On Thursday, Brunswick (NYSE:BC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
Access the full call at https://event.choruscall.com/mediaframe/webcast.html?webcastid=XoSenHxr
Summary
Brunswick reported a strong start to 2026 with Q1 net sales increasing by 13% year-over-year, driven by market share gains and strong OEM demand.
The company's adjusted EPS rose by 25% to $0.70, with robust operating leverage offsetting incremental tariff impacts.
Brunswick continued its disciplined capital allocation strategy, repurchasing $20 million in shares and increasing its dividend for the 14th consecutive year.
The company maintained healthy inventory levels, aligning wholesale with retail demand, and saw improvements in dealer sentiment.
Future outlook was cautiously optimistic with guidance reflecting stable market conditions and potential for further share gains, though geopolitical volatility was noted as a concern.
Full Transcript
OPERATOR
Good morning and welcome to Brunswick Corporation's first quarter 2026 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 may disconnect at this time. I would now like to introduce Steven Weiland, Senior Vice President and Deputy CFO, Brunswick Corporation.
Steven Weiland (Senior Vice President and Deputy CFO)
Good morning and thank you for joining us. With me on the call this morning are David Foulke, 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 to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results. I will now turn the call over
David Foulke (Chairman and CEO)
to Dave, thank you, Steve we delivered an excellent start to the year, building on the market recovery in the second half of 2025 with first quarter results significantly ahead of expectations. Despite the dynamic geopolitical and tariff environment, Global and US Boat retail were approximately flat on a unit basis compared to the relatively strong first quarter of last year and premium sales were up. Q1 was the third consecutive quarter of improved relative retail performance, building confidence in our retail forecast for the year as we move into the core selling season in our largest markets. Strong OEM order patterns drove gains for Mercury Marine and Navico Group, while solid boating participation benefited our recurring revenue, parts and accessories, aftermarket and subscription boating businesses. From an inventory perspective, boat and engine pipelines remain healthy, lean and well aligned with demand. Global boat pipelines are down approximately 2000 units versus last year and flat sequentially versus the end of 2025, reflecting our deliberate actions to closely match wholesale with retail. Our overall net sales of $1.4 billion increased 13% year over year, with growth across all segments driven by continued market share gains, strong OEM demand accelerated new product and technology introductions and disciplined operational execution across the enterprise. Our adjusted earnings per share of $0.70 increased 25% versus last year with strong operating leverage from higher sales, more than offsetting the impacts of the tariffs implemented after the first quarter of last year. We continued to execute our disciplined capital allocation strategy, repurchasing $20 million of shares year to date and delivered our 14th consecutive annual dividend increase, underscoring our commitment to returning capital to shareholders while maintaining a strong balance sheet in our core US Market. Product demand and boating participation remain relatively unaffected by the conflict in the Middle east, although the health of the value consumer remains a focus. We have a relatively small direct exposure to Middle east markets but are monitoring trends in Australia, New Zealand and other more exposed markets as oil supply tightens. Our high exposure to the most insulated markets, particularly the US and Canada, which account for more than 70% of total sales, balanced portfolio Lean channel inventories and operational discipline position us strongly to effectively navigate the volatility. Turning to segment performance for the third consecutive quarter, all segments delivered year over year sales growth, operating margin expanded across the portfolio except for Propulsion which absorbed the majority of first quarter incremental tariffs. The strong performance reflected improving retail and wholesale trends, sustained voter participation and disciplined operational execution across the organization. Propulsion sales increased significantly versus last year with Mercury's global and US outboard unit orders increasing more than 15% over the prior year period and record Mercury outboard share at recent boat shows including 60% overall, an 80% on the water share at Miami and 70% share at Palm beach signaling the potential for further high horsepower share gains. Overall R12 share remains steady of 47% with year to date retail share up 200 basis points along with strong wholesale share gains. Our accelerated investments in future high horsepower outboard platforms and all new mid range high volume models will reinforce our long term competitive advantage. Healthy