賓士域 (BC) 2025 Q4 法說會逐字稿

Good morning, and welcome to the Brunswick Corporation's fourth quarter and full year 2025 earnings conference call. (Operator Instructions) Today's meeting will be recorded. (Operator Instructions)

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

Please go ahead. Good morning, and thank you for joining us. With me on the call this morning are David Foulkes, Brunswick's Chairman and CEO; and Ryan Gwillim, Brunswick's CFO.

Before we begin with our prepared remarks, I would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For details on the factors to consider, please refer to our recent SEC filings and today's press release. All of these documents are available on our website at brunswick.com.

During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix of this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results.

I will now turn the call over to Dave.

Thank you, Steve. We finished 2025 ahead of recent expectations, with all our businesses reporting sales and earnings growth in the quarter, leading to full year net sales growth for the first time in three years and significantly higher free cash flow generation, all supported by strengthening boat market in the second half of the year.

In addition to improved retail conditions, our performance was underpinned by solid boating participation, driving stability in our recurring revenue businesses and outstanding operational execution across the enterprise.

Retail demand stabilized in the second half of the year following a challenging second quarter primarily caused by tariff-induced economic uncertainty. While the US retail boat market finished the year down approximately 9% in units, Brunswick's leading boat brands outperformed the US industry and Brunswick global retail unit sales were down only 5%, driven by weakness in value products.

Dealer inventories remain at very low levels and with a high percentage of recent model year product. Despite the volatile first half of the year, we delivered $5.4 billion in net sales, up 2% over prior year. Our adjusted earnings per share of $3.27 were impacted by the anticipated tariff headwinds, which had a substantial impact on the fourth quarter.

Comprehensive cost containment actions throughout the year, along with robust capital strategy execution and diligent working capital management, resulted in exceptional free cash flow generation for the year of $442 million, which provided us with us financial flexibility to continue to invest in the business, repurchase $80 million of shares, increase our dividend and retire approximately $240 million of debt to further improve our strong balance sheet.

Strong early season retail and falling interest rates, combined with the stabilized retail environment, currently supports our initial expectations for improved market conditions in 2026. In 2025, boat and engine retail sales significantly outpaced wholesale, which positions Brunswick for revenue growth in 2026 in a range of flat-to-improving retail scenarios.

Turning to some segment highlights, I'm pleased to report that for the second quarter in a row, all segments grew revenue over the prior year quarter. Operating margin also expanded across our businesses, except for Engine P&A where it was down slightly due to strong performance in the lower-margin distribution side of the business.

Our Propulsion segment had an outstanding fourth quarter, increasing revenues and earnings versus prior year in each of its three business lines, outboard, sterndrive and controls, rigging and propellers. Mercury continues to be the outboard market share leader in the US, Canada and Europe and is increasing its investment in ground breaking new products.

Recently, at the Consumer Electronics Show in Las Vegas, Mercury unveiled its 808 outboard engine concept, signaling the future direction of ultra-high horsepower outboard propulsion. Mercury's commercial traction continues to accelerate as highlighted by the recently announced exclusive agreements with Axopar, Saxdor and DeAntonio Yachts adding to the more than 100 new or renewed OEM agreements in the last 12 months.

Our recurring revenue, high-margin Engine Parts & Accessories business delivered higher sales and earnings in the fourth quarter versus prior year in both its products and distribution business lines, fueled by higher voting participation and our growing share in marine distribution. Our market-leading US distribution business gained 210 basis points of share in 2025.

Navico Group increased both revenue and operating margin in the fourth quarter versus prior year, reflecting the steadily increasing benefits of our continued focus on a refreshed product portfolio and operational, commercial and financial improvement actions.

Navico Group launched connected solutions, including integration with mobile apps and Simrad multifunction displays, enabling onboard and offboard real-time monitoring and control of vessels. And the introduction of our Simrad AutoCaptain autonomous boating system was another example of Brunswick's unique ability to deliver seamlessly integrated system solutions codeveloped by Navico Group, Mercury Marine and Brunswick Boat Group.

