Good morning, and welcome to the Brunswick Corporation 2017 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections you can disconnect at this time. I would now like to introduce Phillip Haan, Vice President of Investor Relations.

Good morning and thank you for joining us. On the call this morning are Mark Schwabero, Brunswick's Chairman and CEO, and Bill Metzger, 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 the details of 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 reconciliation sections of the consolidated financial statements accompanying today's results. I would now like to turn the call over to Mark.

Thank you, Phil, and good morning, everyone. Today I will focus my remarks on our second quarter results, as well as provide insights into the global marine and fitness markets. Bill will elaborate on our financial performance, including comments pertaining to our segments, as well as P&L and cash flow expectations. I will then wrap up with our current 2017 full-year outlook. So let me start by saying that the marine market is largely performing consistent with our expectations thus far in 2017. Our emphasis on product leadership positions us to capitalize on this growing marine market. Our Fitness business continues to successfully execute against its integration and transformation plans, which in 2017, includes new product introduction, changes to the manufacturing footprint and further cost alignment actions. Benefits from these activities will begin to favorably impact segment growth rates and margin trends in the second half of 2017. So as we look to the remainder of 2017 and assess our business opportunities and risk we believe we are well-positioned to deliver against our plans for the current year and our 2018 target. Second quarter revenue in 2017 increased by 8.8%, with acquisitions contributing approximately two percentage points of growth. On an overall basis, foreign currency had a slight unfavorable impact on our topline comparison. Our topline reflected strong growth rates in all three of our primary boat categories, as well as in our outboard engine and Fitness businesses. Our parts and accessories business also contributed solid growth in the quarter. While our consolidated topline growth remains strong, gross margins in the second quarter declined. The majority of the decline resulted from a number of factors in the Fitness segment, including unfavorable changes in sales mix, along with the impact of non-reoccurring items in the boat segment. Margin performance in the…

Thanks, Mark. For the second quarter, sales in our combined Marine segment and Fitness segment both increased by 9%. From a geographic perspective, consolidated US sales increased by 7%. Sales outside the US on a constant-currency basis increased by 14%. All three segments reported double-digit international growth. By region, sales on a constant currency basis increased by 10% in Europe while Rest of the World sales were up 17%. First half sales in our combined Marine segments and Fitness segment increased by 9% and 8%, respectively. From a geographic perspective, consolidated US sales increased by 7%. Sales outside the US on a constant-currency basis increased by 12%. By region, sales increased by 11% in Europe while Rest of the World sales were up 14%; both on a constant-currency basis. Turning to our Marine Engine segment where second quarter sales increased by 6%. From a geographic perspective, sales in the US were up 5%, reflecting strong growth in outboard engines and slight growth in parts and accessories which was partially offset by declines in sterndrive engines. European sales were up 8% on a constant-currency basis, led by gains in outboard engines and parts and accessories which is further evidence of the success of our strategy to expand the parts and accessories business in this region. Rest of the World sales were up 17% compared to the prior year on a constant-currency basis, 11% excluding acquisitions. Growth was driven by increases in Canada, Asia Pacific and Latin America. On a product category basis, the outboard engine business reported strong sales growth in the quarter. This performance reflects a favorable retail demand environment, particularly for higher horse power engines and continued benefits from share gains in targeted saltwater, repower and commercial markets. Second quarter sterndrive engine sales declined as the demand environment continues…

Thanks, Bill. Our overall operating plans and assumptions for 2017 remain largely consistent with the longer-term assumptions included in the 2018 plan that we communicated at our Investor Day, in November of 2015 and what we reiterated on our April call. We continue to target 2017 to be another year of outstanding earnings growth with excellent cash flow generation and our plan reflects approximately 7% to 8% sales growth which includes the continuation, solid marine market growth in the U.S. and international markets, as well as benefits from the success of our new products and market share gains. The Fitness segment is expected to benefit from overall growth in commercial fitness markets. Completed acquisitions are included in this guidance, and in total, are expected to account for about 1% of the projected growth. Gross margin trends over the second half are expected to improve but will be down for the year. Operating expenses are estimated to increase in 2017 as we continue to fund incremental investments to support our growth. However, on a percentage of sales basis they're expected to be lower than 2016 levels which improved from our April call. These investments are directed toward new products, initiatives that will help us advance our productivity, such as Lean Six Sigma and investments to support our growth plans including information technology. We will continue to see the benefits of these and prior investments as we move through the remainder of 2017 and into 2018. Our plan includes second half investments that are more heavily weighted to the third quarter. Operating margins are anticipated to increase slightly with operating leverage in the mid-teen percentage range. We are narrowing our guidance for the 2017 EPS as adjusted to a range of $4 to $4.10, which raises the bottom of the prior range…

Thank you. We will now begin the question and answer session. And our first question comes from Mike Swartz from SunTrust.

