Image source: The Motley Fool.

DATE

  • Thursday, July 24, 2025, at 11 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — David Foulkes
  • Chief Financial Officer — Ryan M. Gwillim

Need a quote from one of our analysts? Email [email protected]

RISKS

  • Management stated that tariffs continue to directly impact earnings, with total tariff costs for Chinese imports potentially reaching $20 million to $30 million at current rates, based on the anticipated 2025 impact, in addition to approximately $30 million in Section 301 tariffs already factored into 2025 annual guidance.
  • Operating earnings and EPS declined year-over-year in Q2 2025 due to tariffs, reinstated variable compensation, and lower absorption resulting from decreased production levels, with management noting these negative impacts were "only partially offset by new product momentum [and] ongoing cost control measures."
  • Sales declined in both the value category for boats and in Navico Group, with value brands highlighted as "challenged" and management continuing to "optimize the profitability of these brands at reduced production volumes."
  • Ryan M. Gwillim said, "is an extremely dynamic situation" explicitly acknowledging ongoing uncertainty regarding future tariff policy, exposure, and related capital market disruption.

TAKEAWAYS

  • Revenue: $1.4 billion in sales for Q2 2025, with each segment performing at or above management expectations.
  • Earnings Per Share (EPS): $1.16 in earnings per share for Q2 2025, exceeding guidance and increased sequentially from Q1 2025.
  • Free Cash Flow: $288 million in the quarter, a record for Q2 2025, and $244 million for the first half -- a $279 million improvement over the first half of 2024.
  • Propulsion Segment Sales: Propulsion business sales increased 7% in Q2 2025, primarily due to strong U.S. OEM orders; Both sales and operating earnings grew sequentially from Q1 to Q2 2025.
  • Mercury Outboard Engine Share: Gained over 300 basis points in U.S. retail share for engines over 300 horsepower in Q2 2025, and 30 basis points overall on a rolling twelve-month basis.
  • Engine Parts & Accessories (P&A) Sales: Engine parts and accessories sales increased 1% year-over-year in the second quarter of 2025. Distribution business sales were up 4% year-over-year in the second quarter of 2025. Products business sales were down 4% in Q2 2025, reflecting offsetting trends.
  • Navico Group Sales: Down 4% compared to Q2 2024; Year-to-date revenue for Navico Group is down 2.5% versus the first half of 2024. Segment operating earnings declined due to lower sales, tariffs, and the variable compensation reset in Q2 2025.
  • Boat Segment Sales: reflecting weakness in value categories, partially offset by premium and core segment performance; with Freedom Boat Club contributing approximately 12% of segment sales in Q2 2025.
  • Wholesale Shipments & Inventory: U.S. wholesale boat shipments were down 9% in Q2 2025, resulting in an 11% reduction in U.S. pipelines, or over 1,200 fewer units year-over-year; Global pipelines are down 2,300 units as of Q2 2025.
  • Tariff Exposure: Less than 5% of cost of goods sold (COGS) is potentially subject to $20 million to $30 million in new tariff expense from China for 2025, in addition to $30 million in Section 301 tariffs; Mexico and Canada supply approximately 15% of U.S. COGS, but benefit from USMCA exemptions, limiting exposure.
  • Guidance: Full-year sales are projected at approximately $5.2 billion for 2025, Full-year adjusted EPS guidance is approximately $3.25, and free cash flow guidance has been raised to over $400 million for the full year 2025; debt reduction target increased by $50 million to reach $175 million in 2025.
  • Dealer Inventory & Pipeline: Boat-side weeks on hand in the low 30s at present, which are expected to reach around 40 by year-end 2025, while global and U.S. field pipelines remain at historical lows, excluding the COVID period, as of Q2 2025.
  • New Product Launches: Mercury introduced 425-horsepower and refreshed 350-horsepower outboard engines; Sea Ray introduced new models featuring integrated Navico Group technology.
  • Awards & Recognition: Brunswick was again named one of America's best mid-sized companies by Time magazine, achieved several Boating Industry Magazine product awards, and earned multiple distinctions from Newsweek.

SUMMARY

Brunswick Corp. (BC 2.07%) achieved record free cash flow of $288 million in Q2 2025 and delivered improved sequential EPS in Q2 2025 while navigating persistent tariff headwinds and segment-specific pressures. Management credited cost controls, operational execution, and resilient aftermarket and premium brand performance for offsetting volume weakness in value categories. Cautious optimism for the second half stems from positive July retail trends, strategic inventory management, and an enhanced competitive position driven by domestic manufacturing and proactive supply chain adjustments.

  • David Foulkes emphasized the company's "fully committed" stance on driving further profitability via rationalization and manufacturing capacity optimization actions in the second half.
  • Ryan M. Gwillim explicitly stated that over 75%-80% of Q2 2025's tariff impact fell on the propulsion segment, with residual effect on P&A and minimal exposure for boats.
  • Management clarified that the impact of 15% tariffs on Japanese imports is not yet visible in Mercury's OEM orders as of Q2 2025 and is not factored into current guidance.
  • A 25% reduction in value fiberglass models is planned for the 2026 model year lineup to simplify the portfolio and increase margins in smaller market segments.
  • Internal data indicated that retail sales in July 2025 were trending positively compared to July 2024, supporting management's confidence in a steady wholesale outlook for the remainder of the year.
  • Restructuring at Navico Group included consolidation of two production facilities, a transition to a third-party logistics provider in Europe, and a leaner organizational structure to improve agility and reduce expenses.
  • Debt maturities are deferred until 2029, and the company reported $1.3 billion in liquidity at the end of Q2 2025, supporting ongoing share repurchases and debt reduction goals.
  • Management highlighted the enhanced competitive positioning from U.S.-centric manufacturing, vertical integration, and rapid onshoring, allowing Brunswick Corporation to mitigate and adapt tariff exposure more effectively than offshore-dependent competitors.

