Phillip C. Haan - Brunswick Corp. Mark D. Schwabero - Brunswick Corp. William L. Metzger - Brunswick Corp..

Michael A. Swartz - SunTrust Robinson Humphrey, Inc. James Hardiman - Wedbush Securities, Inc. Joseph Spak - RBC Capital Markets LLC Craig R. Kennison - Robert W. Baird & Co., Inc. Scott L. Stember - C.L. King & Associates, Inc. Timothy A. Conder - Wells Fargo Securities LLC.

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 engine segment remains strong. Bill will provide more color on the margins when he reviews the segment performance.

Adjusted pre-tax earnings increased by 8%, while diluted EPS as adjusted of $1.35; that was up $0.16 or 13%. Included in this amount is a $0.02 per share net benefit related to share based compensation activity. Now I will provide a perspective on the U.S. marine market.

Based upon preliminary SSI data for the second quarter, which on average comprises about 45% of the year at retail, the industry volume grew approximately 5%, leading to a year-to-date growth rate of 4%.

Outboard boat demand remains healthy, increasing by approximately 5%, while stern -- while fiberglass sterndrive inboard declined by 9% in the year-to-date period. The fiberglass sterndrive inboard boats, 41 to 65 feet, is a category where we noted weak trends on the first quarter call and those continued and carried over into the second quarter.

This is the place where demand has underperformed versus our initial view of 2017. I'll provide some additional color on this category in my outlook comments for the boat segment. We have also added data on the outboard engine retail activity that is based on NMMA industry reporting.

Outboard demand grew by 7% in the quarter-to-date period, outpacing the growth reported by SSI for the outboard boat categories. This performance includes the continued favorable shift to larger engines and multiple engine applications.

On our first quarter call, we indicated that we believe the Q1 SSI data would be revised higher as more states finish reporting. As the data matured, the SSI data for the first quarter was not revised up significantly.

Internal data such as floor plan lending activity and industry outboard registrations continue to suggest the market is growing at a slightly higher rate than the SSI data suggests. I would also note that we provided some additional color on the SSI data compared to industry outboard registrations by region.

The biggest regional gaps between the two sources are the Midwest and the Northeast. Next, I would like to share some perspective on our retail data for boats based upon our pipeline inventory activity. Our internal boat retail registration in the U.S. boats were down 2% in the quarter and up 2% year-to-date while being up 9% in the first quarter.

Global retail units were relatively flat in Q2 and up 3% year-to-date. On a year-to-date basis the pontoon retail units have declined due in part to production challenges resulting from supply constraints and some model complexity both of which are being addressed and are expected to improve in the second half.

Our 2017 plan continues to assume that U.S. industry unit growth will be similar to 2016 trends which is slightly better than the first half comparisons.

This view is supported by year-to-date trends, including dealer sentiments, strong order levels, new and innovative product offerings across the industry, favorable replacement cycle dynamics as the existing boats age, as well as stable economic conditions and continued strong consumer sentiment.

Also as a reminder, the 2016 retail industry growth based on the SSI data was more first half weighted with a second half growth of 1%. Next, I would like to review with you our current regional marine market perspectives.

Revenue growth in Europe reflected a favorable market environment for the first six months of 2017 and our performance exceeded the market growth rates. The outboard engine and parts and accessories businesses both experienced solid growth.

Our plan reflects growth in European retail boat market for the full year at rates similar to the year-to-date period. We anticipate our marine revenue will continue to grow faster than the market due to ongoing improvements in mix and share gains.

In Canada, the retail and wholesale unit demand in the first six months improved versus the prior year reflecting more favorable economic conditions and a relatively stable exchange rate environment as we anticipated. Our outlook assumes that the demand environment will continue to recover in the second half.

Our outlook for the Asia Pacific region reflects stable retail demand. The engine business continues to pursue targeted share gains in Asia and the Latin American markets through enhancing our distribution and our service presence and capitalizing on our expanded Sea Pro branded commercial engine.

While Latin America markets are showing signs of recovery, the Africa and Middle East markets continue to experience declines. For the past few years the international market dynamics have limited the growth potential of the marine business. Overall, international market demand is exceeding our expectations versus our initial view of 2017.

In summary, our international demand trends have been solid and we expect full year 2017 global unit growth to be in the 3% to 5% range.

Our overall marine revenue growth will continue to outperform the market unit growth rate, reflecting mix improvements, as well as the benefits from recently completed acquisitions in our parts and accessories and boat businesses.