Hey. Good morning, everyone.

Good morning, Mike.

Just, I guess, Mark, help us understand – I think you'd made the comments that the larger fiberglass sterndrive inboard market has gotten softer. You'd called that out in April and you expect that to continue through the rest of the year. However, you are maintaining your full year outlook for the Boat business in terms of revenue. Could you talk about maybe what the offsets are, what's giving you a little more comfort I guess outside of the larger boats?

One of the key ones, Mike, that I mentioned in my comments as well was, we're starting to see some positive things on the international markets. And in fact, as I mentioned on the call, those are a little more positive than we thought in our initial – at the initial plan when we put our guidance together. So it's – in a short version, it's the international market is helping to offset some of that.

Okay. And then maybe, just maybe tying this in, I think you made some comments about pontoon, you're having some production or capacities issues getting product out. Could you maybe give us a sense of how much that's impact wholesale shipments, retail shipments? And then do you expect to get some of that or all of that back in the second half of the year?

Yeah. The – so first of all, I wouldn't call it capacity. We have suppliers that, quite frankly, just are not able to keep up with our demand. And those suppliers have impacted our production schedules. So it's not our capacity, it's more the capacity that exist with the supply base on certain elements of our componentry required there. So that's – it's that piece. Then the other part's obviously is, we introduced – we've talked about before, some of the value line of product, we just got a little more complexity going through the facility as well. So a combination of those two things are really around the pontoons. And in fact you know I would tell you that you know we're getting past those and as I mentioned progress there, we haven't seen order cancellations, we would expect that those orders the dealers had in are consumer orders you know we're filling those now and those will be happening in the second half and with the overall improvements and that moving forward. You know we would expect to see a little higher wholesale rate from our pontoon business in the second half.

Okay, great. And then just a final one maybe for Bill. I think you had called out some costs in the Boat business this quarter that impacted margins, I think you said the warranty and legal costs. Could you maybe -- I think you said it was about 100 basis points did you reserve, I know there was a legal settlement, did you reserve for that prior to the quarter or did that entire expense, I guess, was it taken in the quarter?

I would say that our position there is, is we've taken care of what I would call the litigation and what the costs associated with the trial. But from a verdict perspective, we have not done anything yet.

Okay.

That is something where, I think, publicly, we've stated that we believe that, that is something that's not -- we don't acknowledge the fact that we've got liability there, Mike.

Okay, great. Thank you.

Thank you. Next, we have James Hardiman from Wedbush Securities.

Thanks for taking my call. So Bill, just real quick clarification here. I think it sounds like there were some nonrecurring items in both Boat and Fitness that were still included in your adjusted numbers. I just wanted to make sure that those weren't being adjusted out. Can you just run through whatever was in those two segments, quantify those that were still included in the adjusted numbers, whether it's on a margin basis or I guess, better yet, per share how that impacted your numbers?

Well, I'm not going to necessarily get into the specific per share, but I think you can do the math, James. If you think about the Boat adjustments that I just covered with Michael, that, that's the 100 basis points that are in the as-adjusted number. So 100 basis points of both segment sales is essentially what the dollar amount is that's included in the as-adjusted numbers. And Fitness, we didn't quite get into the granularity, but it's a low single-digit number, between the timing we've got some items that happened in 2016 that were included in the numbers that were favorable and an item in 2017 that was unfavorable. And the net of those is kind of a low single-digit number, digit million number.

And in terms of -- well, I guess, we can do the math on sort of how that impacted margin or do you want to give us that?

Well, I mean if you add the two of them up, James, you're a little north of the $6 million range. $6 million, $7 million, between nonrecurring items based on what we said.

Okay. That's helpful.

Just to do the math for you.

That's helpful.

That's between both the items in the Fitness segment and the items in the Boat segment.

