Good morning. Welcome to the Brunswick Corporation's First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode until the question and answer session. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Zach Younger, senior financial analyst, Brunswick Corporation. Good morning, and thank you for joining us.

With me on the call this morning is Dave 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 these 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'll now turn the call over to Dave.

Thanks, Zach, and good morning, everyone. All our businesses delivered a strong first quarter as the resilient composition of our portfolio, together with proactive pipeline management, well-received new products, the benefits of executed and ongoing structural cost reduction measures, and efficient execution resulted in first-quarter financial performance ahead of expectations, despite the challenging macro environment. Year to date, unit retail sales for our core premium boat brands and product lines are in line with expectations for a second-half biased year. But we're seeing some weakness in entry-level products, prompting us to consider streamlining our product offerings in the entry-level space. Growing Freedom Boat Club, an alternative participation model. Early season boat shows are essentially complete, with retail performance at shows flat to prior year and in line with expectations. While overall retail performance in the quarter resulted in appropriate boat field inventory levels, as we entered the primary retail season. Our first-quarter results again demonstrated the resiliency of our portfolio with our recurring revenue businesses and channels, including our engine P&A business, propulsion repower business, Freedom Boat Club, and Navico Group's aftermarket sales, contributing nearly 60% of our first-quarter adjusted operating earnings. We had outstanding free cash flow generation in the quarter, leveraging the inventory reduction and other working capital initiatives from last year, resulting in the second-best first-quarter cash flow on record and a $160 million improvement versus Q1 2024. This performance enabled $26 million in share repurchases in the quarter, maintaining our commitment to returning value to shareholders. Despite the uncertain market conditions for Brunswick, our customers, and our channel partners, we're very pleased about our overall start to the year, which exceeded our expectations back in January. Turning to some highlights from our segments in the quarter. Our propulsion business delivered versus the fourth quarter of 2024, a low below first-quarter 2024 levels as anticipated. Mercury's outboard engine lineup continues to take market share, gaining 40 basis points of US retail share on a rolling twelve-month basis, with indications of a strong April performance following significant share increases at 2025 boat shows. Sales to US boat OEMs were strong, as our customer builders increased production levels ahead of the primary retail season and engine pipelines remain at appropriate levels. Our engine positive accessories business had another strong quarter, with solid year-over-year earnings and margin growth despite lower sales. This primarily aftermarket-based business continues to derive its success from stable boating participation and the world's largest marine distribution network, which delivered sales growth of 2% through continued distribution market share gains resulting from our ability to support same-day or next-day deliveries to most locations in the world. Navico Group had flat sales and slightly lower operating earnings versus the first quarter of 2024, as aftermarket sales to dealers and retailers remained strong, but OEM orders were pressured. Navico Group delivered sequential sales growth versus fourth quarter 2024 as its exciting recently launched new products continue to gain momentum and market acceptance. Finally, our boat business had sales and operating earnings below the first quarter of 2024, consistent with lower planned wholesale shipments. But sales grew mid-single digits versus fourth quarter 2024 as anticipated. Our boat group teams are working hard to reduce product costs and protect margin in an environment with limited pricing opportunities. Freedom Boat Club continues to expand globally in premier boating locations and deliver steady membership sales growth. Early season member boat usage trends continued to be strong, with trips up 3% sequentially in the first quarter. Turning to external factors, the uncertain tariff environment has, of course, become an elevated consideration in a challenging macroeconomic backdrop and is contributing to declining consumer sentiment and more uncertainty in US Fed policy and the trajectory of interest rate reductions. The abrupt introduction of the tariffs in early April and subsequent policy confusion, in addition to the capital market turmoil, have certainly introduced new reasons for short-term consumer hesitancy. Brunswick has the benefit of producing the large majority of our products in the US for the US market. We've significantly reduced our exposure to China-based suppliers since the initial imposition of Section 301 tariffs in 2017. However, at current tariff rates, we have the potential to incur up to $100 million to $125 million of incremental net tariff costs in 2025, which Ryan will discuss further in a few moments. We continue to prepare for a range of scenarios and have many short and long-term mitigation actions already underway, including continued migration of our supply base, inventory staging, pricing, and optimization of our facilities. But this remains a very dynamic situation. Despite the macroeconomic noise, dealer sentiment remains fairly stable. As early season boat show performance was solid and retail traffic is holding in. Consumer sentiment remains volatile in response to the daily news flow, but our dealers are reporting that retail foot traffic continues to be steady. And with the right incentives, they're able to get sales across the line. Moving now to US industry retail performance. US main powerboat industry retail was down modestly in the first quarter with Brunswick's performance influenced almost entirely by declines in the value segment. You'll see on this slide that we're showing a slightly different view of US retail, which reinforces the fact that versus a strong first quarter 2024, retail remained very steady for our premium brands, including Boston Whaler, Sea Ray, Luns, and Navan. And as a whole for our core brands, retail performance for our valued brands continues to be challenged. We're working to optimize the profitability of these businesses at reduced production volumes. Outboard engine industry retail units declined 6% in the quarter, with Mercury slightly lower primarily due to calendarization of registration moving into the first few days of April. We remain confident that Mercury will continue to gain share for the full year. Lastly, we have continued to diligently manage both pipeline levels and first-quarter US wholesale shipments were down 16%, resulting in an 11% reduction in US pipelines, or over 1,500 fewer units. US weeks on hand are lower than Q1 2024 at 35.6 weeks, with similar pipeline dynamics also occurring outside the US. Before I turn it over to Ryan, I want to walk through the components of our updated four-year 2025 adjusted EPS guidance, which is now in a range between $2.50 and $4.00 per share. There remains significant uncertainty related to our 2025 performance and guidance, primarily due to the uncertainties of trade policy, the direct and indirect impact of these uncertainties on our consumers, fluctuations in foreign exchange rates, and the interest rate environment. Attempting to provide guidance is uniquely challenging in this environment. We appreciate investor desire to understand the earnings components and guideposts we're tracking internally to drive financial results. To that end, this slide is showing midpoints of ranges of what we currently assume. Assuming the current tariff rates persist, and estimating the resulting impact to our businesses, the economy, our channel partners, and the end consumer. After accounting for the Q1 beat, we believe that we would see volume pressure, especially in the near term, as our consumer spends cautiously in response to the uncertain tariff environment. Seventy-five cents would represent an approximate 5% reduction in revenue and related to slower retail sales, resulting in comparably lower wholesale sales. We've modeled a dollar of EPS as the midpoint of our anticipated net tariff impact. This is in addition to the $30 million of China 301 tariffs we included in our initial guidance for the year and would represent a scenario where current tariffs remain in place and we continue to work urgently on our mitigation efforts, with achievement better than our baseline plan. Offsetting these headwinds are more planned cost reductions and an improved foreign currency exchange rate environment with a softer US dollar has lessened the initially planned transactional headwind. Results in an EPS range of $2.50 to $4.00 and a midpoint of $3.25. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.