Moving to our Fitness segment, where revenues increased year-to-date by 4% on a constant-currency basis, excluding acquisitions, we had a 6% growth on a comparable basis for the quarter which is in line with our long-term organic growth rates for this business.

Revenue comparisons reflect overall growth in global commercial fitness markets including the value-oriented franchise clubs in the U.S. As we assess the current U.S. market we believe that traditional clubs are slowing investments as they evaluate alternatives in response to some changing exercise preferences.

While this is creating some short-term growth challenges it does not change our long-term positive view of this industry's fundamentals. During the second quarter we experienced improved growth rates in the U.S. and in Europe in comparison to the first quarter.

We anticipate that this trend will continue based upon our current order rates versus historical patterns and the anticipated benefits from new product introductions which will start to impact comparisons in the third quarter.

Other international regions are posting strong growth, led by Asia Pacific, demonstrating the strength of our international distribution capability. As a result of the breadth of our products, our technology, brands, sales capabilities and channel partners, we believe we are uniquely positioned to succeed in this environment.

Our plan assumes that our growth rate will improve in the second half as we continue to introduce extensive new cardio product offerings that will benefit both Life Fitness and Cybex.

In addition to completely new industrial designs, this full line of mid-tier cardio products has upgraded technology features which we believe deliver improved capabilities to club owners. This will be important as they adjust their business models to evolving exercise trends and member needs.

In addition, we've strengthened our sales force and our distribution capabilities and are well-positioned to capitalize on these new product introductions. With that, I'll now turn the call over to Bill for some additional comments on our financial performance..

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 to be affected by the shift to outboards and unfavorable global retail demand trends.

Our share of the sterndrive engine market remains strong and as some of that market transitions to outboard propulsions we believe that our outboard engine portfolio and distribution service channels are well-positioned to capitalize on this transition.

Mercury's parts and accessories businesses delivered solid sales growth during the quarter with most of the increases in international markets. This performance benefited from a recent acquisition and new product launches, as well as the successful execution of our international growth strategy.

In the U.S., challenging weather conditions affected boating activity in some areas which had an impact on sales. Our outlook for the U.S. for the remainder of the year includes growth rates in line with our long-term expectations.

Mercury's operating earnings increased by 7% and operating margins were at 19.3% which was consistent with the strong performance in the prior year quarter. Operating leverage was 20%.

The improvement in operating earnings reflect the benefit from higher sales and improved cost efficiencies partially offset by the unfavorable effects of foreign exchange and planned increases in growth related investments. For the six months, operating margins were 16.9%, which is 40 basis points higher than 2016.

In our Boat segment, second quarter revenues increased by 12% with strong growth in each of our three primary boat categories led by our two fiberglass boat categories. In the U.S., which represented 73% of the segment, sales increased by 12%. We also experienced strong, international growth with Europe up 11% and Rest of the World up 14%.

Global wholesale shipments for the quarter -- second quarter increased 2% and are up 7% year-to-date. Increases in average selling prices added 7% to second quarter growth and 3% in the year-to-date period.

The continued consumer migration to boats with more content and higher horsepower engines continues to provide top line benefits over and above normal price increases.

In the second quarter, the increase was more pronounced as growth in fiberglass categories, including benefits from recently introduced new products outpaced aluminum which continue to have an increase weighting toward value-oriented models.

For the full year our plan anticipates growth in average selling prices slightly below year-to-date growth rates. The Boat segment also benefited from the Thunder Jet acquisition completed last year as well as growth in smaller boat categories not included in our wholesale unit reporting.

Dealer pipeline inventories ended the quarter at 30 weeks of boats on hand measured on a trailing 12-month retail basis which is relatively consistent with the past three years. I would like to note that weeks on hand at the end of the second quarter are lower than the levels for both 2014 and 2015.

We believe that our overall pipeline levels are appropriate, given our growth expectations in various boat categories and markets, as well as dealer sentiment and outlook for the remainder of the retail selling season. For 2017, we are planning for the weeks of inventory on hand at year-end to be consistent with prior year-end levels.

We are also assuming that wholesale and retail unit growth rates will be similar to each other. The Boat segment second quarter operating earnings, as adjusted, increased by $3.2 million when compared to the prior year. Operating margins increased 10 basis points to 6.3%, as adjusted. Operating performance in the quarter benefited from higher sales.