Finally, this quarter, our Boat business capitalized on the continued improvement in the retail market which drove sales growth and significantly expanded margins versus the prior year quarter. Discounting levels in 2025 also improved approximately 100 basis points year-over-year.

Our premium and core brands experienced continued strength, highlighted by 15% overall revenue growth across our premium brands at the Fort Lauderdale Boat Show. And our value brands also recovered some momentum. Lastly, Freedom Boat Club had another strong quarter, growing to 442 global locations and with member trips finishing the year at over 640,000, up 5% over 2024.

Moving on to external factors. The US Fed cut rates by 75 basis points over the latter part of 2025, with additional rate cuts anticipated in 2026. While the cuts have reduced financing costs for both dealers and consumers, they came too late in the season to have a material impact on 2025, but will be a tailwind for the 2026 season.

Additionally, while the geopolitical and trade environment remains very dynamic, continued equity market strength and the moderating inflation trends are also expected to create a more constructive environment. Our tariff mitigation actions in 2025 were extremely successful, offsetting over half of our gross dollar exposure, resulted in approximately $75 million of net incremental tariff impact.

While the Supreme Court decision regarding the IEEPA tariffs remains pending, US import tariffs on Mercury's Japanese competitors are projected to remain in effect in any scenario, representing a potential long-term structural advantage for Brunswick as the only domestic manufacturer of outboard engines.

Notwithstanding the outstanding IEEPA decision, with the US import tariffs anticipated to be in effect for the full year of 2026 versus a partial year in 2025, we expect to incur further incremental tariff costs of approximately $35 million to $45 million in 2026 net of continuing mitigation actions.

OEM, dealer and customer sentiment is improving with healthy pipelines and increasing boater participation benefiting all our businesses. We were particularly pleased to see Navico Group's marine OEM sales pick up in the fourth quarter, supported by well-received new products.

Looking now at industry retail performance, the latest SSI reporting for December showed US industry retail units down about 9% for the year, with Brunswick internal US retail outperforming the market. As I noted earlier, Brunswick retail boat sales stabilized in the second half of the year, resulting in overall flat second half performance compared to prior year, and with acceleration through year-end.

In addition to solid performance from our historically strong premium and core brands, we also experienced some recovery in value products. Mercury Marine's leading US retail outboard share remained stable, although during the year, share was temporarily impacted by tariff-related dynamics.

Mercury finished the year with approximately 47% share, gaining 70 basis points overall in the second half of the year and with large gains in higher horsepower engines. Mercury also remains the clear leader in Canada, Europe and many countries around the world.

Consistent with its strong outboard share performance at recent boat shows, Mercury's wholesale market share also accelerated through the fourth quarter and was up over 400 basis points in the quarter and 900 basis points in December versus prior year.

As previously noted, our boat and engine pipelines are extremely low levels, the result of deliberate action over the last two years. Global but pipelines are down approximately 2,200 units from a year ago and US outboard pipelines down by approximately 10%, with retail sales significantly outpacing wholesale.

In addition, as of year-end, our global boat order backlog was 79% of our first quarter wholesale forecast, up 13 percentage points from the same time last year. Brunswick delivered outstanding free cash flow of $442 million in 2025 with continued benefits from our recurring revenue businesses that represented approximately 60% of our earnings this year, and continued operational and working capital discipline.

Our cash performance has enabled us to support planned investments in industry-leading products and technology, return capital to shareholders and efficiently retire more debt than previously planned. Our investment-grade balance sheet was further strengthened by the retirement of approximately $240 million of debt this year, exceeding our guidance and commitments and putting us firmly on track towards our 2 times net leverage target.

We're progressing towards this goal while maintaining significant financial flexibility, and at year-end, we had $1.3 billion in liquidity, including access to our undrawn revolving credit facility. In December, we converted $300 million of long-term debt into rate-advantaged commercial paper, reducing interest expense and setting up additional debt retirement in 2026, supported by continued strong free cash flow generation.

A series of thoughtful capital strategy actions initiated at the end of 2024 will reduce our expected 2026 interest expense by approximately $40 million, including the benefits or an additional $160 million or more anticipated debt retirement this year, while still allowing us to make our planned new product, AI and other investments, as well as return capital to shareholders.