Okay. And then, I guess, bigger picture, as I think about the boat market, whether we look domestically or globally, it looks like retail slowed, if memory serves, retail was up 9% domestically in the US, it was down to, that was first quarter -- it was down 2% in the second quarter. How much of that, I guess, was the pontoons? And as we sit here, year-to-date, 2% domestic, 3% global growth, sounds like you still think we're going to get to the global targets for the year and the domestic targets for the year, both of which, I think, would be higher than that. So I'm assuming that you're penciling in an acceleration in retail in the back half. Could you just sort of walk us through how we should think about that and if it's just sort of the pontoon issue resolving itself that leads to that acceleration?

Well, I will start with, and then Bill can add in, I think there's two things that are changed. I mean, if you take the year-to-date, global's about 3% for us. And the U.S. 2% -- now the pontoon might get that to be comparable kind of numbers. And as I said in my comments, remember that the second half of 2016 was only up 1 point at retail. So even the -- we'll continue to see growth rates, we believe, in the second half. And I think there is also been some commentary out there, probably some impact of weather, and delivery, and certain regional impacts that we still believe our guidance for the year is appropriate when you put all those factors on the table.

James, I point you to the comment that Mark made about some of the regional differences between SSI and outboard registrations. That's tucked back in the appendix is a schedule that lays that out by region. And if you focus on Midwest, Northeast, I think those are two places where we tend to have fairly strong market share positions and places where others have talked about how weather might have impacted timing of activity.

Got it. That's very helpful. And then, lastly, on Fitness, there were a lot of factors that you cited that attributed to the decline in margin in the second quarter. I guess, which of those were unexpected versus how you were thinking about it three months ago? Obviously, the full year guide for that segment you bought down on the margin side. And then can you just speak to that new product that think you announced early June? Did you see any of that benefit in 2Q? And how should I think about the magnitude of that benefit? It's been a really long time since you refreshed that product. Is that a big deal, as I think about the second half?

So to take your first part of the question, there, James. So on the margin side, the things that may have been a little bit of a knot in our plans would've been a little bit heavier impact from sales mix, and one of the non-recurring item in 2017 would've been the two, that would have been the biggest, I'd say, things that we had not contemplated. When you take a look at the – all of the costs and things related to the transformation, the plant, new products, and stuff like that, that was all embedded in our plan and all happened according to how we had planned it. FX is something with their business in Europe and in the UK, we were planning on pretty much in line, maybe a little bit worse than what we would have expected. And then new product benefit, James, that really does not start to meaningfully affect growth rates until Q3, and then Q4 is really when a lot of the refresh and investment happens in the Fitness industry. So as we go throughout the second half of the year, we'll see greater and greater benefit. From a growth rate perspective, I'd say our assumption is that we'll still be playing in the whole guide posts of our long term revenue targets for the business which are more mid to high single digits.

And, if I could just add on, James, to Bill's point, I mean, we're starting to see some of the order trends increasing as people place orders for those later periods. We're getting favorable feedback around that new product and the other part, kind of our mid-cardio line and it had been 13 years. So, again, there's things around that to give impetus to people to consider doing refresh or adding, changing out some of their products. So all those things factored together is part of why we feel the way we do.

That's really helpful. Thanks guys.

Thank you. Next, we have Joseph Spak from RBC Capital Markets.

Thanks for taking the question. I guess just want to understand some of the factors in Boat again. Because if you look on a year-over-year basis your saying shipments plus 2%, FX was pretty neutral, acquisition was 1%, which means price mix was about 9%, and I thought I heard you say selling prices were up about 3%. So it looks like there was a big mix factor, which I'm not sure exactly how that jives with some of your commentary on the different types of boats. So can you just help me walk through that?

Joe, your specific question is, are you...?

What's driving the mix on a year-over-year basis?

Well, if you look in my ASP comments, we had, certainly, some improvements going on from in the fiberglass businesses benefiting from new products. But we also cited the fact on the aluminum side of the house we still saw some orientation towards value. And if I'm sitting here today and I evaluate mix, it might be a little bit positive, but it's not enough to warrant a discussion on a net basis.

Okay. Well, I guess, one more for you, Bill. So a lot of – I guess noise, for lack of a better term on, just steel and what might happen with tariffs. Can you just remind us what your exposure is and maybe also where you buy that steel because I think a lot of it right, from fitness might be Europe, is that the right way to think about that?