Thanks, Dave, and good morning, everyone. Brunswick's first-quarter results were solidly ahead of expectations, but remained below prior year due to the continued challenging US retail marine market and macroeconomic conditions. Versus the first quarter of 2024, net sales in the quarter were down 11%, with adjusted operating margins of 6%, resulting in an adjusted EPS of $0.56. First-quarter sales were below prior year as the impact of continued lower wholesale ordering by dealers and OEMs and prudent pipeline management throughout the channel was only partially offset by modest annual price increases and benefits from well-received new products. Adjusted operating earnings were down versus prior year as a result of the impact of lower sales, lower absorption from decreased production levels, and the negative impact of changes in foreign currency exchange rates, partially offset by new product momentum, annual price increases, and ongoing cost control measures throughout the enterprise. Lastly, we used $44 million of free cash flow in the quarter, a significant improvement versus Q1 of 2024 and the second-best start to a year in over a decade, as Dave stated earlier. Now we'll look at each reporting segment starting with our propulsion business, which saw a 16% decrease in sales primarily resulting from continued pipeline management and overall lower wholesale shipments to OEM boat builder customers, which, although below prior year first quarter, were slightly ahead of expectations. Segment operating earnings were below prior year due to the impact of sales declines and lower absorption, partially offset by cost control measures. Our aftermarket-led engine parts and accessories business had another solid quarter, with a 3% decrease in sales versus the same period last year due to slightly lower shipments, but a 7% increase in adjusted operating earnings resulting from the efficient operation of the business and slightly lower cost inflation. Sales in the product business were down 9%, while the distribution business sales were up 2% compared to prior year, while the segment's adjusted operating margin was seasonally strong at 15%, up more than 100 basis points versus prior year. Navico Group reported sequentially stronger sales versus fourth quarter 2024 and a slight sales decrease of 1% versus Q1 of 2024, primarily driven by reduced sales to marine and RV OEMs resulting from lower customer OEM production levels and mostly offset by strong aftermarket sales and new product momentum. Segment operating earnings decreased due to the lower sales. Navico continues its progress with new product introductions with the successful recent launches of the Eagle and Elite FX multifunction displays together with the Recon trolling motor, leading to share gains in the fishing segment. Finally, our boat business reported a 13% decrease in sales resulting from anticipated cautious wholesale ordering patterns by dealers, which was only partially offset by the favorable impact of modest model year price increases. Freedom Boat Club had another strong quarter including the benefits from recent acquisitions. Segment operating earnings were within expectations as the impact of net sales declines and lower absorption from the reduced production, partially offset by pricing and continued cost control. Next, I want to provide additional information on our anticipated tariff impact for 2025 should the current tariff rates continue for the remainder of the year. 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 relates to China. And while only approximately 5% of our COGS could represent $75 million to $100 million of tariff expense, due to the current 145% tariff rate on supply from China and China tariffs on US imports. These incremental tariffs are in addition to the approximately $30 million with Section 301 tariffs that were included in our initial guidance for the year. We continue to make strides and lower our dependency on the China supply chain and are working with our Chinese supply partners on cost sharing and other mitigation efforts. Mexico and Canada supply accounts for approximately 15% of US COGS, but most of the supplies from these two countries are imported under the USMCA, meaning that our tariff exposure here is 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 US manufactured boats and possibly engines and parts, tariffs on boats imported into the US by our European OEM partners that use Mercury engines and parts. Mercury engine competitors, which are paying tariffs on the importation of engines from Japan or other non-US manufacturing and maybe most importantly, the disruption of the capital markets and the corresponding impact on our consumer during this critical point, the retail boating season. As everyone is aware, this is an extremely dynamic situation and the entire Brunswick team is committed to minimizing the overall impact that tariffs ultimately have on our enterprise. My last slide shows our updated full-year guidance taking into account the uncertainties that we have been discussing. Earlier, Dave walked through the components of our adjusted EPS range of $2.50 to $4.00, which is driven by anticipated revenue of between $5 billion and $5.4 billion. We are strongly focused on cash generation and believe we can still reach or exceed our initial guidance of $350 million of free cash flow for the year. We anticipate the Q2 market conditions looking similar to Q1 and with sequentially stronger revenue and earnings driven by the annual seasonality of our businesses. Lastly, while we still believe a flat US retail boat market is achievable for year 2025, our guidance contemplates potential volume impact resulting from the tariff environment and general uncertainty in the macro economy and its anticipated impact on our consumer, which we believe could result in boat unit sales being slightly down versus 2024 with weakness primarily related to value product. I will now pass the call back to Dave for concluding remarks.