INDUSTRY GLOSSARY

  • USMCA: United States-Mexico-Canada Agreement, a trade agreement that enables tariff exemptions for certain goods moved between the U.S., Mexico, and Canada.
  • P&A (Parts & Accessories): Engine and boat parts, electronics, and various consumables sold into both OEM and aftermarket channels.
  • COGS: Cost of goods sold; the direct costs attributable to the production of goods sold by a company.
  • Aftermarket: Recurring sales of replacement parts, maintenance products, and upgrades after the initial sale of marine engines or boats.
  • OEM (Original Equipment Manufacturer): Companies that manufacture boats or equipment using Brunswick’s propulsion and other systems as original content.

Full Conference Call Transcript

David Foulkes: Thanks, Steve, and good morning, everyone. Brunswick Corporation delivered strong second quarter results. As the power of our market-leading products and brands, efficient operational execution, and cost control, continued prudent pipeline inventory management, and the benefits from the resilient recurring aftermarket focus portions of our portfolio resulted in second quarter financial performance ahead of expectations. This was despite the challenging macro environment and uncooperative weather in many parts of the U.S. through the first two months of the quarter. Year to date, both unit retail sales in the value category are underperforming our initial expectations for the year.

The continued overall resilience in the premium and core categories combined with improving retail sales trends in July is expected to provide a floor for wholesale performance in the second half of the year. Tariffs continue to directly impact our earnings and add uncertainty for both our end consumers and channel partners. But all our businesses are executing strongly on their mitigation plans, resulting in a smaller net tariff impact than originally anticipated. Against this backdrop, we are pleased to report second quarter sales of $1.4 billion, up slightly from the prior year, and earnings per share of $1.16, both exceeding the top end of our guidance and sequentially up from the first quarter.

Earnings were impacted by the reinsurance reinstatement of variable compensation and the effects of tariffs but were consistent year over year excluding those items. A continuing highlight of our financial performance is our free cash flow. We had another quarter of our outstanding free cash flow generation, with $288 million of free cash generated in the quarter, a record for any second quarter in company history. This performance also resulted in a record first half free cash flow of $244 million, a $279 million improvement versus the first half of 2024. The free cash generated in the past three quarters represents the largest free cash flow generation in any fourth through second quarter period in Brunswick Corporation history.

In summary, despite everything going on around us, Brunswick Corporation was firing on all cylinders in the second quarter. But of course, NEXT never rests. And we are fully committed to doing a lot more, including progressing certain rationalization and manufacturing capacity optimization actions in the second half of the year to improve profitability and cash flow in several of our businesses while still driving incremental product costs and operating expense reductions, and maximizing the positive impact of our cash generation on our capital strategy. Our overall results were supported by performance ahead of or in line with expectations for each of our segments. Our propulsion business delivered strong year-over-year sales growth, with shipments to U.S. OEM customers outpacing expectations.

Resulting in sequentially improved earnings despite the anticipated tariff and absorption headwinds. Mercury's outboard engine lineup continues to take market share, gaining over 300 basis points of U.S. retail share in outboard engines over 300 horsepower in the quarter, and 30 basis points of share overall on a rolling twelve-month basis. Despite heavy wholesale shipments by competitors, ahead of tariffs being implemented on Japanese imports. Mercury's leadership in high horsepower outboard will be further reinforced by the new 425 and 350 horsepower engines launched earlier this week, with performance, smoothness, quietness, weight, and other attributes far ahead of the competition.

Our engine parts and accessories business had another strong quarter, with slight year-over-year sales growth and steady earnings, despite a weather-affected start to the boating season. This primarily aftermarket-based business continues to derive its success from stable boating participation and the world's largest marine distribution network, which in the U.S. has gained 180 basis points of market share resulting from our ability to support same-day or next-day deliveries to most locations in the world. Navico Group had slightly lower sales compared to 2024, with aftermarket sales and sales to marine OEMs modestly lower. However, sales trends continue to improve each month in the quarter.

Navico Group earnings remain consistent with first-quarter levels and were driven by enthusiastic customer acceptance of new products and steady operational performance. Year-to-date revenue for Navico Group is only down 2.5% versus the first half of 2024, led by steady performance from the group's aftermarket businesses. Restructuring actions continue to gain traction despite tariff and market headwinds, and in the quarter, we consolidated two production locations and transferred European distribution to a 3PL. While in July, we implemented a leaner organizational structure that will reduce expenses and increase agility.

Our boat business had lower overall sales mainly resulting from weakness in value categories but outperformed the market in some other key categories, resulting in overall market share gains and has delivered 30 new model launches year to date. In response to the tighter value fiberglass market, we have rationalized our value fiberglass model lineup by 25% for the 2026 model year. Dealer inventories remain healthy, and Freedom Boat Club continues its journey of profitable growth, launching its first club in the Middle East, located in Dubai, and with plans for additional expansion, further reinforcing its position as the world's largest and only global boat club.