In the fiberglass sterndrive inboard boat business results were affected by unfavorable warranty adjustments related to larger boats and litigation costs. These two items lowered Boat margins in the quarter by approximately 100 basis points.

For the six months, operating margins were 5%, 50 basis points below the prior year, in the year-to-date period, warranty and litigation charges, combined with Brazil operating losses, lowered margins by over 100 basis points. Shifting to our Fitness segment.

On a constant-currency basis sales increased by 10% with four points resulting from acquisitions. Sales in the US benefited from improved commercial demand led by growth in sales to franchise club customers. International sales reflected growth in all international regions particularly in Asia Pacific and contributions from the ICG acquisition.

On an as adjusted basis, operating earnings decreased by $3.7 million and operating margins were at 9.2% which was 240 basis points lower than the prior year.

The decline in these results include the unfavorable margin impact from changes in sales mix, planned costs associated with capacity expansion, new product introductions and manufacturing facility transitions, the net unfavorable impact of non-occurring adjustments in both 2016 and 2017 as well as the unfavorable impacts of foreign exchange.

The non-recurring items related to a favorable resolution of a claim in 2016 and an unfavorable liability adjustment in 2017. Absent the impact of non-recurring adjustments in both years, the change in operating margins in the second quarter would have been better by approximately 100 basis points.

These factors more than offset contributions from higher sales, benefits from the ICG acquisition and cost reduction actions including acquisition synergies. For the six months, operating margins were 9%, 230 basis points lower than last year. Next, I will discuss the impact that foreign currency is having on our performance.

In the second quarter, sales comparisons were negatively affected by less than 1% and operating earnings comparisons were negatively affected by approximately $4 million. Moving to full year 2017, we are expecting a minimal impact on sales and operating earnings with favorable comparisons over the second half of the year.

These estimates for 2017 assume that foreign exchange rates remain consistent with current rates for the remainder of the year. Our year-to-date effective book to tax rate as adjusted was 27.4%. This includes net tax benefits resulting from share-based compensation activity of $7.6 million, $2.3 million of which was recorded in the second quarter.

Excluding these benefits, our as adjusted effective tax rate for the year-to-date period was 30.2%. For the remaining two quarters of the year, we are planning for an effective tax rate of approximately 30%.

Including the share-based compensation tax benefits recorded in the first half, the full year effective tax rate is expected to be approximately 29%, which is reflected in our guidance. Our full year EPS guidance does not include any additional excess tax benefits for the remainder of the year.

We are projecting our cash tax rate to be in the low to mid-teens percent range. Turning to a review of our cash flow statement.

Cash generated by continuing operation activities was $172 million which is $50 million lower than the prior year as benefits from higher earnings were more than offset by higher seasonal working capital usage and increases in cash tax payments. The net increases in our primary working capital accounts totaled $89 million.

The biggest changes included an increase in accounts and notes receivable of $107 million; an increase in inventory of $14 million; the net – or the unfavorable impact of these changes were partially offset by an increase in accrued expenses of $16 million and an increase in accounts payable of $13 million.

The increased working capital used by the business of $52 million versus the prior year reflects less favorable timing of collections and payments which is expected to normalize over the remainder of the year. Year-to-date, 2017 free cash flow was $76 million.

Capital spending was $108 million for the first half which included investments in new products as well as capacity expansions in our Marine and Fitness segments. Capital spending and related payments in 2017 are more heavily weighted to the first half as a result of the timing of certain capacity and product related initiatives.

Let me conclude with comments on certain items that will impact our P&L and cash flow statement for 2017. I will focus my comments on items that have changed. We anticipate slightly lower net interest expense of approximately $25 million and that combined equity earnings and other income will now be more favorable versus 2017.

In addition, our plan reflects diluted shares outstanding of approximately $90.5 million for the full year and an average of $90 million for the remainder of the year. The reduction in average shares outstanding between quarterly periods and years reflect the execution of our share repurchase program.

The guidance metrics we provided on the April call for items impacting the cash flow statement are listed here are unchanged. Our cash flow assumptions continue to project free cash flow in 2017 to be greater than $250 million. We plan to continue to execute against our share repurchase program in 2017.

Repurchase totaled $40 million in the second quarter and $60 million year-to-date. Our outlook reflects repurchases of approximately $100 million for the year. We continue to view share repurchases as an attractive alternative to enhance shareholder returns. I will now turn the call back to Mark to continue our outlook comments..

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 by $.05.