Thanks, Ryan. As we wrap up, I want to highlight some of the key product launches and events from the first quarter, as well as some of the notable awards we've received so far this year. During the 2025 Miami Boat Show, SIMRAD launched the all-new NSS four multifunction display, the latest premium chartplotter and fish finder in the SIMRAD portfolio, which for the first time allows analysts to track four sonar sources on a single display. We had a very busy start to the year with the January launch of the 185 Impact GL and an all-new heavy gauge product line on the way. In February, Ryan and I were able to attend the annual Freedom Forum, another successful gathering of our outstanding Freedom Boat Club franchise spot. We all had the opportunity to experience the power of being part of the Brunswick family and celebrate Freedom's continued growth and success. Flight launched the all-new Series 5 Flight with a highly efficient light jet two propulsion system in Miami, hosting a media event and on-water demos featuring their full product lineup. While the Bayline is C21, had its European launch at the Dusseldorf boat show and was very well received by its international channel partners. Lastly, Navan's C30 and S30 models had a strong boat show season following the North American introduction late in 2024, with sales at multiple shows already in 2025. They've also been very well received as a premium option at a select number of Freedom Boat Club locations. Finally, we've continued our rapid pace of awards in the quarter for our people, products, and commitment to innovation, and are on pace to eclipse 100 awards again in 2025. In the quarter, we won a pair of Newsweek Awards, including being named to the list of the most trustworthy companies in America for the third consecutive year. Brunswick ranked in the top ten companies within the manufacturing and industrial equipment category. Also for the first time, Brunswick was named to Newsweek's list of America's greatest workplaces for women. And two of our outstanding female leaders were selected as women make winners, the highest honor for women in manufacturing, from the National Association of Manufacturing. Our product awards continued in the first quarter with the flight board team winning a pair of red dot awards, one of the world's most prestigious design awards, and Prince Craft winning its first-ever National Marine Manufacturers Association Innovation Award at the Minneapolis Boat Show. Also expect to be able to announce a number of additional product awards in the near future. Finally, Boating Industry Magazine announced a 2025 forty under forty list, recognizing six emerging leaders from Brunswick Corporation and Freedom Boat Club, among the industry's top young professionals. Congratulations to all the winners. Despite the continued external headwinds, we never take our eye off the importance of making Brunswick one of the most exciting and rewarding places to work. That's the end of our prepared remarks. We'll now turn it back over to the operator for questions.