Now looking at external factors, we see some areas of continued uncertainty, but also some emerging bright spots. Compared with the first quarter, interest rates remain steady with the potential for improvement, and foreign exchange tailwinds should benefit predominantly U.S.-based business. In addition, the One Big Beautiful Bill Act favorably addressed tax increases that were previously scheduled to take effect and restored key pro-business provisions such as full expensing of U.S. R&D. We are still analyzing the impact of all these changes on a global basis but anticipate a significant positive cash flow impact moving forward. Brunswick Corporation continues to actively monitor and manage tariff exposure.

Our coordinated team across trade compliance, supply chain, and finance analyzes the latest updates, implements mitigations, and continually refines our forecast. Despite recent tariff increases for some countries, overall, we've revised down our estimate for total potential net exposure. Ryan will go into more detail, but I will again stress that despite the negative direct impact of tariffs on our earnings, given 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 within those markets, we remain competitively well-positioned in an environment of persistent tariffs.

In addition, our leading position and scale afford us the resources and sophistication to effectively manage this complex evolving situation, including through the deployment of AI tools. We see an improvement in longer-term dealer sentiment and inventory comfort, which is moving closer to historical norms. Boating participation remained strong with upticks throughout the quarter, dealer foot traffic is stable, and we have seen a slight increase in people considering a boat purchase in the next twelve months. OEM production rates were up over the second half of last year, and while overall retail was down for the quarter, July is off to a strong start.

We're using competitive incentives where appropriate to support second-half sales and are continuing to invest in and derive benefits from the latest digital marketing technologies to generate more leads and optimize conversion. Overall, while we remain mindful of the dynamic macroeconomic backdrop and soft consumer sentiment, there are some reasons for cautious optimism as we progress through early Q3. Moving now to industry retail performance, outboard engine industry retail units declined 6% in the quarter, with Mercury gaining 30 basis points of share on a rolling twelve-month basis and 140 basis points of share in the same time frame on engines 150 horsepower and greater.

Mercury continues to gain share internationally, with 170 basis points of share gain in Canada over the past twelve months, and strength in high horsepower share continuing around the globe. As of the latest reporting from May, U.S. main powerboat industry retail was down modestly year to date with Brunswick Corporation boat brands outperforming the industry. Since June, internal Brunswick Corporation U.S. registrations are only down mid-single-digit percent over the same period in 2024. On a global basis, first-half retail remained very steady for our premium brands, including Boston Whaler, Sea Ray, Lund, and the van, as a whole for our core brands.

Retail performance for our value brands continues to be challenged, and as noted, we're working to optimize the profitability of these brands at reduced production volumes. We have continued to diligently manage both levels and second-quarter U.S. wholesale shipments were down 9%, resulting in an 11% reduction in U.S. pipelines, or over 1,200 fewer units versus last year. Global pipelines are down 2,300 units over the same period, reflecting our continued focus on maintaining the freshest inventory in the market.

Lastly, as I indicated earlier, according to internal data, July retail for essentially all our businesses has accelerated and is trending positive versus July 2024, giving us and our channel partners positive momentum to start the back half of the year. Before turning the call over to Ryan, I want to highlight the diligent efforts across our enterprise that resulted in record free cash flow. Despite some inventory banking for tariff mitigation, and continue to support our investment-grade credit profile, our strong Q1 cash performance continued into the second quarter. And in the first half of the year, we delivered $244 million of free cash flow, up $279 million versus the prior year.

We've delivered $1.5 billion of free cash flow since 2021, and a record $542 million in the last three quarters, in very dynamic and challenging market conditions. Our balance sheet remains very healthy, with no debt maturities until 2029, and an attractive cost of debt and maturity profile. Given our continued strong cash performance, we're increasing our previous debt reduction guidance for 2025 by $50 million, a total target of $175 million for the year. With this increase in our 2025 debt reduction target, by year-end, we are on track to have retired $350 million of debt since 2023. We remain on the path of returning to our long-term net leverage target of below two times EBITDA.

We're accomplishing this while maintaining significant financial flexibility, as evidenced by and commitment to our investment-grade credit rating. At quarter-end, we'll have $1.3 billion in liquidity, including full access to our undrawn revolving credit facility. I want to thank the entire Brunswick Corporation team for their disciplined focus on execution, driving efficiencies, working capital management, optimization of capital expenditures, and many other actions that together allow us to return capital to shareholders while maintaining financial flexibility and opportunistically reducing leverage. Our cash generation profile and investment-grade credit rating are important to our business and also differentiate Brunswick Corporation in our industry and sector.

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

Ryan Gwillim: Thanks, Dave, and good morning, everyone. Brunswick Corporation's second-quarter results were solidly ahead of expectations. Sales were up slightly over the second quarter of 2024 as steady wholesale ordering by dealers and OEMs, together with modest pricing benefits, offset the impact of continued challenging consumer demand market conditions. Operating earnings and EPS were ahead of guided expectations but down versus the prior year, as the impacts of tariffs, reinstated variable compensation, and lower absorption from decreased production levels were only partially offset by new product momentum, the benefits from the slight sales increase, and ongoing cost control measures throughout the enterprise.

Lastly, as Dave mentioned earlier, it was a historic second quarter from a cash generation standpoint with Brunswick Corporation generating a record $288 million of free cash flow. On a year-to-date basis, sales are down 5%, primarily due to anticipated lower production levels in our propulsion and boat businesses only being partially offset by steady sales in our aftermarket-led engine P&A and Navico businesses. Year-to-date adjusted operating earnings and EPS are also ahead of expectations but below the prior year as expected, due to the same factors from the second quarter.

