Brunswick Corporation Q2 FY2026 earnings call

• Overall Financial Performance

  • Consolidated net sales of $1.6 billion, up 8% year-over-year, with four consecutive quarters of year-over-year sales growth across all segments
  • Adjusted EPS of $1.56, up 34% year-over-year; even excluding net IEPA refunds, results were significantly ahead of analyst expectations
  • Generated $278 million in free cash flow in Q2, with year-to-date free cash flow of $161 million ahead of 2025 after adjusting for compensation timing
  • Year-to-date share repurchases totaled $35 million, with plans to retire $160 million or more of debt by year-end to maintain an investment-grade balance sheet and return capital to shareholders
  • Brunswick earned a record 15 Boating Industry Top Product Awards in 2026, on track to exceed 100 total company awards for the fifth consecutive year

• Market and Demand Dynamics

  • Boating participation remains very strong, driving growth in recurring revenue aftermarket, parts, and subscription boating businesses
  • The market is split between resilient stable demand for premium and core boats/engines, and softening demand for value-oriented fiberglass runabout models, which aligns with management's purposeful 2025 rationalization of the value product line
  • Adjusted for value model rationalization, first half U.S. boat retail sales were roughly flat year-over-year; premium fiberglass and core product lines are flat year-to-date, with pressure only on value lines as expected
  • Industry and company inventory pipelines are lean and healthy globally, leaving Brunswick well positioned for wholesale growth if market conditions improve

• Strategic Actions

  • Management is intentionally right-sizing the business for current market conditions, prioritizing higher-margin premium and core segments, which has already delivered ~100 basis points of margin expansion despite some lost revenue from value line rationalization
  • Five new engine platforms are in development, with four launching over the next two years; the company is pursuing new growth opportunities in repower, government, and commercial markets, to be detailed at the August 2026 Investor Day
  • Freedom Boat Club, the company's subscription boating business, continues strong growth, reaching 450 global locations with first half member trips up 13% year-over-year
  • New OEM wins continue, including a finalized first supply agreement with SACSTOR for Simrad Auto Captain, with additional agreements expected soon

1. Propulsion: Sales increased 8% year-over-year. After net IEPA refunds, adjusted operating earnings and margins declined year-over-year due to incremental tariffs, elevated product development spend, and material/labor inflation, offset by higher sales volume, favorable absorption, and IEPA refunds. Margin expansion is expected in the second half of 2026, with full-year margin growth of more than 100 basis points. U.S. 12-month rolling outboard market share was 46%, down slightly from prior year, with robust OEM share and strong double-digit unit order growth internationally, particularly in Asia and Latin America.

2. Engine Parts and Accessories (P&A): Sales grew 9% year-over-year, with 16% growth in higher-margin products. Adjusted operating earnings increased 19% and adjusted operating margin expanded 200 basis points, driven by favorable product mix, operating leverage from higher sales, and a small net IEPA refund benefit. The segment continues to gain distribution share, with 130 basis points of 12-month rolling share growth for Land and Sea, and is collaborating with Navico Group to leverage combined footprint opportunities.

3. Navico Group: Sales grew 7% year-over-year across all business lines and regions, driven by new product demand, OEM wins, pricing actions, and healthy aftermarket demand from strong boating participation. Excluding net IEPA impact, core adjusted operating margin expanded over 250 basis points year-over-year. The segment is on track to meet its full-year target of over 100 basis points of adjusted operating margin growth excluding tariff refund benefits, despite input inflation.