Thank you. We'll now be conducting a question and answer session. You may press star two if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. And our first question comes from the line of Mike Swartz with Truist Securities. Please proceed with your question.

Hey, guys. Good morning. There was a lot of numbers and scenarios thrown out in terms of the guidance update for 2025. But maybe, Ryan, David, at a high level, could you help us just understand what was embedded at the lower end and then maybe what's embedded at the higher end of your outlook for the year?

Yeah. Good morning, Mike. I'll take a stab and then Dave can fill in. You know, it's pretty straightforward. I think the high end of the range would anticipate a couple of things. It would probably be a moderation a bit of the tariff environment and or a combination of us being able to continue to mitigate the cost better than anticipated. Which by the way, I think we're as an enterprise doing the best we can and really been on this since day one on mitigation exercises. So you know, that would if the tariff environment moderated a bit, I think you would have an argument that the volume degradation that's in our that's in the bridge there could be lessened or even go away. So it's kinda that simple on high end on the low end for the addresses. Right? It's the tariff environment, kinda goes to the far end of our range. We show on the slide. And the volume does so we see the decline in volume of the year. And, you know, maybe there's not the effects benefit that we've shown. So it's kind of all those same on the chart. So pretty negative versus on the top end, there's just a little bit of relief.

Okay. Okay. That's helpful. And just with the tariff outlook of the mitigation efforts. I would assume that's probably is that way half year? I mean, if we were annualizing that, would you anticipate another $100 million next year? I'm just trying to figure through how that how that works.

Yeah. We lost you there in the middle of the question a little bit, but I think I have the question right about a full year annualized view. No. I would say, well, obviously, what's on the slide, the tariff slide, is a 2025 impact. Right?

Not full year with our service. But that does assume the correct careful.

Including extremely high China rate, which is our biggest impact. However, if you go to a year you're gonna have a lot more ability to mitigate. And a lot more time to do that, Mike. And I think we've shown the ability to be very thoughtful and quick in mitigation. You would also have some of the benefits from tariffs paid in 2025 that would actually not show up until 2026. And that would include duty drawback and substitution primarily at Mercury. There's a bit of a delay on when we pay them and when it occurred and then when we are able to do some of the mitigation drawbacks or substitution and some of that timing would benefit a future year. So it's really hard for me to give you an exact number, but I am confident it would be lower than just an annualized full year 2025.

Okay. Perfect. Thank you for that.

Thank you. Our next question is from the line of James Hardiman with Citi.

Hey, good morning. And maybe just quick follow-up on that last point Ryan. If we were to think about $100 to $125 million of net impact this year. What's the gross number, i.e., how much are you assuming you're able to mitigate away?

Yeah. It's hard to give that number. I mean, you can take the calls that we've given you on the slide and multiply it by the rates. But there's so much that goes in there, James, including, as I said, the timing of when the tariff comes in. It's obviously we're mitigating a good amount. I would say, you know, the gross number is probably not double that, but it's somewhere south of it. But, again, with all the moving pieces on how you have to account for it and actually pay it versus incur it, it's just not as simple as a cost calculation that you'd wanna make.

Got it. And then let's talk about Q2 and then sort of what's implied for the second half of the year. Certainly, the Q2 guidance came in pretty materially beneath the street. What's driving that? And I guess as part of that question, we think about tariffs, how much of that $100 to $125 is in Q2? And what are you assuming for inventory? Normally, Q2 is an inventory drawdown quarter. Is that gonna be more aggressive this year? Just trying to put you through, like, a second-half guidance to assume material growth year over year despite a bunch of tariffs in there, you know, how realistic of an expectation that that'll be it.