Well, first of all, there's very little on the boat, or I should say there's very little on the Marine side.

Right.

So our steel exposure is really on the Fitness side and a fair amount of that is really coming through on the structural components of cardio and otherwise. But I mean, the exposure and the purchasing, most of that stuff is all coming from U.S. sourcing. And it's pretty much tied to whatever the indices and indexes are on that product line. So there's – it's not a significant number. But the other part is the – all of the steel we're buying from an exposure standpoint, the stuff we're buying for strength for our Hungary facility, all that's being sourced in Europe.

Okay.

So the cardio is kind of U.S sourcing and strength is kind of European sourcing.

All right, yeah. That's what I figured. And then one last one, just, I guess, more strategically, we saw Volvo Penta make an acquisition to expand into outboards. I think it's, sort of, a fairly niche offering. But one can imagine that they'll try to build that out, maybe some of their distribution. So can you talk about, sort of, your early views on how you see the competitive dynamic evolving there on the outboard side?

I really don't think it's having any impact. We have not felt the need based upon that activity to change anything within our strategy. And I think if you just – size Seven Marine, basically, they're taking an automotive engine in a horizontal position, and making a high horsepower outboard out of it, which is a very, very small niche with quite frankly fairly some minimal manufacturing investment it needs for the volumes and things they're doing. So there's a lot of things that would have to happen for an expansion there. And given the relative size and scope of Seven Marine, in terms of even customers that goes to and serves, I don't see that it's really threatening or changing our position to-date. That's some idea, Joe. (53:59)

Okay. All right. Thanks for the color.

Thank you. Next, we have Craig Kennison from Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co., Inc.: Hey. Thanks for taking my question. I hopped on a little late, but wondered what was the retail expectation embedded in your Marine guidance for the second half, are you hitting your numbers?

Well, full-year, Craig, on a global basis units, it's 3% to 5%. Craig R. Kennison - Robert W. Baird & Co., Inc.: Got it. And then in terms of boat market share trends, how would you say you're trending year-to-date and what's your outlook for the full year in terms of market share trends?

Yeah. You saw, we had the number in the data. We're probably – I'll say, we probably lost and we called it out, we probably lost a little share on the pontoon side, largely because of the issues, not only I talked about here, but within the answer to Michael Swartz's question. So we probably lost a little bit there, but I feel very comfortable that where we're making the investments and where we – in fact, the markets we're competing in, obviously for instance, if tow sports grows, and we don't have the product in the tow sports, we don't benefit from that relative to our position, relative to the industry's position. Craig, I think probably, the only, where we would cite that we're down probably a little is pontoon, I think the rest of the categories we're quite comfortable we're continuing to make progress and grow our share. Craig R. Kennison - Robert W. Baird & Co., Inc.: And then, just lastly, on the M&A front. Several deals, one was mentioned already on this call, others in the boat market. I mean, the way you look at this market, does it feel a buyer's market or a seller's market, and do you see yourself participating in one way or the other, on the boat side?

Yes. So I think the boat side, it's probably a combination of two things out there. They're either significantly financial distressed, which we probably wouldn't be interested in. There could be other categories that make sense from a platform standpoint or views that we have around growth where if the situation came up, we might have an interest, Craig. But our focus on M&A is really around the marine parts and accessories. We've done the recent acquisition there, there's pipeline of deals and things we're working and looking at there as well. So our focus is largely going to remain on parts and accessories and our Fitness business. And we'd probably only be opportunistic on the boat side, which is kind of how we looked at the Thunder Jet acquisition, Craig. Craig R. Kennison - Robert W. Baird & Co., Inc.: Great. Hey thank you.

Thank you. Next, we have Scott Stember from C.L. King. Scott L. Stember - C.L. King & Associates, Inc.: Good morning, guys.

Good morning. Scott L. Stember - C.L. King & Associates, Inc.: Can you maybe talk about the new line-up of engines? I know that we're talking about 2018 introduction here, but could you maybe just talk about how that's going and what you're thinking about the impact again on the business going forward?