I'll now turn the call over to Ryan to provide additional comments on our 2025 financial performance and our initial outlook for 2026.

Thank you, Dave, and good morning, everyone. Brunswick's fourth quarter performance came in ahead of expectations with sales and earnings in each of our segments exceeding fourth quarter 2024. On a consolidated basis, sales were up 16%, reflecting improved market conditions, increased wholesale shipments to our channel partners, pricing actions taken earlier in the year, a lower discounting environment and continued solid boating participation, driving growth in our P&A and aftermarket businesses.

It's also worth noting that this growth was not only broad-based across all segments in the quarter, but also across all global regions. Q4 earnings improved 41% versus prior year as the impact of higher sales, along with increased absorption from comparatively higher production levels and operational improvements, more than offset the enterprise headwinds of incremental tariffs and the restatement of variable compensation, which affected each business.

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

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

Full year adjusted operating earnings and diluted EPS ended slightly above expectations, but below the prior year, mainly reflecting the impact of incremental tariffs and the reinstated variable compensation. Outside of these two impacts, we would have shown strong adjusted earnings growth for the year.

The earnings impacts of the sales growth, inclusive of pricing and improved discounting levels, together with tariff mitigation efforts, helped partially offset these earnings headwinds. We generated $442 million of free cash flow in the year, up 56% year-over-year and exceeded our increased guidance from the last quarter. In one of the most challenging years for the industry since the GFC, we generated the third highest full year free cash flow in Brunswick's history.

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

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

Our aftermarket recurring revenue Engine Parts & Accessories business also grew sales for the third consecutive quarter, with fourth quarter sales up 15% versus prior year. Sales growth accelerated from the third quarter for both products and distribution, reflecting strong voter participation, favorable weather in many regions in the back half of the year and continued share gains in our distribution business.

Q4 adjusted operating earnings increased 7% with slightly lower margins due primarily to the mix impact from the stronger growth in distribution sales. Despite the compensation and tariff headwinds, a sluggish first half retail environment and a slight mix shift towards our distribution business, our full year adjusted operating earnings for the P&A business were essentially flat to 2024, continuing to validate that prioritizing recurring aftermarket revenue is essential to driving performance through the cycle from our differentiated balanced business model.

Navico Group grew sales for the second quarter in a row, increasing 4% over the prior year, driven by solid OEM orders and steady aftermarket performance during the important holiday selling season. Improving Navico Group's financial performance remains a critical focus for our entire team, and we are seeing the results of strategic actions, including continued investment into new products, product portfolio optimization and operational measures.

While many new exciting products are still to come, we believe that we are now seeing the early benefits of our recently developed and launched, competitively priced new products winning in the market, especially in our electronics portfolio.

The Navico Group's outstanding operational performance in the quarter helped translate the sales growth into strong adjusted operating earnings and margins, which were up 180 basis points from the prior year as benefits from higher sales, new product investments, portfolio optimization and cost control measures more than offset the enterprise headwinds. Finally, our Boat segment had a strong quarter, reporting an 11% sales increase over the prior year with growth from both boat sales and the business acceleration portfolio.

Our Boat group sales were led by increases in our recreational fiberglass and aluminum boat brands, while Freedom Boat Club continued its growth journey, with network-wide increases in trips, members and locations during the quarter.

Note that the Boat group increased sales in each of the premium, core and value categories, continuing the success from the third quarter. Segment adjusted operating earnings and margin were both up significantly. Adjusted operating margin expanded 290 basis points benefiting from the impact of higher sales, including annual model-year pricing actions and improved discounting levels, along with increased production driving improved absorption, which handily offset headwinds from the enterprise factors.

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

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

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

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

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

Next, we'll take a closer look at the components of our guided $4.10 adjusted EPS guidance midpoint, which reflects approximately 25% growth over 2025, consistent with the initial 2026 thoughts that we shared last quarter. The main driver of the earnings improvement is the impact of the anticipated sales increases, which should carry incremental earnings north of 20%. Included in the sales increase are benefits from annual pricing actions and a lower discounting environment, continued mix benefits toward more premium products and higher content and volume increases as we better match retail and wholesale throughout the year.