boating participation and continued distribution gains drove higher sales and margin year over year in our engine P and a business with Land 'N' Sea again increasing US distribution share by 150 basis points. Navico Group delivered revenue growth and margin improvement supported by new product launches and operational improvement actions. We introduced the Simrad NSO4 and B&G Zeus SRX multifunction displays at the Miami Boat show, received an Innovation Award for the Lowrance Active Target 2 XL fishfinder and continued to execute Simrad autocaptive implementation plans with a range of OEM customers. Finally, our boat group segment grew sales and margin as wholesale shipments aligned with stable retail. Boat show revenue increased year over year despite weather impacts of some upper Midwest and northern market events. At the Palm Beach Premium Saltwater Show, Boston Whaler and Sea Ray delivered higher unit sales and a substantial 40% revenue increase versus last year. Freedom Boat Club added four new locations in the quarter, increased member trips by 20%, improved same store sales by 10% and earlier this month completed the acquisition of the largest remaining franchise club in the Freedom Network, which serves the Boston and Cape Cod region. Moving on to external conditions Rate cuts enacted late in 2025 are a continuing tailwind for retail and floor plan financing as we enter the peak selling season. While expectations for incremental rate relief have moderated, our forecast does not rely on additional cuts. Fuel prices have risen recently due to geopolitical events but generally remain within historical bounds and we are not experiencing any clearly discernible direct impact on retail or OEM demand or on boating participation in our largest markets. The tariff environment remains dynamic and Ryan will discuss a specific impact to our guidance later on the call. The tariff on Mercury Marine's Japanese competitors remains in place, representing a potential structural advantage for Brunswick. Refunds related to previously paid IPA tariffs are not yet factored into our outlook. Current dealer sentiment is improved overall but still cautious, supported by healthy and fresh inventories and lower pre owned boat supply which supports new boat demand. While incentives remain elevated versus historical norms, they improved approximately 100 basis points last year and we are forecasting further modest improvement in 2026. Looking now at industry retail performance, the latest SSI data for March shows US industry main powerboat retail down approximately 5% year to date. Against this backdrop, SSI reported that Brunswick outperformed the industry. Our global and US internal retail unit sales were approximately flat year over year compared with the relatively strong first quarter of 2025 prior to the impact of tariffs with premium and core again outperforming value. From a pipeline standpoint, conditions remain very healthy. Global boat pipelines are down approximately 2,000 units versus last year, but flat sequentially versus the fourth quarter and benefiting from wholesale to retail alignment consistent with our plan. In addition, our global boat order backlog at the end of the first quarter represented 71% of our second quarter wholesale forecast up 6 percentage points from last year, providing improved near term visibility. Turning to engines, US outboard engine industry grew 6% in the first quarter with Mercury retail units up approximately 11%. With a similar dynamic to boats, US outboard pipelines were down approximately 10% versus last year, but flat sequentially versus the fourth quarter reflecting wholesale to retail matching. Overall, the combination of sustained share gains, disciplined pipeline management and improving wholesale to retail alignment gives us confidence in our outlook for 2026 and supports our expectation for a flat to improving market as we enter the peak boating season. Finally, I want to address the impacts of recent oil price volatility which has been a frequent topic in recent investor discussions. From the boat buyer or boater perspective, historically there has not been a correlation between oil price spikes and boat sales or boating participation. A primary driver of this low correlation is that fuel costs represent a relatively small portion of total boat ownership expense because on an annual basis the typical recreational boat only uses about 20% to 30% of the fuel of a comparable passenger vehicle. From a boat group perspective, exposure to oil linked materials is relatively small, representing a combined 2% of total cost of goods sold and with the relevant materials being under long term supply agreements, our scale and sophistication also enable hedging programs for other key commodities such as aluminum, further reducing exposure to spot price volatility. However, aluminum prices do remain elevated. Diesel prices have, however, impacted boats and other transportation costs and we have implemented some surcharges. I'll now turn the call over to Ryan to discuss our first quarter financial performance and updated guidance.
