture. And we get to see a lot of good inventory debt, and we're seeing pretty much what we're reporting, which is people being thoughtful about inventory levels not increasing. And certainly, as Brunswick inventory is about as low as it's been in any non-COVID year since the GFC. So we're going to end the year somewhere about 18,000 global units and probably below 12,000 in the U.S. And again, that is when you look at kind of on a per rooftop basis, that is about as low as we want to be to make sure we have representative samples of our products in the places we need to sell retail. So we're really comfortable with our own inventory. And frankly, I'm not seeing any heavy pockets outside of ours either.

Yes. Inventory freshness continues to be really good. More than 80% of our inventory is less than a year old, which is a very fresh and healthy level. And just on the outboard engine side, we are -- we have been undershipping retail for a long time now and feel like our outboard pipelines are in an extremely good shape.

Our next question is from the line of Craig Kennison with Baird.

I just wanted to unpack the impact of U.S. tariffs on your competitors in Japan, especially on your engine franchise, of course. Have those competitors attempted to offset those tariffs with price increases? And have you heard from any boat OEMs that are interested in sourcing engines domestically?

Yes. I think yes to both. Yes, we are beginning to hear about some price increases, but we hear these things secondhand at the moment. So I think that's the developing situation. We'll probably hear more. If anybody intends to implement pricing at the beginning of next year, any of our competitors, then we'll likely hear about it in some way over the next few weeks or certainly, a month.

I think probably with the challenge to the [ IEPA ] tariffs in -- at the Supreme Court at the moment, there may be some of our competitors kind of wait to see what happens with that, I'm not really sure, before implementing pricing. But yes, we continue to gain share and convert OEMs, in fact. Probably in the last 6 months, we converted to European OEMs.

So yes, I think Mercury continues to have very strong momentum. I would say that the Mercury product pipeline is continuing to churn, and there are going to be some really exciting new and very differentiated products coming up from Mercury over the next couple of years, which will only drive forward that momentum. We really are moving very quickly, all Mercury product development, just as we have in the past. I do think as well -- and maybe we'll talk about things like AutoCaptain later though. But that features set, which is genuinely innovative and adds a lot of value, is only available with Mercury propulsion. So we have not just on the propulsion side, but also on the integrated systems side, there are a lot of reasons to suggest that we should be converting more OEMs over time.

And Ryan, you mentioned cash flow and other benefits from the new tax policy. I'm just wondering if you can help us frame or quantify some of those key drivers a little better?

Yes. I mean, Craig, we have a lot of optionality under the new bill, obviously, in terms of bonus depreciation and some other things. And it's a bit of a P&L versus cash flow analysis that you have to take a look at as to when you take some of the goodness. I think for the end of the year, obviously, you've seen our free cash flow guidance. This year, it's extremely strong. It's guiding to the top, what, 2 or 3 years ever in Brunswick's history at 450 plus. Next year, you saw -- you've seen in our deck, that 125% free cash flow conversion would imply that we're getting some of that goodness next year, but we also have some headwinds that go along with that.

So we'll see how we get there. I think we're not making any distinct decisions right now on how we're going to attack some of the benefits in the bill. A bit of it will depend on how we finish the year and the cash needs early in 2026. But it's clear that our ability to generate cash and to generate working capital has become a strength that really differentiates us really from any other company in our space.

Our next question is from the line of Anna Glaessgen with B. Riley.

I'd like to turn to Navico [indiscernible] a little bit. Nice to see the top line inflection during the quarter. Understand operating earnings were impacted by tariffs and the variable comp. But could you confirm that excluding those items, you would have seen margin expansion? And if so, should we start to see more expansion as we roll over those or as we lap those headwinds towards mid next year?

Yes. Yes, I can confirm that absent solely tariffs and variable comp reset, the Navico margins would have been up in the quarter.

Got it.

Yes. And on the...

Go ahead.

I just want to say that -- you go on.

I was going to skip to the next question. So if you want to stay on this topic, please.

Yes. I just -- I wanted to say that we don't talk very much in these calls about technology. But over the last 3 years, we've invested a lot. But if you look at the Navico, I mean, we had the strongest gross margins in our business in the low 30s gross margin across the portfolio, but we're spending a lot on new product development. We just introduced AutoCaptain, which took us 3.5 years to develop. We introduced [ Fathom ] recently, we introduced a new connected platform that I just discussed. None of our competitors have anything like that out there at the moment.