Alright. Thanks, James. Couple of several questions in there. I'll try to respond help as well. So I will say first on Q2, yes, there is a tariff impact. Obviously, the way you have to account for anticipated full-year tariff impact would include capitalizing the cost that you anticipate for the full heat as incurred. So there is there's a, you know, a portion of that tariff impact that is in Q2. You know, there's probably a little bit of concern. You know, you saw the volume drop on our bridge. I think we would anticipate that starting in the second quarter, it's an important quarter for retail. It's an important quarter for wholesale. And if there's still uncertainty in the tariff environment and in the macros, I think you could see that come through in the second quarter. But also it could, you know, it could be a little bit of a delay. The other thing, you know, FX is kind of a good guy for us in the quarter. And there's probably some mix in there as well. With a little bit more sales P&A. So a lot of back and forth between what you kinda what we saw in Q1 and what we'd anticipate in Q2. Last thing I'd mention, and you can correct me if I left anything out, for inventory, we do still plan on an inventory reduction through the year. One of the big drivers of our cash flow success in the quarter is inventory and working capital usage being down. So we are keen on keeping inventory to match our production. And should there be value reductions needed in the back half because of, you know, sales pressure, we will and have shown the ability to ensure that we put the brakes on inventory coming in.

Yeah. I would just add to that, James, that there might be an implication in there that we had some sales pull ahead into Q1, which is the case in some other industries, like automotive, for example, but we really didn't we had negligible sales pull ahead into Q1. And, really, we did embed quite a bit of the revenue uncertainty in that bridge into Q2 just because of the extremely dynamic environment, which we think is, you know, driving more hesitancy and uncertainty at the moment versus what will hopefully be a bit more of a certain environment in the back half of the year. So, like, you know, there's plenty of opportunity for us to do better in that second quarter if things stabilize.

I guess ultimately, my question, if you don't mind just sort of following up and maybe distilling my question a little bit better. As I think about the second half, you've got earnings up year over year. Obviously, a big tailwind is that you were reducing inventory in the back half of last year. Right? So that was a big negative a year ago. This year, you're gonna have significant tariff exposure. Are we as we work through our models, is the assumption that the good guy is bigger than the bad guy as we work through all of that math, particularly given an uncertain consumer environment?

Yeah, James. That's a good point. And, yeah, that's a good point. I think you're really talking about pipeline inventories at a little bit more than our inventory, in which case yeah. Remember that we, you know, Mercury took their production down the second half dramatically. You know, more than 50% even in Fond du Lac and our high horsepower and both did something similar. So we've done a really nice job of lowering production and lowering the pipelines. In advance of what we anticipated was going to be a strong 2025 and actually was actually a good start to the year. I think even on balance, the good outweighs the bad. As we look to the second half even in a tariff impact environment.

Yeah. I think the only one of the main components of that is we were operating in a very inefficient way in the back half of last year. Our production lines were not optimized. We had too many people because we were all we were kind of always trailing, trying to get people optimized for production rates. Mercury is, as Ryan said, was running essentially every other week. So we should be operating much more efficiently in this environment in the back half of the year.

And that'll come through on the absorption line too, James. That's a big, you know, the year-over-year production swings look much more favorable in the back half even in a tariff impact environment.

Got it. Dave. Thanks, Ryan.

Our next question from the line of Craig Kennison with Baird. Please proceed with your questions.

Hey, good morning. Thanks for taking my question. The press release mentions plans to streamline entry-level boats. I'm wondering if you could shed more light on those plans and maybe even comment on which categories or brands might be impacted.

Yeah. Thank you, Craig, very much. Yeah. We already are essentially in process at a kind of model by model level. Obviously, as we showed in the slide deck, the entry level really is the most impacted at least in our portfolio at the moment. Which tends to correlate to the more economically sensitive consumer, I would say. And, you know, as we've seen these successive declines in volume, you know, there's a if we were anticipating a year of increasing volumes in that segment, then we could maybe tolerate those lower gross margins for a while. But given the current environment, it seems appropriate to take action in that segment. So the first thing you'll see is really reducing the number of models that we continue to offer in that category. I would say, you know, broadly, probably fiberglass, value is weaker than aluminum value at the moment. Every model that you continue really, you know, carries the cost of not just the kind of lower gross margin if you like, but also the requirement for future investment to develop new models or enhanced models or, you know, model year changes. And as we think about where we prioritize our investments, we clearly would like to prioritize it in the areas with the highest margins for us and the biggest growth opportunities. So we'll be working on that. We're certainly studying additional ways to make sure that we optimize manufacturing in that area. Of the things I would just point out though is a lot of the margins on those products are relatively small for the boat group. Of course, there are margins that flow through to Mercury and Navico group. All those boats carry Mercury engines, so we have to think holistically as we're doing this to make sure we don't, you know, we don't compromise Mercury's share, for example, as we take those actions. But you should expect to see more detail on those as we go through the year and firm up the direction.