Well, in the short answer to your question, no, we're not going to talk about that. But what I can tell you is, the product development programs and the investments we're making are moving along very nicely; putting the capacity and the investment in, all the things around testing, development, prototyping. We're feeling very, very good about the engine program, and it's part of why we really have some of the optimism that we have about 2018, and our ability to grow our margins in total and particularly even have some more upside over on the engine side. So, it's an exciting program for us and it'll be a new product launch in 2018. Scott L. Stember - C.L. King & Associates, Inc.: Okay. And just last question going back to Boats. You talked about some production cuts and some furloughs and cost cutting. Maybe just talk about the timing of when we would see the benefits coming through? It sounds like it's fourth quarter heading into 2018, if I'm not mistaken.

Yes. And what we've actually -- the first quarter, I'm going to go back just a little bit, Scott. In the first quarter, we largely talked about the fact that we were down a little bit in the big boats because we were doing some model transition on facility. Second quarter, that played out okay but in the third quarter, we're really adjusting, which we think is very prudent is, we're going to take some of the obviously production cuts and reduce our wholesale ability in the second quarter to keep our pipeline -- excuse me, in the third quarter to keep our pipeline really where we think is the right place to have it. So those reductions and furloughs and things are going to obviously be part of, impact our third quarter, but we'll be back to kind of normal, I'll call run rates and stuff in the fourth quarter. Scott L. Stember - C.L. King & Associates, Inc.: Got it. That's all I have. Thank you.

Thank you. And our final question comes from Tim Conder from Wells Fargo Securities.

Good morning, Tim.

Thank you. Hey, good morning, gentlemen. I just wanted follow up a little bit there on the Boat, so again, on the large boats, it's only here in the third quarter. And it appears that in addition to the international that you're more than making that up in the mid-small boats and engines, offsetting that large boat weakness. Anything we're missing in that conclusion?

No, I'd say, we're continuing to be positive about the aluminum fish. And our center console outboard product as well as some of the new SLX, some product in the Sea Ray family. So, between those new products and international that's really what's allowing us to really do, maintain our revenue thoughts while we really dealing what we think is appropriately with the boat inventory.

Okay. And then from a profitability, outboards versus sterndrives, it doesn't sound like you're – that's a favorable mix on the engine side that ongoing secular shift within the industry, correct?

Yes. I think it's even – it's favorable on the engine, but then we also pick up things around Joystick and others at pretty good levels. So the net-net ends up, if you take it all in, the conversion has a positive impact to us.

Okay. And then lastly on the Marine side. You had some warranty in Q1. Was it ongoing related to that, I think it was some large boat warranty issues in Q1, was that ongoing into Q2 or was there another warranty related item?

No. I'd say it was a little more, maybe slightly different item, but it's still a large boat item. And to be real clear, these are not on boats we're building today. As we look back from launch, there's just some things we think it's appropriate to take care of, address, upgrade, deal with, with the customers who have bought that product. And we think it's the right thing to do for our consumers. And we've taken some charges for it accordingly.

Okay. And then last questions here on Fitness. Can you remind us again of your customer mix between clubs, hospitality and government both on a domestic and global basis? And then, your Cybex plans, just maybe update us there, how is that trending overall relative to when you made the acquisition? I think revenues, you'd said before have been a little bit disappointing? But all in, as it relates to the contribution to getting to the bottom line and getting Fitness back to the mid-teens margin here by 2018?

Yes. So let me give you a little sense of -- we're about 90% commercial versus consumer. I'll put it in kind of that category. And then we're about 60% of the business is clubs. But we haven't really gone in and broken out any of the verticals beyond that, Tim. So put it 60%/40% and the comment I'd make, I'd go back to, on the Cybex. I mean, we're beating the synergies as we've said before, we've got some new product platforming things that will happen there, we feel good about in the fourth quarter. The consolidation during the third quarter, we'll see the closing of the Medway facility and we will see then some of the volume benefits to our Owatonna facility as we work through it. But I would just say in simple terms, some of what we're seeing on all the transition, consolidation and mix, it's really our core business it's not Cybex. I'd make sure you understood that. And, it's transitions and things we're doing in the core that we're addressing and dealing and adjusting to.

Okay, okay. Thank you, thank you, Mark and Bill.

Thank you. At this time, we would like to turn the call back to the management team for closing remarks.

All I would say, I appreciate everyone being on the call today. And echo, on behalf of the 14,000 colleagues here at Brunswick. We take quite a bit of pride in what we're able to do and the way we're able to bring new products and technologies and serve our customers. And it's exciting times, and we look forward to another great and record year of performance for the corporation. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. And you may now disconnect.