So our path here is to basically do what we did with Mercury, which is to invest in differentiated innovation in a way that other people can't follow or match. And it does take investment upfront, but we will begin to see the benefits of that as we move forward. So I just wanted to add that context.

Got it. Thanks, Dave. Turning to both units, maybe asking the question in a different way. We've seen pretty notable outperformance year-to-date, industry running down high single digits. You guys are putting up a flat 3Q. Maybe expand upon [indiscernible] to which that outperformance is being driven by market share gains? And how we should expect you guys versus the market in 2026 and what's embedded in that guidance?

Sure. I'll take this, Anna. Yes, I think there's some share in there. I do think that, as Dave mentioned earlier, as the end of the year comes, you'll see SSI probably get closer to where we think the end of the year will be, which is kind of down mid-single digits, but with us probably outperforming a bit in premium and in core.

As we look to next year, I don't know if we believe any of those trends are changing. Our pipelines in all 3 of our segments are down. So premium, core and value pipelines are all down year-over-year as we enter 2026 with good, fresh inventory ready for the winter boat show season. I do think you could see some goodness on the value side, should we get a little interest rate help here in November, October 29, December and February. So we have an opportunity for 3 rate reductions here really before the key part of the season.

That could help value, but our premium customer continues to be very strong. And I think certainly looking forward to Fort Lauderdale Boat Show next week, where we anticipate a really nice show where our premium buyer should be out and looking to get a boat for the end of the year.

The next question is from the line of Xian Siew with BNP Paribas.

When you think about next year, I was wondering if you could expand a bit more about propulsion. I think you kind of mentioned it like [indiscernible] a bit of a destocking. So I'm just kind of curious how much do you think that could be a benefit? And how do we think about market share growth for Mercury over the next year?

Yes. I think a steady trajectory on market share growth. I think we are just seeing really -- we introduced the new 350 and 425-horsepower engines only in July, August, I think, something like that. So if you think about that, usually, people incorporate those things in -- at a model year changeover. So we would expect the -- some tailwinds from those new products coming through into next year and continued steady gains.

We talked quite a bit, obviously, about U.S. market share, which is -- in the quarter, was very close to 50%. But the reality is the momentum for Mercury continues in pretty much all its markets. We've had a really strong year in Asia, a strong year in South America, a strong year in Europe. So we would continue to think about Mercury on a global basis, increasing share.

And maybe, Xian, let me just order of magnitude, some of these pipeline numbers for engines. And these are U.S. numbers, which is where we have the best information. But versus the first day of 2024, so a 2-year stack. By the end of this year, under 175-horsepower pipeline is going to be down about 25%. And if you go same time period over 175 horsepower, our pipeline is going to be down 33% since January 1, 2024. So we've put ourselves in a really nice position with our dealers and our OEMs to capture the upside on growth to the market rebound like we believe it will.

Yes. That's super helpful. And maybe just on the 4Q guidance, I think it seems to imply there's a big -- a nice recovery on margins for both boats. At the same time, I think the revenue imply too much, maybe mid-single-digit growth. So I'm just trying to understand, I guess, how are you thinking about boat margins and the evolution in 4Q then maybe beyond?

Yes. I think a bit of Q3, remember, is always saddled with some of the summer shutdowns and fewer production days. And so that often means Q3 is kind of the lowest margin quarter of the year. They're going to be producing kind of at a normal rate here in the fourth quarter. And if you remember, versus Q4 of last year, where they were really taking production days out to ensure a pipeline didn't inflate before the year, this year, they're simply just at a more steady state. So those are the two main drivers.

Thank you. [Operator Instructions] The next question comes from the line of Matthew Boss, JPMorgan.

It's Amanda Douglas on for Matt. So Dave, following the actions that you've taken to streamline the value boat segment, do you see the model lineup into 2026 as rightsized today? Or are there any further changes required ahead? And how would you assess dealer inventory levels across value and premium segments as we look ahead to the 2026 season?

Thank you for the question. Yes, I think the focus on value and kind of scaling back of the model lineup, I think we'll obviously evaluate through the balance of this season and early next season to see if we should take any additional actions. I think we still have a very comprehensive portfolio. But given volumes in that segment, we had too much complexity, and we need to take that down.