We also anticipate favorable earnings impacts from currency, capital strategy and continued cost reduction programs across the enterprise, mainly improving gross margins. In part to drive the sales improvements, we do anticipate an increase in full year operating expenses but believe OpEx spending will remain consistent with 2025 on a percentage of sales basis.

The large majority of the OpEx increase relates to growth investments in critical product and technology programs, sales and marketing efforts to drive demand, and necessary systems and infrastructure upgrades. The only other anticipated EPS headwind would be the continued impact of incremental tariffs, which under the current legislation, we estimate to be between $35 million and $45 million or approximately $0.60 of EPS.

This is a net tariff headwind resulting from the full year impact of the tariffs instituted in 2025 and assumes that we will continue to be successful in our aggressive tariff mitigation strategies as we continue to use self-developed AI tools, sourcing optimization, value engineering, trade provisions and other methods to reduce tariff impacts.

As you can see, we remain quite bullish about our opportunities for success in 2026. I'll end my prepared remarks this morning with a quick review on other P&L and cash flow assumptions underlying our annual guidance. We believe that our capital expenditures spending and annual depreciation expense will be similar to 2025 levels as we remain in harvest phase for most of our recent capital initiatives and believe that we have sufficient capacity available for a multiyear growth vector.

We plan to generate approximately $50 million of net working capital as we drive continued inventory and balance sheet improvement even with anticipated stronger production. Finally, as Dave mentioned earlier, we anticipate retiring no less than $160 million of debt throughout the year, resulting in a total of $400 million of debt retirement between 2025 and 2026, which would leave us with net debt leverage of 2.5 times or lower by the end of the year.

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

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

Thanks, Ryan. As we wrap up the call, I would like to highlight some exciting events, new product launches and awards from a very busy January. At the beginning of the month, Brunswick again exhibited at the Consumer Electronics Show in Las Vegas where we leveraged this unique global technology stage to showcase our full portfolio of industry-leading products and technology, including our ACES and Boating Intelligence solutions.

We launched the all-new Sea Ray SLX 360, our first-ever boat launch at CES, which is packed with Mercury Marine and Navico Group technology and was fitted with Simrad's AutoCaptain autonomous boating system. We also debuted the FLITE RACE eFoil, a collaboration between Fliteboard and Mercury Racing. Capable of speeds over 30 miles per hour, this product sets a new industry performance benchmark for electric watercraft.

In addition, we debuted the Mercury 808 Concept, based on the current, very capable and expandable 600 horsepower V12 outboard platform, which provides a vision for the future of ultra-high horsepower outboard propulsion. Brunswick was recognized with several awards at CES. Simrad AutoCaptain was honored with a CES Pick Award. Our overall exhibit was recognized as a Top 10 Best Both Experience. And Brunswick is a finalist for the Best of Show Awards, which recognizes the best experiential exhibits.

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

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

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

Finally, as you all know, we pride ourselves on being an employer of choice, an innovator in our space and a responsible and trustworthy company. For the fourth consecutive year, we surpassed 100 awards for our people, our culture, our products and our innovation.

Notably, many of these awards are national awards from media outlets such as Newsweek, USA. Today, Time and Forbes that we've received for multiple years. However, for the first time in 2026, Brunswick was named to Forbes America's Best Companies list.

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

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

(Operator Instructions)

James Hardiman, Citi.

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

But I'm curious specifically sort of how you finish the year, and as you carry that forward to 2026, what gives you confidence that flat to up is the right way to think about the full year?

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

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

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

We have clearly seen retail financing rates response to this, and retail rates are down around 7.5% now versus 9% to 10% at peak. And then it's very helpful for our dealers as well. Equity markets remained strong, which is helpful for our premium buyers.

And then we did see somewhat of an acceleration, I guess, as we went through the quarter. And that is retailers continue -- as you know, we're always very cautious about closing numbers for when it's such a -- when the volumes are so low at this time of the year.

But retail is up double digits so far this year despite the inclement weather and a few other things going on around the country. So I think overall material tailwinds and evidenced on a small scale at least so far in the year, that that is translating to solid to positive retail.

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

That's right.