Should we think of those as more tactical decisions to reduce the number of models you have within a brand or are you making more strategic decisions with respect to some of your brands or some of the boat categories themselves?

Yeah. I wouldn't say that we're making any strategic decisions at a brand level. But I would say that we're studying options that would have long-term cost benefits to us, not just short-term tactical opportunities.

Great. Thank you. And Craig, the next questions are from the line of Megan Clapp with Morgan Stanley.

Hi, good morning. Thanks so much. I wanted to ask, I think, Ryan, you talked a lot about impacts that could impact the guide that aren't included in your analysis today, one of which was the disruption of capital markets. I wanted to ask premium held up very nicely over the last couple of years, and I think you said it was flat in 1Q. But anything you're seeing or hearing from dealers kind of month to date in April as it relates to discernible impacts from that consumer in particular just as we've seen more stock market volatility?

Yeah. Maybe I'll start and Ryan can follow-up. And now I think our, I would say our premium brand seems to be in a pretty decent spot overall, I would say. I would say that there's been, if you look, you know, we it's always difficult to segment our brands exactly because even our premium brands have small models. Right? You know, Boston Whaler has a sixteen-foot super sport. So I think what we're seeing at the moment is it tends to be smaller product, like less than $100,000 that we might see a bit of weakness in. And then I think some of the very large product categories that we don't really participate in. Fundamentally, I think our brands are in pretty good shape. But, certainly, the stock market is, you know, gonna have a fairly it could be concerning for a whole broad range of consumers. I think we're feeling okay at the moment. So, yeah, I think we're in a good position relative to others in the marketplace with our products. But, yeah, there certainly could be some short-term hesitancy. I would say that, you know, both buyers, particularly in that premium segment, not just holding up well now, they've held up well for a number of years. In the face of quite a few headwinds. So they're a very resilient consumer. They tend to be very engaged in the on-water lifestyle. So we continue to expect them to be pretty resilient. Even in the face of the current uncertainty but, you know, everybody's impacted. Right?

And if maybe you translate that into wholesale, this is where the very lean pipelines, especially at Whaler, Sea Rays, some of the premium lung products, really helps us. You know, our Q2 wholesale for those products is already kind of in the books, if you would. So, you know, retail, whether it slows for a temporary period or doesn't, still our dealers are feeling the need to take product just because their boats per rooftop, if you would, are still extremely lean, and that's a result of all the activity we did at the end of last year. Yeah. I would maybe another component here is, you know, you're right that the capital market surmise is certainly a headwind. I would say a bit of a tailwind for our brands, particularly the premium brands and core brands, but really all of them, is that they're produced domestically. And most of them carry Mercury engines that are produced domestically. So versus some of the imported brands, we are not we're in a, you know, beneficial tariff environment at a bulk level. Anyway, so I think as dealers look at where to place their bets, in terms of wholesale orders, we're probably in a preferred position at the moment, which is a which to some extent mitigates some of the other headwinds.

Okay. That's helpful. And maybe just a follow-up on propulsion. It seems like just looking in the appendix that by segment, that is where the bulk of the at least, bottom line cut is coming from, which presumably, I think that's because you're importing components from China, but correct me if I'm wrong. But how do you think about, again, I think, Ryan, another factor you mentioned was the potential for, I think, what would be a tail end given some competitors are importing from importing the full engine from other countries. So I guess how do you how do you kind of think about that potential tailwind today? Is that anything you're seeing or hearing yet from OEMs? And, you know, when could that potentially play out?

Yeah. Thanks, Megan. And then you're correct on the first piece. You know, Mercury is the recipient, if you would, on a majority of our tariff impact and also tariff impact on their sales into China. Which are actually not immaterial given the day they sell engines and parts into China a hundred and twenty-five percent retaliatory, those are gonna be very challenged. But, yes, one of the potential benefits is the non-US engine manufacturers paying tariffs on the importation of their engines into the United States, you know, all the way back to 2017, this has been a pretty sore subject around Mercury as you know, many of us use similar Chinese supply chains and have for a number of years. Some of our competitors take those same components go to their facilities in Japan, manufacture the engine, and sell the engine into the United States with zero tariff. We take the same components, sell it, send them to the United States, use all of the United States labor and end up in Fond du Lac, make those products here in the United States, but we pay tariffs on the importation of those exact same components. And so, yeah, there's certainly a benefit there if the non-US engine manufacturers continue having tariff inbound. I don't know if we've seen any of that benefit yet. I think there's a whole lot of people that are just being cautious and looking at each other right now with and keeping their inventories steady until they see where it's not ultimately gonna land. But that is one where I think that would be a pretty nice advantage for Mercury moving forward.