• Full year 2026 revenue guidance is set at $5.7 to $5.8 billion, representing strong growth over 2025
• Adjusted operating margin is expected to be approximately 8%, up 100 basis points year-over-year, overcoming a $40 million impact from incremental new tariffs
• Adjusted EPS guidance is $4.35 to $4.75, representing almost 40% growth at the midpoint, with the new midpoint raised 30 cents to $4.55 from prior guidance
• Free cash flow guidance is increased to more than $400 million, driven by strong earnings, prudent working capital management, and net IEPA refunds
• Expected net IEPA refund benefit for full year 2026 is ~$0.30 adjusted EPS, consisting of $0.20 recognized in Q2 and $0.10 remaining Phase 2 refunds expected in the second half. Potential Phase 4 refunds (estimated to add over $0.20 adjusted EPS if approved) are not included in 2026 guidance
• All segments are expected to expand adjusted operating margin in the second half of 2026, after the first-half weighted incremental tariff impact incurred in the first half of the year

• Prolonged geopolitical conflict in the Middle East and persistent inflation have reduced consumer affordability and sentiment, particularly for value-oriented boat products, leading to softness in that segment of the retail market
• Newly implemented Section 301 tariffs and additional Canadian tariffs are expected to create a $5 million net negative incremental cost impact in 2026, increasing the total expected full-year incremental tariff impact to $40 million
• Inflation for raw materials and components (including memory chips for Navico Group) remains a headwind, with an additional $0.15 adjusted EPS impact from material inflation in the second half of 2026 versus prior guidance
• While overall inventory is healthy, soft demand in the value boat segment could lead to ongoing pressure on that portion of the portfolio
• The timing of future IEPA refund approvals is uncertain, with Phase 4 refund submission windows not yet open, so potential benefits from these refunds cannot be included in current guidance

Q: Can you confirm that the 30 cent adjusted EPS guidance raise is entirely from IEPA refunds, with operational upside offset by new inflation and tariffs, and what is the change to the margin outlook excluding refunds? / A: The $5 million incremental cost from new Section 301 and Canadian tariffs brings the full-year 2026 incremental tariff impact to $40 million, which is embedded in guidance, with the impact concentrated in the first half of the year. Gross total IEPA refunds are expected to be $60 to $70 million, but the net 2026 benefit of $0.30 adjusted EPS already accounts for variable compensation impacts from higher earnings. Only Phase 1 and Phase 2 refunds are included in 2026 guidance; Phase 4 refunds are not yet included as they are not expected to be approved this year. The 20 cent Q2 operational beat (excluding tariffs) flows through to the full year guidance raise, offset by 20 cents of combined macro/tariff risk to leave a net 30 cent increase at the midpoint.

Q: What does the latest demand data show about momentum in the boat market, after a strong start to the year followed by softer demand in Q2? / A: The market continues to split into two segments: premium and core boats (including premium fiberglass, pontoons, and fishing boats) are essentially flat year-to-date and remain very resilient and solid, while value-oriented fiberglass runabouts, where less committed recreational buyers are more sensitive to affordability, continue to see softness. This softness was expected, and it is exactly why management proactively rationalized the value product line and manufacturing footprint last year, sacrificing some revenue to gain 100 basis points of margin, which matched the intended outcome.

Q: What should investors expect for long-term margin power for Brunswick over the next 2-5 years in an improving demand environment, and how should we think about current elevated product development spending for new engine platforms? / A: Full details on long-term margin expectations will be presented at the upcoming Investor Day, but Brunswick has already proven it can grow earnings across varied market conditions. The company has over 20% operating leverage embedded in its plans across all segments. Navico Group, which has the highest variable margins in the portfolio, will continue to drive gross margin expansion, while the recurring revenue P&A business remains consistently strong. Product development spending for the five new engine platforms is $20 to $25 million spread across several quarters, with elevated lumpier spend over the last few quarters that will soften somewhat into 2027, though core product investment will remain a priority to maintain competitive advantage.

Q: Is the 2026 value boat rationalization complete, or will more rationalization spill into 2027? / A: Rationalization will remain a dynamic ongoing process. The value product lines cut in 2026 were the right ones for current market conditions, but management will continue to evaluate the market as it develops. The company is exploring new model architectures and approaches to the value market that could create viable attractive margin opportunities in that segment, and will continue to lean into higher-margin growing parts of the market while rationalizing underperforming lines as needed.