I think we'll be very dynamic about it. I don't foresee a substantial additional change. At the moment, we've introduced new products, including the award-winning C21 from Bayliner this year, which is going to help us a lot, helps us focus our product development efforts to make sure that the model lineup that we do have is fresh. But of course, we could trim and make adjustments as we go forward. I don't see the same level of rationalization that I saw for this model year, though.

And then in terms of inventory levels, I think we're healthy everywhere. Typically, our premium inventory levels in terms of weeks on hand are lower than kind of value. Typically, our premium inventory levels in terms of weeks on hand will be in the typically, mid-20s somewhere, and that's exactly where we are right now. So I really feel like our inventories are rightsized across all of our segments. And I believe that we're extremely well positioned for 2026.

Our next question is from the line of Jaime Katz with Morningstar.

I just wanted to go back to Navico. I think in the prepared remarks, it was noted that there was more work to do. And you guys have done a ton of work already. So maybe, can you elaborate if there's been maybe some new issues found that need to be remedied? And then what does the road map look like to a steady state in that segment?

No, thank you for the question. Yes, there are no new issues. There's just always more work to do, and we try to make sure that we prioritize our actions and make sure that we do the biggest, most impactful things as far as we can first, but there's a continued march forward in all aspects of the business. We do think about the fact that -- Navico Group is not just Navico. Navico that we acquired in 2021 was about half the business and still is about half the business. It really is the product of a lot of acquisitions over time.

And so we're continuing to make sure that operationally, those previous acquisitions are all now working together on the same IT platforms, for example, making sure that we don't have excess distribution, we consolidate distribution. But we have the same systems that we can manage our [ SIOP ] processes. So yes, this is really a multiyear effort to kind of wring the last bit of operational efficiency out of the business. And we've done a lot of work, but we have more to go. There's still a good road map there of work that will help our operating margins, help revenue growth, and to be honest, free up some more cash because I think there are more turns in that business than we have right now, inventory turns in that business than we have right now.

So the road map includes all of those things, and it's very detailed. [ Oni Denari ], who runs that business now, is a very detailed and strong operator who is working extremely systematically through all of the aspects of the business, all of the processes, all of the systems and making sure that we continue to progress forward. So a lot of heavy lifting done, particularly on the product development side. It just takes a while to get that flywheel turning, but now, it really is turning with a lot of differentiated product.

We have rationalized quite a few facilities. Even, I think, earlier this year, we moved European distribution to a 3PL. Those kind of actions individually might not move the needle, but collectively, can be multiple points of operating margin expansion. So yes, we're not in any way complacent on Navico now. It's great to see the business stabilized, but there is such a lot of potential in that business. We are anxious to make sure we move even further forward.

The next question is from the line of Joe Altobello with Raymond James.

Just wanted to get some more clarification on 2026 and the initial outlook here. So obviously, as you mentioned, you guys have been undershipping demand significantly on the engine side and I think a little bit on the boat side as well. But as we think about the mid- to high single-digit potential revenue growth for next year, how much of that is simply lapping that destock, if you will? And how much of that is actually potentially coming from a restock?

Joe, I'll take -- I'll go ahead and take this one. Yes, maybe there's a little bit in the first part of the year that is lapping a bit of a slower Q1, maybe half of Q2. But really, it's going to be a combination of a little bit of market, not much relying on the market, maybe a point or 2, some pricing throughout the various business units. Some share gains which continue, not only at Mercury, but in the Boat business and as Navico Group takes back share in some of their product lines. And also probably a bit of a betterment in discounting, right? The discounting environment, we've already seen come down here in the back half of the year, and we [ intend it ] likely that, that will continue. With P&A obviously being a very stable part of the business that continues to [ trolley ] along.

So you can get yourself, depending on what you assume there, from mid- to high pretty easily. But I would say the lapping of destocking is probably a small part and really just a kind of first quarter, maybe first 4, 5 months phenomenon.

Our next question comes from the line of David MacGregor with Longbow Research.

This is Joe Nolan on for David. You talked about the plant consolidation and efficiencies during the transition. Just wondering if you could talk about the fourth quarter impact and maybe give us a sense of what the net impact might be for 2026 from that?

Yes. So fourth quarter, we're probably talking about a couple of million?

That's right.

Yes, just checking with Ryan here to make sure I give you a couple of million. Essentially, we'll be operating 4 facilities and at least 2 at lower efficiency and productivity as we begin to exit them and we move towards fully consolidated by hopefully, a little bit earlier than the middle of 2026. So by the time we get the transition completed, we'll begin to see that kind of annualized run rate saving of $10 million-ish plus.