Ryan Gwillim (CFO)
Thank you Dave and good morning everyone. Brunswick's outstanding first quarter performance came in ahead of expectations with strong sales and earnings growth versus the first quarter of last year. On a consolidated basis, sales were up 13% reflecting improved wholesale and retail trends, continued market share gains in propulsion and several boat categories, strong OEM demand for propulsion components and electronics, favorable changes in foreign currency exchange rates, pricing actions in each segment commencing in the second half of 2025 and solid boating participation driving aftermarket performance. Adjusted operating earnings were up 15% supported by the increased sales, favorable mix, improved absorption and disciplined cost management, more than offsetting the impact of incremental tariffs implemented after the first quarter of last year. Absent the year over year enterprise impact from incremental tariffs. Adjusted operating leverage was approaching 30%, driving adjusted EPS of $0.70 for the quarter. Free cash flow was negative in the first quarter, consistent with seasonal and historical patterns, reflecting higher production levels and working capital investment ahead of the peak selling season compared to the prior year. Free cash flow was down solely due to reinstated variable compensation paid in the quarter. Moving to our segments, Propulsion delivered a very strong start to the year with sales increasing 17% versus the prior year, driven by an improved market, global share gains and strong OEM demand heading into the selling season. Adjusted operating earnings declined year over year solely due to the planned accelerated investments in product development and incremental tariff impact, which slightly more than offset the benefits of higher sales and improved absorption. Absent the incremental tariffs. Pro forma, adjusted operating leverage for propulsion was north of 20% in the quarter even after accounting for the high single digit million dollars of additional product development spend in the quarter moving to engine parts and accessories. This segment once again delivered growth from its aftermarket high margin recurring revenue portfolio with sales up 14% versus the prior year with significant growth across both products and distribution. Healthy early season boating participation even with the recent increase in fuel prices and continued market share gains in our global distribution business drove growth in the quarter. The higher sales and robust adjusted operating leverage at 27% led to a 24% increase in adjusted operating earnings with a 140 basis point improvement in adjusted operating margin. Navico Group had another great quarter transitioning from stability to growth with sales up 7% over prior year and up across all business lines supported by improving OEM demand, steady aftermarket performance and operational efficiency. More importantly, adjusted operating earnings increased 64% with adjusted operating margin expanding 280 basis points reflecting the early benefits of product portfolio optimization, operational improvements and disciplined cost control actions which more than offset incremental tariffs. We often discuss the inherent operating leverage in this high gross margin business, so it's fantastic to see 47% adjusted operating leverage in the quarter. As our actions bear fruit, we continue to see encouraging traction from recent product launches including Simrad NSO4 and BNG Zeus SRX and recognition for innovation with Lowrance Active Target 2XL. While there is still work ahead, the results this quarter reinforce our confidence that Navico Group is on a sustainable path towards improved profitability. Finally, our boat segment also had a strong quarter with sales up 6% over prior year driven by higher wholesale shipments, matching stabilized retail conditions, favorable mix and continued momentum in the business acceleration portfolio. Boat growth was led by our aluminum, fish and pontoon brands while Freedom Boat Club continued to deliver strong increases in members and trips and locations. As mentioned earlier, adjusted operating earnings increased 63% and adjusted operating margin expanded 130 basis points reflecting healthy adjusted operating leverage of 25% primarily driven by the higher sales and favorable mix. Dealer pipelines remain very lean with mostly current model year product well positioning the business heading into the prime retail season. Lastly, I'll discuss our updated outlook for 2026 as we enter the core retail selling season in the U.S. we are encouraged by the stable market conditions and the strength of our first quarter performance. Steady dealer and customer sentiment, exceptionally healthy and lean pipelines, disciplined wholesale to retail alignment and sustained boating participation are sources of confidence as we move through the remainder of 2026. However, while direct sales and operational impacts remain limited, heightened geopolitical volatility has introduced new uncertainties. Earlier, Dave discussed the muted impacts to date caused by fluctuations in interest rates and fuel prices, but we remain cognizant of the potential impact on the health of our consumer, especially outside the US from a prolonged conflict in the Middle East. Finally, the tariff environment remains dynamic and during the quarter IPA tariffs were repealed and replaced with section 122 and more recently section 232 tariffs on steel and aluminum were amended. The net impact of these changes is positive and we now believe our full year incremental net tariff impact will ultimately land near the lower end of our original $35 to $45 million estimate shared at the beginning of the year. Also, as Dave mentioned, refunds related to previously paid IEIPA tariffs are not yet factored into our outlook or recognized in our financial statements. The result is materially unchanged guidance on the sales margin and free cash flow lines, but an increase to adjusted eps guidance to $4 to $4.50 reflecting the lower full year expected incremental net tariff impacts I just discussed, as well as the first quarter overdrive while also factoring in some cautiousness given the current dynamic macroeconomic environment. Overall, we believe our guidance reflects confidence in our operating plan, the resilience of our portfolio and our ability to generate strong financial performance in a flat to slightly up retail environment. I'll now pass it over to Dave for concluding remarks.