Year-to-date free cash flow of $244 million is a first-half record and is the result of focused inventory and other working capital initiatives started in the second quarter of 2024. Now we'll look at each reporting segment starting with our propulsion business, which reported a 7% increase in sales resulting primarily from strong orders from U.S. OEMs. Operating earnings were below the prior year primarily due to the impact of tariffs, lower absorption from decreased production levels, and the reinstatement of variable compensation, partially offset by cost control measures and the benefits from the increased sales. The propulsion segment sales and operating earnings both grew versus the first quarter of 2025.

Our aftermarket-led engine parts and accessories business had another solid quarter reporting a 1% increase in sales versus the same period last year, due to slightly stronger distribution sales. Sales from the products business were down 4% while the distribution business sales were up 4% compared to the prior year. Segment operating earnings were slightly down versus the second quarter of 2024 due solely to the enterprise factors discussed earlier. Note that first-half engine P&A earnings and sales are essentially flat to 2024, despite the challenging marine retail market conditions and overall unseasonable weather for a significant portion of the early year.

This performance reinforces our well-stated view that our continued focus and investment in this aftermarket recurring revenue and earnings business is critical to driving stable financial and shareholder returns. Navico Group reported a sales decrease of 4% versus Q2 of 2024, while sales to both aftermarket channels and marine OEMs were down modestly, partially offset by benefits from new product momentum. Segment operating earnings decreased due to the lower sales, tariffs, and the variable compensation reset. Finally, our 7%, resulting from anticipated cautious wholesale ordering patterns by dealers, was only partially offset by the favorable impact of modest model year price increases.

Freedom Boat Club had another strong quarter contributing approximately 12% of the segment sales including the benefits from recent acquisitions. Segment operating earnings were within expectations as the impact of net sales declines and the variable compensation reset was partially offset by pricing and continued cost control. This slide shows an updated view of our 2025 tariff impact should the current tariff rates continue for the remainder of the year. This slide shows the approximate percentage of COGS affected by tariffs currently in force along with our anticipated 2025 net tariff impact for each category after planned mitigation measures are considered.

The largest tariff impact remains China, and while less than 5% of our COGS could represent $20 million to $30 million of tariff expense at current rates, for product and component importation into the U.S. These incremental tariffs are in addition to the approximately $30 million of Section 301 tariffs that were included in our initial guidance for the year. Mexico and Canada supply accounts for approximately 15% of U.S. COGS, but most of the supply from these two countries is imported under the USMCA, meaning that our tariff exposure here remains small assuming the continued USMCA exemption. Finally, there are other smaller tariffs on rest-of-world imports.

Not included in this analysis are other impacts or potential impacts, both positive and negative to the enterprise. Including potential retaliatory tariffs from the EU and Canada on U.S. manufactured boats and possibly engines and parts, tariffs on boats imported into the United States by our European OEM partners that use Mercury engines and parts, Mercury engine competitors, are paying tariffs on the importation of engines from Japan, or other non-U.S. manufacturing locations, and maybe most importantly, the continued disruption of the capital markets and the corresponding impact on our consumer.

As everyone is aware, this is an extremely dynamic situation and the entire Brunswick Corporation team is committed to minimizing the overall impact that tariffs ultimately have on our enterprise. My last slide shows our updated full-year guidance. Taking into account the anticipated net tariff impact and continued market and consumer uncertainties, but also our strong operational performance and the recent market momentum. Despite a slightly softer marine market than initially anticipated to start the year, we remain confident in our ability to deliver our full-year plan, with the result being us holding the midpoint of our guidance with anticipated sales of approximately $5.2 billion and adjusted EPS of approximately $3.25.

However, given our exceptional first-half cash generation, we are raising our free cash flow guidance by $50 million to greater than $400 million for the full year. This will allow for increased debt reduction efforts, which we discussed earlier, and should enable us to repurchase no less than $80 million of shares at a time when we believe that our share price remains severely dislocated from our performance in a challenging market.

As Dave mentioned earlier, retail conditions in July have improved from the early part of the season, giving us more confidence in steady wholesale for the remainder of the year with Q3 expected to deliver sequentially slightly lower revenue and earnings driven by the annual seasonality of our businesses. I will now pass the call back over to David Foulkes for concluding remarks.

David Foulkes: Thanks, Ryan. As we wrap up, I want to highlight some of our recent exciting new product launches, announcements, and awards. Navico Group's SIMRAD brand recently launched AutoTrac technology for its HALO radar portfolio that enables automated tracking of multiple targets and provides unrivaled situational awareness to voters. Our boat brands across the globe have been busy launching many new products, all featuring Mercury power and Navico Group technology. Our Harris Pontoon brand launched the 2026 Sunliner Series, with a very stylish and contemporary new exterior and interior. The Sunliner is affordable but also aspirational, with many thoughtful features, premium finishes, and uncompromised quality.

Our Ray Glass brand in New Zealand unveiled the all-new Protector R edition range, a bold evolution with its iconic high-performance ribs, leading with the 330 Targa R edition, the first vessel in New Zealand powered by Mercury Racing's 400 R V10 outboard engines. And Sea Ray launched its all-new SDX 230 lineup, available in sterndrive, outboard, and surf configurations, with a SURF version featuring the innovative NexWave SURF system designed to create consistent rideable wakes for every skill level. The system integrates an exclusive Sea Ray interface with Mercury's smart tow system, Bravo Four S drive, and dual SIMRAD touchscreen displays offering easy control and visualization.