Okay. And then as we think about inventories, obviously, good work bringing down global pipeline, I think, 2,200 units in 2025. How should we think about that number for 2026? Is that a 0 in 2026, i.e., wholesale equals retail? Or do we expect a little bit more of a reduction?

Obviously, one of your big, if not biggest, customers is speaking to stubbornly high inventories at least around the industry with maybe one more quarter remaining. Maybe square that with how you're thinking about things.

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

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

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

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

Craig Kennison, Baird.

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

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

So that is a kind of natural pull. I also think that there is some deferred purchases from the depressed kind of overall industry sales in the past few years. So people have waited for the right buying conditions to reenter the market.

Generally, we continue to see new boaters come in around the historical pace, I would say, of 25%-ish of new boat sales. But as you think about the shocks that we've experienced over the last several years, some -- certainly on the interest rate side, conditions have not been positive and constructive. We are beginning to see that normalize.

I think if you look at inflation, obviously, the Fed would like it to be 2%, but compared with where it was two or three years ago, we're in a much more normalized situation. So I think that we -- based on depressed sales over the last few years, we likely have some buyers waiting for the right point to come back into the market. We will see the full effect of those 75 basis points to 100 basis points of rate cuts this year.

And we have a kind of replacement -- we're well below replacement rate. So I think all of those suggest pull forces for retail. But of course, we are -- if that happens, that will be great. But at the moment, we're forecasting at least some uplift in the market.

I would also add, Craig, that we've been very thoughtful and really the industry about pricing over the last handful of years. And now you're seeing a more balanced dynamic between trade-in values for people that bought around 2020 or 2021 and what they can purchase today.

So I think people are getting a little bit more value for their trade-in. They've held it for a little bit longer, so their ability to trade up and trade back in has greatly improved now over maybe where it was two or three years ago.

Gerrick Johnson, Seaport Research.

I wanted to ask you about Propulsion. Outboard was up 26%. Your Boat business was up 11%. So I'm just going to infer here your sales to OEM customers really expanded nicely. Can you talk about that, your business to OEM customers and how much of your growth there is coming from existing customers and how much from new wins?

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

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

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

So yes, I think that we are growing share with new customers. We've gone exclusive with a number of customers now, that we weren't explicit with before. And we're signing longer agreements that fortify our position. Connecting what you just discussed a bit with some of the kind of strategic spending that we referred to, clearly, a significant portion of that is in Mercury. We hired 60 new Mercury engineers in 2025.

So despite the fact that we're continuing to watch our spending, we are loading up for another product blitz in Mercury. We have five new outboard programs going. Obviously, we shared some details of those with some of those customers.

So I think that yes, we're getting more customers, our existing customers are signing long-term agreements with us and a number of customers who are not exclusive to us are going exclusive. All of those effects will be posted, I think.

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

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

Anna Glaessgen, B. Riley Securities.

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

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

The carrying cost is lower because float line is lower. And the margins tend to be higher because discounting is lower. So I think that as either our OEMs or channel partners calculate the carrying cost or marginal benefit, if you like, of inventory, those positive effect on both ends, the carrying costs and the demand, are both constructive at the moment.

So yes, I think it's nice to see that we are getting strong pull-through from our channel partners in this early point of the year, as evidenced, as I mentioned earlier, by a stronger fill rate, if you like, than at this point last year. So it's a case of gradually building confidence, and I think that confidence certainly is building at the moment.

Thanks, Dave. And Ryan, one on the tariff math. I guess for the full year in '25, which was partial because you didn't have 1Q impact, it was a $75 million net impact, and then for 2026, it's an incremental $35 million to $45 million, with the majority of 1Q.

I guess that implies kind of a step-up in that quarterly rate, if I'm thinking about that correctly. I guess is that a function of mix, with Propulsion expected to grow more in 2026 which carries more tariff impact? Just any help there.

Yes. I wish it was really straightforward, Anna. But the upshot is Q1 takes the brunt because there was basically no tariffs in Q1 of last year. And then if you remember, the IEO rates kind of bounced around a little bit, and then we got the 232 incremental impact in August which, impacted the back half of the year only. And then if you remember, there is balance sheet and capitalized variance. There's some kind of accounting math that plays into this as well. And there's some of that impact in Q1.