David Foulke (Chairman and CEO)
Thanks Ryan. I want to highlight some exciting recent developments in one of our fastest growing businesses, Freedom Boat Club. As you know, Freedom is a profitable, high growth recurring revenue business that continues to expand boating participation by making boating more accessible to a broader demographic. The model drives extensive synergy sales across the Brunswick portfolio including through the purchase of Brunswick boats, Mercury Marine engines, parts and accessories and Navicore Group products, resulting in approximately $300 million of enterprise synergies since the 2019 acquisition. Since the acquisition, we've also grown the location count with from 170 locations to 446 global corporate owned and franchise locations, adding four more locations in the quarter. Last year freedom members made 640,000 trips in the US. Earlier this month we announced the acquisition of the largest remaining franchise club in the Freedom Network serving the Greater Boston and Cape Cod region. This acquisition adds 21 locations to our corporate owned total as well as a strategic maintenance operations center that will drive synergies with other nearby corporate locations. There's also day one accretive to earnings. Innovative new products and advanced technologies are central to Brunswick's long term value creation, differentiation and share gain strategy. And during the quarter we introduced many exciting new products across our portfolio including the all new Sea Ray SLX360 and Boston Whaler Outrage 330 and 290 models with Mercury Power and Navico Group electronics, Simrad's NS04 multifunction display with Neon Android operating system, Mercury's advanced keyless engine start system, an innovative boost over the Air Outboard Performance Upgrade and Flightboard's Race Ultra High Performance model. All these products illustrate our commitment to constantly pushing the boundaries of marine innovation. Finally, I want to highlight the continued recognition our teams and brands are receiving across our Enterprise. Through the first quarter. Brunswick has already secured nearly 50 awards and remains on track to surpass 100 awards again in 2026. This recognition spans product innovation, workplace culture, leadership and corporate reputation and reflects the strength and consistency of our operating model and values. We are appreciative of having received many national awards now for multiple years, but notably for the first time in 2026, Bronze was named to Fast Company's Most Innovative Companies list, reflecting the wide recognition for our industry leading innovation. Thank you again to all our talented Brunswick employees who make this recognition possible. Before we open the line for questions, I want to close by thanking our customers, channel partners, employees and shareholders for their continued strong support. We are also excited to announce our Brunswick Investor Day which will be held on August 11th at Mercury Marines Global Headquarters in Fond du Lac, Wisconsin. The event will include a facility tour on water, product experiences and live Q and A with Brunswick senior leaders. In advance of the event, a pre recorded video strategy presentation will be published to our website. For planning purposes. I kindly ask that you register your interest in attending using the contact information on this slide. Thank you for your attention. We'll now open the line for questions.
OPERATOR
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. The first question is from Craig Kennison from Baird. Please go ahead.
Craig Kennison (Equity Analyst)
Oh good morning. Thank you for taking my question. It really involves Mercury. You continue to pick up market share in a soft market which could lead to record volume and a cyclical recovery and then you also appear to have a winning product cycle and some tariff related tailwinds. So I'm just thinking with all of that in mind, if you could give us an update on your capacity utilization and your ability to handle additional volume if it were to surge and then provide a framework for thinking about incremental margin in that business. Thanks.
David Foulke (Chairman and CEO)
Thanks Craig. Great question. Yeah, Mercury is continuing, as you said, to gain share and really we have fantastic product and what's interesting I think is I think that there was some belief at a point in time, maybe a year or two years ago that some of this share gain was temporary because of supply constraints and other things, but clearly it's not. It's very structural. We have the best product line and as you've heard, we are investing even more in five new outboard platforms from mid range up to new extensions to our high horsepower range. So it is very exciting. We are well capacitated after the investments that we made in 2019, 2020, 2021 to support all of the foreseeable volume. We do not anticipate any major additional investments to be able to support volume certainly in the, in the next year or so. So yeah, we're very excited about that as you heard from Ryan and I'll maybe turn over to him. Mercury is leveraging up very nicely and absent the tariffs I think were Ryan maybe you want to take over with the leverage numbers.
Ryan Gwillim (CFO)
Yeah, I mean we are obviously, you know, we always quote more than 20% operating leverage. Obviously with tariffs that number gets skewed a little bit. But we would have been, you know, approaching a 30% number in the quarter had we not had the tariff impact. And that is, that is not even encompassing the additional spend that Dave mentioned where high single digit million quarter over quarter versus Q1 of 25 to really supercharge those engine programs. Thank you.
OPERATOR
The next question is from James Hardiman from Citi. Please go ahead.
James Hardiman (Equity Analyst)
Hey, good morning. Thanks for taking my questions. So I was wondering if you could maybe walk us through sort of demand trends that you've seen to start the year. Last time you reported it sounded like January was off to a really, really strong start. And I think you guys have spoken to really a continuation of that in February. And so as I think about sort of a flattish first quarter, I think that means that March must have been down. But then maybe speak to what you've seen in April and particularly I think what everybody's just trying to figure out. Obviously you had a war that started right the end of February, beginning of March. I don't know if the narrative is that things sort of maybe slowed down a little bit and have since recovered in April, but you guys have certainly Spoken to stable market conditions, obviously from month to month. That can look pretty different. But maybe could just walk us through trends. Thanks.