Freedom Boat Club recently announced an exciting new franchise in Dubai, our first location in the attractive Middle East boating market. The flagship location will open this fall and feature many Brunswick Corporation boats with additional locations to follow in 2026. At a time when several other smaller boat clubs are experiencing difficulties, Freedom continues to grow and thrive, globally supported by the ready availability of Brunswick Corporation's broad portfolio of boats, Mercury engines, rapid availability of P&A and accessories from our global P&A and distribution businesses, and a variety of financing, insurance, marketing, and IT services also provided by Brunswick Corporation. In return, Freedom generates substantial synergy sales while showcasing our exceptional products.

And finally, Mercury reinforces its position as the industry leader in the high horsepower outboard market this week, with the introduction of the new 425 horsepower and refreshed 350 horsepower outboard engine, delivering performance, smoothness, quietness, and lightweight far ahead of the competition. During the quarter, we received significant recognition for our people, products, and commitment to innovation, putting us well on track to surpass 100 awards again in 2025. Among the highlights, Brunswick Corporation was named by Time Magazine as one of America's best mid-sized companies for the second year in a row. We also earned six Boating Industry Magazine product awards.

These awards highlight the marine industry's best new and innovative products, and our awards underscore the breadth and depth of our innovation. On the topic of innovation, the Experiential Design Authority also honored us with an award for our impressive and engaging exhibit at CES 2025. For the third consecutive year, Newsweek named Brunswick Corporation one of America's most trustworthy companies, placing us in the top 10 within the manufacturing and industrial equipment category. And we were recognized for the first time on Newsweek's list of America's greatest workplaces for parents and greatest workplaces for women, reflecting our commitment to being an employer of choice. Congratulations to all those who contributed to these awards.

Finally, this quarter, we released our 2024 sustainability report, which describes our work to reduce our environmental impact while making our businesses more efficient and supporting the communities in which we live and work. That's the end of our prepared remarks. We'll now turn it back over to the operator for questions.

Operator: Thank you. We will now be conducting a question and answer session. Our first question is from James Hardiman with Citigroup. Please proceed. James, your line is live. Please check if you're on mute. We will move on to the next question. There you go. Go ahead, James.

James Hardiman: Sorry. AirPod fail. I apologize. Thanks for taking my question. So you know, obviously, the tariff impact came down I get to about a 60¢ benefit versus last time. Guidance is unchanged. And so is the right way to think about this you know, that the ex-tariff guidance came down by about that amount. And, ultimately, from here, how should we think about it? Is there more risk of upside versus downside just based on sort of the changes you've made there?

Ryan Gwillim: Hey, James. It's Ryan. Good morning. Yeah. I mean, so if you remember back to April, we gave a tariff that impact potential of $225 million. And then when we translated that to the EPS bridge, we only put a dollar on the bridge. And it was for really two reasons. One, we anticipated we'd probably mitigate better than anticipated and indeed, we have. And second, if you remember when we reported earnings back in April, it was literally the height of all tariff rates. China was at 145%. Others were at extreme high levels. We didn't know if Canada and Mexico would be receiving USMCA exemptions.

So really, the dollar of tariff impact that we put on the bridge hasn't really changed that much. I think maybe it's lower on the margins a little bit. But on balance, think what we saw in April has kind of come through, that the tariff impact we think it's going to be certainly lower than we thought, but that dollar is still relevant is still pretty reasonable. The markets unfolded a little bit softer than we thought, although premium core is holding up. So no, I wouldn't think that the rest of the business was down $0.50 and that's what we're guiding.

It's just really the years coming in relatively similar to what we thought in April with $325 million still being the midpoint of balancing the risks and opportunities.

David Foulkes: Yes, James, it's David Foulkes. I would add that you know, given the dynamics of the are all around us, it is very difficult at a moment to take things to the bank. You know, really nice to see the trajectory in July, and we're very hopeful. But, you know, that's that is a know, four or five-week trend. We just need to see a little bit more of that before I think we can flow through.

James Hardiman: Got it. Makes sense. And then as I think about sort of the phasing that you've laid out here, it looks like we should be expecting a significant decrease in Q3 earnings then a significant increase in Q4. Remind us, if memory serves, I thought that Q3 was the big inventory reduction quarter a year ago. Which would have created a really easy comp this year, assuming we weren't Again, undershipping Q3. So I guess is it is it safe to say that we're now going to be again, undershipping in Q3 and maybe I don't know, maybe there was a shift between shipments between Q2 and Q3 because, obviously, Q2 was a was an outperformance quarter.

So how do we think about all that?

Ryan Gwillim: Yes. It's pretty hard, James, to delineate Q3 and Q4. I certainly wouldn't read much into it. Again, as Dave said, giving guidance in a dynamic environment like this is pretty challenging. I would say, as a reminder, production was down in the third quarter last year and then even more so in the fourth. Both in propulsion and in our boat businesses. So there will be pickup there, goodness, if you would, in both. Wholesale shipments in both of those businesses. Together with a very consistent P&A business, which obviously continues to perform extremely well in this environment. So no, I think we're looking at Q3 and I think we're off to a good start with July certainly.

But I wouldn't read much into the difference between Q3 and Q4. Although, the production increased in Q4 of last year will be greater than the production increase in Q3. But again, although there's a lot of timing impacts that go in there, and then we're still thinking about a pretty strong second half of the year.

James Hardiman: Makes sense. Thanks, guys.

Operator: Our next question is from Xian Siew with BNP Paribas. Please proceed. Your line is live. Please check if you have yourself muted. Okay. We will move on to the next question. Which is Craig Kennison with Baird. Please proceed.

Craig Kennison: Hey, can you hear me?

Ryan Gwillim: Yes. Yes, Craig. Good morning.