Hi, guys. Thanks for the question. You mentioned the mitigants. Can you maybe give a little bit more color on what the mitigations actions would be in terms of mitigants against tariffs? Is it pricing? Is it moving sourcing? And how confident are you to realize the mitigant?

Yes. Thank you for the question. Again, it's the things that you just mentioned certainly are well, maybe we'll start with pricing. We have some ability to take price, but we have to be very careful about how we do it. For example, we are not intending for Mercury to take big pricing this year despite the tariff impact. It's just not an environment where we can introduce additional pricing and not affect volume or market share. Other things. But we can do it selectively. On some product lines. And certainly, internationally, we have a little bit more freedom to do that. We certainly are continuing to migrate our supply base either to other lower tariff international locations or to onshore it. Been doing that for a long time, and we have plans to reduce our China source components very substantially. And that is well in flight. Just making sure that we can do it with quality. It can't happen instantaneously. We need to make sure that we do it well. But those actions are very important to us. The other thing, to be honest, is just how you classify components. The HTS, the harmonized tariff schedule components, you'll have the HTS codes have incurred differential tariffs in some instances. For example, making sure that the products that we manufacture or components that we manufacture in Mexico and Canada are appropriately classified for USMCA. There's quite a lot of work in making sure that we are appropriately classify all our components to minimize the tariff exposure. I would say all of this was really was and has been in flight for a long time. This is not stuff that we suddenly had to action at least most of it is stuff that we didn't have to suddenly action recently. Our exposure to China back in 2017 was much larger. And we could easily see our exposure to China reducing by, you know, 50% by the end of this year. So we have a lot of actions like that in flight.

That's super helpful. And then maybe just on inventory at pipeline, I think you mentioned you're hoping to reduce that over the course of the year. Could you maybe give us a sense of like where you hope to end in terms of weeks on hand for pipeline?

Yeah. I mean, weeks on hand obviously is a function of what you anticipate retail being. I maybe in terms of units, I think we still think we'll take for full year, we'll take another thousand units out globally. Which will get you, you know, down another week or two in the US, probably something similar, maybe a little less, maybe, you know, five hundred units or so, and that would land you really, in the mid-thirties, kind of comfortably where we've been historically, and that's with a kind of assuming a TTM that's still negative. So smart there. And then maybe and, Yance, I know we don't talk about it as much, but even on the engine side, it's very likely that we'll take significant engines out of the pipeline for the full year. Which will if you look at kind of a three or four-year curve, kind of put us back to where we started almost coming out of the GFC with pipelines really about as lean as they've been certainly since we started all the efforts on a hundred and fifty horsepower and above and taking all the market share. So again, setting ourselves up for some nice wholesale benefits as we think the market eventually picks back up.

Our next questions are from the line Scott Stember with Roth MKM. Please proceed with your question.

Good morning and thanks for taking my questions.

Hey, Scott. Good morning.

Can we talk about boating participation? It looks like at least through the quarter, through your engine P&A sales that it held up pretty good. But have you heard anything or from Freedom Boat Club or just through any other marina data that for whatever reason, since April second that we've seen that slowdown at all?

Oh, hey, Scott. It's no. It's the answer. I think the exact phasing of P&A sales, you know, I hate to bring this up, but weather is important. So this year, Northern Lake kind of ice off is about three weeks behind. So we should see actually some I think, pick up in P&A sales as we get into April and May. That might have been delayed from earlier parts of the year. And we are not seeing any material change in overall booking.

And Freedom trips are actually very steady year over year. They're essentially flat, and that's with a relatively poor weather respectively, and, respectively, in Florida, which is the busiest traffic state of freedom certainly this time of year.

Got it. And then just last question also in April, any signs of any tightening of lending from lenders or credit deterioration on the behalf of the consumer?

No. Actually, both kind of retail financing rates have been holding very steady around 8% ish, maybe a little bit less than that for larger loans. If you have decent credit. So the spread to the mortgage rate is actually narrowed. And I've interestingly, it's been 8% for several months now. We have not seen any change in that. There's also, you know, potential buyers can also get discounted rates. There are a number of OEMs and other opportunities for getting discounted financing rates. I don't think that's yeah. I don't think I don't haven't seen any deterioration in that nor in credit quality.