So overall, I would say through next year, we'll see net positive, but it won't be the full $10 million of run rate savings. There are some elements of this transition that we can take ex items and some like just running at lower efficiency that we can and a little bit of a drag in the short term. But the price in the long term is well worth it. That $10 million or so run rate is just that current production rates. The benefit increases substantially as we move to higher production volumes.

So we're anxious to get it done as fast as we can. We're very appreciative of the work of all the people who are transitioning and those who are working to help us with the transition. And yes, we'll be a much leaner production organization when we finish with a lot of benefits to the entire Boat Group.

Our next question is from the line of Tristan Thomas with BMO Capital Markets.

I just wanted to look maybe a little bit past next year, just maybe get an update on how you guys are thinking about normalized boat industry retail demand and kind of how long and what's needed to get us there?

Normalized industry, we had -- when we think about the kind of normalized in a number of different ways, I would say -- we had a year this year that was heavily disrupted by the second quarter, which is unexpected, as -- prior to those announcements. I think otherwise, we would probably have had a year that was probably flattish. I'm not really sure. Q1 was a drag.

I would say that elevated interest rates are -- have been a headwind in the past several years versus where we were before COVID when retail loan rates are in the 4% to 5%-ish, and we're currently in the 7.5% to 8% range. So that is a headwind that has been present for the last couple of years. And then we frequently also referred to replacement rates in our -- if you look at the boat park or the number of registered boats out there that are relevant to the product lines that we produce, it's in the kind of $7 million range. And if you look at a typical boat life, it implies annual replacements in the 200,000 to 250,000 range, which is obviously well above the 130 to 135 we're at the moment.

So I would say a number of factors suggest that we will -- that there should be macro factors that increase both sales over time, and that's what we're anticipating. But we're obviously hesitant to take all of those things into our near-term forecast. So we think flat to slightly up is a prudent forecast at this point in time for next year.

Our final question today is from the line of Noah Zatzkin with KeyBanc Capital Markets.

Maybe on the tariff front, I think the expectation ticked up a little bit to $75 million for this year. So just maybe any updates on how mitigation is going? And then any early thoughts on the expected impact embedded in kind of the initial thoughts around '26 would be helpful.

Sure. Noah, thanks. Good question. Yes, listen, the real change from our July call to today was the 232 impact on aluminum and steel, really 3 parts. The rate went from 25% to 50%. The list of applicable ACS codes expanded significantly, which really now involves us looking at any [ metal ] contact that's contained in parts or goods that are coming in. And I think most people know it was applied retroactively, meaning it applied to inventory sitting in free trade zones or other bonded warehouses, if you would.

So that was really the only change from the guidance. And in fact, I would say our mitigation efforts are -- continued to outpace our expectations. We continue to do better than we thought kind of month in and month out. And so that is good and that gives us good visibility into next year. It's a bit hard to say exactly what the impact is next year. I do think the incremental over this year would be much smaller than the incremental from '24 to '25. And certainly, as we continue to get smarter on mitigation techniques, we'll continue to work that number down.

So yes, we're actually pretty happy that we're able to hold EPS for the year. Obviously, it's an extra about $10 million of tariff impact that we didn't anticipate that we're going to go ahead and cover -- that we believe we can cover in the quarter. And we look forward to then moving over to '26.

At this time, I would like to turn the call back to Dave for some concluding remarks.

Yes. Thanks for your questions, everyone. Great questions. I think in a lot of ways, this is a very encouraging quarter. We have improving retail, revenue up across all our businesses, very solid earnings and continued exceptional free cash flow generation. We do -- as a team, we -- I think this just seemed like a bit of an inflection point. There's definitely more -- a positive shift in momentum at the moment.

We continue to take bold structural cost reduction actions, though, and continue to do that, which will benefit our earnings in '26, independent of the market. Our major brands and businesses are beating the market. We continue to invest a lot in very well received and award-winning new products across the portfolio.

AutoCaptain was a notable highlight though, really the first fully integrated autonomous boating system in the marketplace, a real differentiator, along with a number of other platforms that we've recently launched in a way that I think only Brunswick can produce. So it's very exciting.

So as we said, while many things about 2026 are normal, I think late 2025, retail trends, very lean pipelines, further interest rate cuts all suggest the opportunity for top line growth and through our strong operating leverage, meaningful margin and EPS free expansion.

All right. Thank you, everyone, very much. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.