Craig Kennison: Good morning. Thanks for taking my question. I wanted to start with Navico. Guess big picture, when the market normalizes, whenever that is, and then your innovation pipeline matures. Where should Navico revenue and profitability settle feels like that's a big needle mover when you think about some of the out-year earnings potential?

David Foulkes: Yes, Craig, thank you for the question. I think as our expectations in the long term for Navico Group are still in kind of low to mid-teens operating margin range. So we've got quite a bit to go. And we you know, we should with a little bit of tailwind have top line CAGRs in the mid to high singles. So we have a there's a lot of potential in that business. I think we're doing a lot of great work both in refreshing the product lines, which are now regaining share even against the, you know, strong and capable competition. So we're very excited about that.

But also just getting the structure of the business reset or rightsized if you like. And optimized for a market that is certainly smaller than we originally anticipated. And as you can see and as we gave some examples, in the release in the slides, we are continuing to work our way through that. That all of our businesses had some headwinds as year, as you know, from the reset of variable comp. We didn't really pay any meaningful variable comp last year. Tariffs, bit of absorption in the first half. But if you net those out, I think we're in a really you know, getting ourselves in really good shape in Navico Group.

I'm very excited about the trajectory of the business. And the reception of the new products. Pretty much everything that we have brought out has been a hit in the marketplace. So, yeah, very excited for that business, and it will be an engine of growth for us in the medium term.

Craig Kennison: Great. Thanks, Dave. And Ryan, if I could ask you just on the tariff question. Slide 17 is super helpful as it relates to 2025, but it's been such a noisy environment that it's hard to get a feel for the true run rate. Have you done any work to look at '26, like, current policy persists we should think about the full year kind of run rate for tariff policy as it stands today?

Ryan Gwillim: Yes, Craig. Obviously, we anticipate getting the question this morning. So we have played around with what '26 would look like. The answer is still pretty uncertain given all the variables. So not only are we paying the tariffs, right? You pay the cash tariffs, but it flows through the various financials in a different way, right? It goes on the balance sheet, as an inventory cost and then flows out through the P&L over time. And then there's counteractions on duty drawback and benefit that we get to counteract those tariffs.

So it's a big basket of things that we think about supply chain team, trade compliance, finance, everyone's kind of figuring out what the best course of action is that it changes. Right? Because the tariffs change every couple of weeks and then our response needs to change. I would say as we sit here today, don't see a huge change over next year It's probably somewhere in the same magnitude. This year, we had a ten-month impact, right? But some of that was at higher rates. We also had some of the cost being hung up on the balance sheet by the end of the year.

But next year, we'll have a little bit more duty drawback and some of the other financial benefits. So tough to tell. I don't think it'll be greatly different from the 2026 impact, but I definitely need to get closer to the end of the year. To really see what a run rate looks like. And certainly, we'll provide that guidance once we get to the January call. But certainly, I don't see a huge step change at this date.

Craig Kennison: Yeah. Thanks, Ryan.

David Foulkes: Maybe just to add, Craig, I think, I mean, clearly we are working to onshore as much as we can at the moment. So the rates are one component of what the tariffs will be, and certainly, are balance sheet and other implications here. But broadly, our basis should be going down significantly as we move supply onshore into the U.S. And we're doing that at a pretty rapid clip as you can tell from the way that our exposure even this year is reducing I would say, though, and it was a little bit difficult to say this, earlier, that and we did state it. We are in competitively a pretty advantaged position.

The U.S. market is by far the biggest marine market We are very largely a domestic company here with a very large manufacturing footprint with a lot of vertical integration. And we believe that, you know, even though we'll be impacted by tariffs directly, our competitive position is strengthening.

Craig Kennison: Thank you, Dave.

Operator: Our next question is from Noah Zatzkin with KeyBanc Capital Markets. Please proceed.

Noah Zatzkin: Hi, thanks for taking my questions. I guess first just on the decision to rationalize kind of the value fiberglass model lineup for 2026 by 25%. How should we think about maybe structurally the boat group, whether from a margin perspective or volume potential perspective, given that rationalization? Thanks.

David Foulkes: Yes, thank you. Yes, good question. So really, the amount of complexity that you can tolerate in a product line depends on the volume. And with volumes reducing, we can tolerate less complexity So we take out those models that are obviously selling less, and that's the kind of rationalization process. We want to leave ourselves with a good progression in the product portfolio, but not excess complexity. And that's really what we've been doing.

There are other actions that we are taking that will be able to talk about a bit later in the year to further ensure that we have stronger profitability in that part of the market, but that's really the way to think about it reducing complexity in a market that is smaller. I would say, though, I think everybody understands this, that the profit contribution of all of our Brunswick Corporation boats The boat group margin is only one component of it. All of those value boats have Mercury engines on them. A lot of them contain Navico Group technology. And so this the margin stack even in our value product lines remains pretty good.

And so we want to make sure that we are thoughtful as we approach this. And that we consider the entire Brunswick Corporation margin impact.

Noah Zatzkin: Really helpful. Maybe just one more quick one. Any color on the tariff impact in the quarter? And then apologies if you already said this, but how should we think about maybe the distribution of that impact across segments at a high level? Thanks.

Ryan Gwillim: Yeah, I could take that, Noah. I mean, again, it's a bit different because the cash tariffs paid obviously, much greater than what's on with that's what's flown through the P&L. Through the P&L, it's somewhere in the mid-teens for the quarter millions. But again, there's all kinds of offsets and duty drawbacks that kind of net against that number. And then about 75%, 80% of the tariff impact is on Mercury, is on the Mercury segment. I'm sorry, on propulsion, mostly a little bit on engine P&A. With Navico having kind of the rest of it and boats having a very small amount.