But really, if you think about it, the first half is going to take all the incremental tariff costs, call it, half to two-thirds of that in the first quarter, which is really that combined with accelerated product spending, which we wanted to do really in the quarter, that can be a $30-ish million number in total.

So if you normalize Q1 just for those two items, you're at an EPS growth of 25%-plus, which looks similar to the rest of the year. So yes, that's the tariff math. It's really the continuation of what happened in '25 with a little bit of accounting treatment roll off given the inventory valuations.

Scott Stember, ROTH Capital.

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

Scott, I'll take this one as well. Yes. I mean if you look at a full year of IEEPA, call it $20 million to $25 million is the impact. And so again, that's a full year impact. You don't know when it would be effective or when it would -- if there'd be a look back and all of the above.

So it would be a material good guy for us, but it's only a portion of the tariffs given all the reciprocal 232 and other impacts that we're facing.

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

Yes. So maybe I'll start a bit further back, Scott. So if you looked in 2019 of what the financing rate would be, it would be in the kind of 5.5% to 6% range. It peaked in '24 at about 10%, and now it's down to about 7.5%. So very material improvements versus peak rates.

Still 150 basis points-ish above kind of pre-pandemic levels. But that is overall still a tailwind versus the last couple of years, certainly. And on top of that, as Ryan mentioned, there are a couple of other tailwinds, include the fact that our price increases over the last couple of years and this year will be pretty modest.

And the trading values are beginning to normalize versus some of the kind of peak prices that people paid in COVID. So they have more equity in their existing product, which is encouraging in terms of the ability to trade up. But yes, I think we've got a couple of tailwinds there.

Xian Siew, BNP Paribas.

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

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

We did see that, obviously, they took some pain on margins in the back half of 2025. So I think we will see a steady march on share, So I think we will see a steady march on share. I do think that will be supercharged in certain segments as we begin to introduce new products. We have a very exciting product plan at the moment, I think. And so I think we see selective gain. Some of that is targeted at what we've come to refer to as ultra-high horsepower.

Some of it is more refresh and upgrade to more mid-horsepower engines as well, which, although not quite as glamorous, do represent high volume for us. So yes, we have a very solid product plan, a lot of products coming to market over the next couple of years. And then I think we'll see this steady march as OEMs continue to move towards us and, in some cases, become exclusive.

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

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

Yes, you're exactly right. Your math is correct. So you know nothing's really changed we even in a tariff impact environment we think we can deliver north of 20% incrementals. That's obviously going to be a little bit higher in Propulsion and P&A and pretty strong in Navaco as well.

I mean, we haven't talked a lot about Navico, but what a great fourth quarter and really year that Navico had, here in '25 and to start '26 just because their product and variable margins are the highest in the company. So, and the vocal groups taking all the right steps to take costs out and deliver on their margin targets as well.

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

Jamie Katz, Morningstar.

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

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

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

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

And I don't throw that out there lightly. I know it's a very kind of topic -- topic of the year. But AI can be a big influence on efficiences in our business and also strongly influence and improve our kind of products and overall go-to-market.

So there's just some spending. But as you know, we offset a lot of that by really laser-focused on operating efficiency. You know about the footprint reduction actions that we're taking software. So we're very balanced. But I think the strong cash flow and through-cycle performance that we have allows us to make investments maybe ahead of where other people might be able to make them.

And this is not just about growth in '26. It's about long-term growth, medium-term growth as well. And we think we are well positioned to achieve that.

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

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

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

We tend to focus on big picture things, but don't overlook the fact that we won the two big awards in the European boat shows early this year. European Powerboat of the Year, Motorboat of the Year. We don't just win because of scale and technology. We win because we have the best products. And we will continue to do that.

And on that note, we'll be introducing quite a few new products at the Miami Boat Show. So I'm excited about that. Please join us if you can. We will be launching and debuting more new products across the businesses than I can remember for quite some time. And I look forward to seeing many of you at that investor and analyst event on February 12. Please make the time. We'd love to see you. Thank you.

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