And maybe on the wholesale side, I'd say the same thing. Dealers came out of their curtailment holiday in late winter, early spring, and dealer health continues to be very strong. So we're not seeing any degradation on dealer finance side as well.

Thanks. Hey, guys. Good morning. First question, I want to go back to the seventy-five cent reduction to your EPS guidance owing to softer volumes. And I apologize if I missed this, but does that assume demand trends here in April remain constant? Does it assume it gets better or worse in the second half?

Yeah. I mean, it's hard to put an exact time frame on it, Joe. It just think of it. It's our view on approximately 5% sales decline off of our original off of our original projection. Right? So five plus billion seventy-five cents with our variable margin looks like two hundred and two hundred and fifty million of sales. As we said earlier, I think we, in our minds, think that could be a little heavier in the second quarter as we know we're dealing with a tariffs environment today. It could get better in the second half. But, you know, it would probably be an impact that would be felt throughout the year should the current macros continue.

Yeah. I would also say, Joe, that the 5% it's really a revenue number. You should that shouldn't be conflated with a boat unit sales number. I mean, we could tolerate, you know, boat unit sales in the, you know, entry-level brands deteriorating much more significantly than 5%. Given the fact that, you know, 60% of our earnings is coming from recurring revenue sources and we expect P&A to hold up a lot better. So I would say that 5% is, you know, pretty aggressive in terms of an assumption. It is a big no. It could be unit sales down more than that.

Right. That's a good point and worth reiterating that that chart anticipates or presupposes that the tariff environment lasts the whole year. So the volume is a direct result. The volume reduction is a direct result of the tariff environment, paying that is on our end-use customer. If that abates in any way, then, you know, those things are very much in a related.

Okay. Perfect. And then just to follow-up, the outlook for share repurchases, I think it's still $80 million. You talked about that being the floor potentially given where the stock is today. Any thoughts to upping that at some point?

Yeah. We'll see, Joe. Obviously, we're balancing a lot of things here. With our capital strategy. Obviously, debt and dividends, which are in pretty good shape. And then share repurchases, we obviously would like to be aggressive given where our stock price is. But we also want to make sure that we're, you know, generating and using cash as in the best way as possible. And, again, maybe just to reiterate, we had our second-best cash quarter in really since the GFC. Whether it's on record or in a decade. Our records go back a long way, but our company was very different. As far you know, once you go too far back. But we are in a situation where our cash position today as we're on this call, we are now free cash flow positive for the year. The first time I certainly I've been able to say that as CFO and certainly it's something we've been working hard on. So this is about as early of cash generation as we've done. So should that continue, that'll give us a good chance to be aggressive on shares. And maybe even take another swing at some of the debt reduction work that we started last year.

Got it. Thank you.

The next question is from the line of Jamie Katz with Morningstar. Please proceed with your question.

Hey, good morning. I just have one quick one. It was mentioned in the prepared remarks that retail traffic was steady and that when the right incentives were working, you know, there was some conversion on units. So is there any insight that you guys have into what is working best for consumers right now? Is it rate buy downs or pricing promos or is there something else that might be noteworthy? Thanks.

Yeah. Thank you. I think to be honest, the cashback is the thing that has the most consistent appeal. I think, you know, there are opportunities for consumers to get, you know, kind of portfolio benefits from cash off, you know, plus in some cases discounted financing rates. But I would say the, you know, the basics continue to probably work the best. I would say though, you know, your question raises something and that is that we are being more targeted right now with our promotions and discounts. So we are operating particularly in the entry level and it might be cost us a bit of volume there. We're operating with about a point lower of kind of aggregate promotions and discounts than we did last year. You know, we do have an opportunity to dial it up a bit more if we really need to. But at the moment, we're really trying to balance, you know, volume and profitability. This is still a, you know, promotional environment, but and the basics still work the best, I think.

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

Well, thanks everyone for your questions. Much appreciated. I think, you know, as we noted, the resilient composition of our portfolio drives very strong earnings and cash flow generation for us, which is extremely welcome and certainly differentiates our business. Our exceptional team also continues to execute extremely well, and we are focusing on all the levers we can control as you saw. Beyond that, we continue to pursue the initiatives that will yield growth and margin expansion and balance sheet strength in the future. Despite the unique challenges at the moment, we elected to provide refreshed guidance in a form that we hope will be useful to our investors as they assess and react to the current environment and model future changes. So, you know, we're a transparent company and we wanted to share the best of what we know at the moment. Thank you very much.

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