One other item, just and obviously, is late breaking from earlier this week or late last week. We're obviously monitoring the 15% tariffs coming from Japanese imports. As Dave mentioned, we are the only U.S. engine manufacturer with our main competitors primarily manufacturing in Japan and almost none in the U.S. And so one thing we'll be monitoring, and this is not in the tariff number and obviously a benefit is the impact of that on Mercury sales and our ability to continue to take market share as obviously we believe our products are already market leading And this is just another input for the for the costing profile.

Operator: Our next question is from Tristan Thomas Martin with BMO Capital Markets. Please proceed.

Tristan Thomas Martin: Hey, good morning. Did you update your full-year industry retail assumption for Boats?

David Foulkes: No. I don't think we didn't specifically do that. I think that the trend that we are seeing really that we called out is you know, solid performance in premium and core, which is you know, 75% or more of what we make. And weaker performance in the value part of the segment, which is the value part of the market, which is down about 20% I see a really strong reason to deviate from that kind of profile. I don't think we specifically updated any numbers yet.

Tristan Thomas Martin: Okay. And then what are your channel inventory weeks on hand? And then how are you expecting to manage that? Or what's your target by year-end? Thanks.

Ryan Gwillim: Yes. So on the boat side, we are in the low 30s today, weeks on hand. By the end of the year, it's going to be around 40, give or take. But, really, remember that is looking at backwards looking retail, so rolling 12 backwards. If you look at just pure units, right now, we are basically in the lowest inventory position we've been outside of COVID since the GFC. And by the end of the year, both global and U.S. field pipelines will be kind of at historical lows.

So we're going to take out a couple of thousand or so boats in the U.S., and about that globally as well, maybe plus or minus depending on how the back of the year shapes up. Just remember again, this is just remember this is this is all value stuff we're talking about here. This is our pipelines and premium lower than that.

Tristan Thomas Martin: That's right. Okay. And then the thousand, was that a full-year target or is that a second-half target?

Ryan Gwillim: No. That'd be a full-year target.

Operator: Great. Thank you. Our next question is from Xian Siew with BNP. Please proceed.

Xian Siew: Hey guys, sorry about that earlier. It's okay. Good morning. How's it going? On propulsion, it was up 7%, including, I think, 11% outboard engines versus retail. For outboard a bit down, like, six. And then I guess like what's kind of going on there You mentioned kind of the OEMs pulling orders ahead of tariffs on the Japanese side. Are you kind of matching that? Should we kind of expect things to kind of moderate from here? Is it just kind of the market share gains that are kind of offsetting? I guess, retail weakness?

Ryan Gwillim: It's actually a little bit of pipeline. So it's something we really talked too much about. I know we have a little bit on the engine side. But over the last call it, six quarters or so, we have taken out substantial pipeline inventory on the engine side. Call it 25 ish percent, maybe plus or minus even more on high horsepower. And that's at a time when, like you said, some of our competitors were pushing engines into the U.S, whether it's in advance of tariffs or other But that's certainly the wholesale trend.

But so what you're seeing is now kind of a matching of our continued retail share gains with our OEM customers that are actually producing a little bit more of this time of year than they were last year. At this point, even in June, May and June, a lot of our OEM partners were taking fewer engines because they had them in stock and were gonna produce fewer boats on the, you know, in the outlook months. And that ended up happening So today, at a time where production is pretty stable, and pipeline is lower, they're needing engines and we're fulfilling them.

I can you know, we've we've done like a entire review of all of our OEM customers. There is we are not losing share in any of them. Any of them that are kinda dual sourced, if you would. And we plan to continue to gain retail share for the full year just as we've done the past several years. So it is really a pipeline. It's a pipeline game and that's right now at a really healthy point where we'll probably be able to add engines here into the, you know, make sure that wholesale exceeds retail over the coming quarters.

Xian Siew: Okay. Got it. That's super helpful. And then maybe so then on that point, where does the pipeline kind of end for engines and by the end of the year? And how do you think about kind of the margin progression from here? In propulsion?

Ryan Gwillim: Yes. As we currently sit, by the end of the year, pipeline will be down about 25% from the beginning of 2024. And it's kind of in the mid-thirties down percentage-wise on engines greater than 175. And, you know, a lot of what it does from there is dependent on kind of the OEM patterns as we start all the way into '26 and the and the and the you know, the next retail cycle. But as we sit now, I don't we're going to take much more out. I would say the second half this year, second half is not anticipating a whole lot of takeouts.

So what you what we've taken out is kind of is where we'd set. But a little of that depends on where retail lands.

Xian Siew: Got it. Super helpful. Thank you, guys, and good luck.

Operator: Our next question is from Stephen Grambling with Morgan Stanley. Please proceed.

Stephen Grambling: Hi, thank you. You mentioned the initiatives to improve inventory and working capital and I know you talked about it a little bit on the call, but maybe you could just expand on what some of the initiatives are and how specifically investors think about the impact of free cash flow conversion longer term particularly if the retail cycle does start to turn here? Thank you.

David Foulkes: Yeah. Maybe we could tag team it up. So, yeah, a lot of work going on particularly with our supply chain and it's been a very dynamic time. Obviously, we've we've been a time when we have done some banking of inventory. But, essentially, it has been very diligent management of incoming supply chain to make sure that we aligned the weapon overall inventory levels with the production requirements. That is not an easy process. It does require us to work very closely with the supply base, and our team has done a wonderful job of doing that. And managing to make sure that we keep a very healthy supply base, but that we don't oversupply ourselves.