Our third quarter outlook reflects sales growth near the low end of the range of full year guidance with operating margin declines similar to year-to-date performance. The EPS growth rate in the fourth quarter is expected to accelerate with all segments delivering margin improvements.

Turning to our segments, the 2017 plan reflects continued revenue and operating earnings growth in our marine engine segment. Specifically, we're planning for revenue growth for the year to be mid-single digits excluding the impact of future acquisitions.

This includes a stable to slightly improving pricing environment for our higher horsepower engine categories. Our engine segment is expected to continue to deliver sales growth that exceeds the market as we continue to invest in new products and upgrade and expand our manufacturing capability to drive this future growth.

We continue to anticipate operating margin improvement in 2017 and 2018 that outpaces our initial long-term planning estimates. Our continued emphasis on improving cost efficiencies and new product development will enable us to drive incremental operating margin expansion.

We have also made progress toward our strategy to grow our parts and accessories business through acquisitions. On July 20, we announced the signing of a purchase agreement to acquire Lankhorst Taselaar, a European distributor of marine parts and accessories.

This acquisition augments the presence of Mercury's distribution capabilities in the northern European markets and is the most recent example of our strategy to expand the parts and accessories business through acquisitions. Moving to the Boat segment. We're targeting 2017 annual revenue growth in the high single-digit percentage range.

We now anticipate year-over-year operating margin improvements versus the prior year, including benefits from volume, cost-reduction and efficiency improvements which will be partially offset by slight unfavorable mix factors for the year.

This outlook also reflects the impact of non-recurring warranty and legal expenses that Bill referenced earlier in the call. This growth rate continues to anticipate that wholesale demand for large fiberglass sterndrive inboard boats will be down for the full year resulting from our focused efforts to prudently manage inventories.

Our plan includes additional second half declines in large fiberglass sterndrive inboard boats which are more significant in the third quarter. This is in response to the retail demand which has continued to decline and lag our expectation.

We have taken actions to adjust our workforce including recently announced reductions in force and furloughs through a portion of the third quarter. We remain confident in our ability to deliver the operating margins improvements consistent with our 2018 planning which start with – has (33:22) targets of 6% to 7% operating margin.

This confidence is supported by anticipated volume benefits, planned efficiency gained, new product introductions and actions to adjust for the evolving market conditions in certain markets and segments including things such as our previously announced decision to shut down our Brazilian manufacturing operations.

In our Fitness segment, our plan is based upon continued revenue growth and improving operating margin trends in second half of the year. For the full year, including completed acquisitions, we're targeting high single-digit revenue growth with a slight decline in operating margin.

Our third quarter operating earnings are expected to grow slightly and in the fourth quarter we're planning for margins to expand. We have seen greater than expected margin headwinds from changes in the sales mix and other factors that Bill noted in his comment.

Our second half anticipates that these factors will begin to stabilize and that we will see the benefits from the stronger revenue growth, the new product introductions that I referenced earlier, our efficiency initiatives and our cost reduction actions. These factors will have a greater impact on our fourth quarter.

These cost actions include the head count reductions that we announced in April which resulted in annual declines of $7 million mostly benefiting 2017. In addition, we will also start to realize additional cost benefits from our manufacturing capacity initiatives as well as the additional new products that were introduced late in 2017 and 2018.

These cost benefits result from platforming design opportunities and the in-sourcing of components on our new products. As a result of these factors, we expect the Fitness business to close 2017 with nice momentum and to be well-positioned to expand margins in 2018.

We continue to target our operating margins for this business to be consistent with our historical mid-teen levels. I'd like to close now with a reminder of a few of the comments I made in the opening.

With a good portion of the Marine season behind us, we believe that both the domestic and the international marine markets are performing in line with our expectations and that our product leadership will continue to advantage us in the marketplace.

The Fitness business is successfully executing its strategy and is also well positioned to capitalize on growth opportunities and achieve its long-term profit goals. I'm very confident that the management team and our 14,000 dedicated Brunswick colleagues are committed to delivering and executing our growth strategy for 2017 and beyond.

This is another year in which we anticipate meeting our growth targets and we'll end the year well-positioned for 2018. I believe our track record of performance attests to our ability and our focus on performance. And with that, Bill and I would be happy to take your questions..

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..

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%..

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..

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..

Great. Hey thank you..

Thank you. Next, we have Scott Stember from C.L. King..

Good morning, guys..

Good morning..

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..

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..

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..