I think there's more room to run. There and we continue to see from that and we have very clear targets both in the short term and long term for our inventory levels. But that those inventory levels have come down, I think, $100 million in the last in over the first half of the year end.

Ryan Gwillim: Yeah. The significant reduction in production in the second half of last year balancing the income inventories really a helpful driver of that. And the businesses, as Dave said, have done a really nice job of ensuring the balance. And that will then move forward as we look at the second half financials and gives us a nice benefit because we will be producing and wholesaling more in both engines.

Stephen Grambling: Got it. Thank you.

Operator: Our next question is from Joe Altobello with Raymond James. Please proceed.

Joe Altobello: Thanks. Hey, guys. Good morning. Just go back to the engine commentary for a second. If we assume a 15% tariff on Japan, I would think the impact here is pretty straightforward, right? And that would obviously significantly improve your competitive positioning. So I guess, first, is that showing up yet in OEM orders? And second, is that baked into your outlook at all?

David Foulkes: Hi, Joe. Kind of I guess, no and no really. It well, first of it's not baked explicitly into our outlook. Although, obviously, it's it's gonna be helpful to us. It's it is not particularly showing up yet because of the amount of engines that were shipped in the second quarter in particular. I don't think it's something like this was not a surprise. So I think that our competitors still have stock of pre-tariff engines. But obviously, over time, those will kind of bleed out. And we have not explicitly baked an uplift in Mercury share into our forecast at the moment. But obviously, it's going to give us good momentum.

Joe Altobello: Okay. Very helpful. And maybe secondly, you referred to a certain rationalization and manufacturing capacity optimization efforts. Maybe could you elaborate on that? What businesses? It sounds like Navico and Boats is part of that, but maybe are there others as well?

David Foulkes: Yeah. I think, know, it's certainly we need to continue the process of ensuring that we have good productivity and efficiency and that our overall capacity is aligned with our expectations for the market. We've been continuing to work on that. And I gave a few examples in the in the commentary that we previously provided. But there is more work to do And honestly, Joe, we'll we'll be able to share a bit more explicitly probably in the third quarter call on that or maybe in an some kind of intermediate basis. But there are various things that we're continuing to progress that will think, materially address fixed costs in those in those businesses.

Joe Altobello: Okay. Understood. Thank you.

Operator: Our final question is from Jamie Katz with Morningstar. Please proceed.

Jamie Katz: Hey, good morning. Thanks for squeezing me in. So I'm curious about the second half projection for both sales and it implies basically that we're returning to growth. And I'm wondering if part of that is just mix from higher-priced boats or if you guys have seen know, interest or rising commitments from dealers, that may help us see if we are at the trough.

Ryan Gwillim: Yes. Good morning, Jamie. I think it's kind of two things. One, good news in July has given us some momentum here as we get into the back half of the year, and we believe we'll continue to spur dealer orders. But certainly, the year-over-year comps versus the second half of last year really are a bit of a driving factor. We took substantial production out in the 2024 in order to keep inventory fresh and at the right levels. This year, just to match retail and wholesale, the wholesale will be stronger, right, in the second half.

And so yes, premium and core, we plan on being up more than value, as Dave and I have said on the call. But really, if you go back and look at production rates, it's just matching wholesale and retail and comparison versus an extremely light back half of 2024.

Jamie Katz: And then can we just focus on value? Obviously, are some value products that are moving. Do you guys have any insight into, like, what consumers what is facilitating conversion of those sales? And then maybe what we should be looking for, to determine when, those sales may return outside of interest rates perhaps?

David Foulkes: Yeah. A couple of things. Obviously, you know, that's just broader economic sensitivity in that by a population, if you like. So any uncertainties about, you know, inflation employment, other things tend to be more acute in that population. It is an area where we see more financing at the point of sale. So more sensitivity to interest rates certainly. I think we're doing a pretty good job in that segment, but it does require more promotions. You need to provide a reason for somebody to make that purchase. We try and do that by having the freshest inventory, the newest products, and other things in the marketplace.

But in the current environment, it, you know, also takes a bit of an economic push as well. So I think hopefully, we'll begin to see some interest rate reductions. In the back half of this year that will provide a bit more momentum We'd hope to see something earlier in the year, but those didn't materialize But I would say that those interest rate reductions are probably going to disproportionately benefit the buyers of value or entry-level product.

Jamie Katz: Thanks.

Operator: We have no further questions at this time. I would like to turn the conference back over to David Foulkes for some concluding remarks.

David Foulkes: Well, thanks for your questions, everyone. Much appreciated. It was another solid quarter for Brunswick Corporation, lots of new products. Very diligent operational work leading to our performance really across all of our businesses and segments. A couple of things probably stand out. Our cash performance and also the fact that our revenue was slightly up over the second quarter of 2024. It was nice to see that inflection. So great to see. As we noted, we're continuing to work hard and in a smart way to mitigate the direct impact of tariffs. But as we discussed in some of the questions here, our footprint and vertical integration, do provide us with a fundamental competitive advantage.

In the presence of persistent tariffs We are still we are working really tirelessly on further to re-expand margins. In the business, and we really have very tangible actions lined up to achieve that. And then finally, although we are beyond the midpoint of the selling season, we do get a real sense that the market wants to rebound. With just a little more kind of normalization of the macro backdrop maybe later in the season, some tailwind from interest rates. So as we enter the second half, we do enter it with some cautious optimism. Thank you very much.

Operator: Thank you. That will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.