David Foulke (Chairman and CEO)
Yeah, thank. Thank you, James. Yeah, I would say, of course monthly volumes are quite a lot different as we go through the year with March volumes being higher than January and February. And I think overall, as we said, we did see some high early volumes in January which have stabilized over the balance of the quarter. Whether there was any real impact of the conflict, it's very difficult for us to determine. But yes, for us, the quarter ended effectively flat, both globally and domestically. I would also note though that we continue to see this trend of premium outperforming value. And so if there was some additional pressure in the quarter or hesitation caused by the conflict, it likely impacted the value buyer more than the premium buyer. As we've gone into April, we are up year over year, month over month, if you like, a month this year over April last year, which is what we would have expected to be honest, given the Memorial Day pause that really happened last year. So yeah, we're encouraged by the start to the second quarter and at the moment that trend seems to be continuing as we look kind of week over week also with continued strength on the premium side particularly. But as you, as you saw, we did see some really good sales on the in our aluminum products as well, particularly our premium aluminum products. So yeah, we're flat. I guess the, I mean, the other thing to note is that SSI data showed some dips in the first couple of months of the year and is now kind of converging more back to a flattish market. I think as more as they report more months and we would expect that to continue.
James Hardiman (Equity Analyst)
Got it. And then one of the things that always stands out and sort of every year it seems like we feel like this can't really continue. But it's the idea that the outboard engine market is again growing faster than the boat market itself. Obviously for a long time some of that was just stern drive to outboard, but the bigger driver just seems to be higher attach rates at this point of, you know, engines per boat. And then obviously on top of that, you guys are gaining share and there's a lot of mix and margin benefits. But maybe speak to that. What do you think continues to drive that outboard industry outperformance? And then in the context of your guide, I don't know if you've spoken to this before, but if we're thinking about sort of a flat plata up slightly boat industry, how are you guys thinking about sort of the outboard industry. And then your, I'm assuming whatever your outboard industry assumption is, you think that Mercury is going to do a little bit better than that, but maybe walk us through how to think about those pieces.
David Foulke (Chairman and CEO)
Yeah. So I think you, James, I think you got a number of the factors in there. The most boats, now almost all recreational boats effectively are powered by outboards and so we're just continuing to get more volume that way and then also multiple engines. And you don't necessarily see offsets in our financials because some of the offsets that are happening are between our 400, 500, 600 horsepower engines and other people's diesel engines. The reality is, you know, there never was a 500 or 600 horsepower outboard alternative and we didn't even sell that many sterndrive gas engines in that power range. Most of the sterndrive gas engines that we would sell would, you know, typically in the 200 to 400 horsepower range, which would be the old GM kind of V8s. So we're grabbing share away from some of the traditional propulsion like diesel engines in the bigger boats. In terms of our momentum, we continue to outperform the market for all the reasons that I've previously discussed. I am really excited about some of the new programs that are coming to market over the next couple of years as well as well, they're not far away which will really extend the whole range outwards and also refresh some of the mid range product. We can't forget that as we move upwards we have to make sure that our mid range product is is completely contemporary and continuing to outperform our competitors. So we're continuing to invest across the product line there. In terms of the overall market, I would say at the moment everything is supporting our kind of flat to slightly up scenario and we would expect more Mercury share gain and a higher outboard attachment rate and more multiple engine products. Since premium is growing faster than value value product tends to be single engine. Premium product is typically or frequently multi engine product. So those are some of the things I think supporting. It's not honestly just. If you think about Mercury's profitability though, it is not just every engine we sell, it's what we sell with it like the controls and rigging and we are just selling more and more sophisticated controls. So you see that part of Mercury's portfolio growing. The more multi engines we sell, the more joysticks we'll have, autocap. Then all of those things increase the going to share a wallet, an attachment rate for sophisticated controls.
Ryan Gwillim (CFO)
The only other thing I'd add, Dave, is given the fact that the larger portion of the boat market now is outboard, as you mentioned, that makes it a larger TAM for repower. So we're seeing more and more repower just because there's more boats to repower over time. So that James, also adds to the maybe acceleration of engine retail versus pure boats. Great point.
James Hardiman (Equity Analyst)
Thank you both.
OPERATOR
The next question is from Chang Su from BNP Paribas. Please go ahead.
Chang Su (Equity Analyst)
Hi, guys. Thanks for the question. Maybe on the slide you kind of mentioned the competitive landscape and other competitors may be having tariffs. I mean, maybe could you elaborate a bit more on where you're seeing the competitive landscape in terms of pricing and offering and how that could kind of evolve and support further share gains? Yeah, I would have to say pricing is pretty muted, I would say, in outboards at the moment. Mercury put in place a 2% price increase at the beginning of this year. Our Japanese competitors are in that range as well. So I think what we're at the moment seeing is essentially pricing constrained by the market and nobody really wanting to take price, even though there is margin pressure, some for us, but even more I think, for our Japanese competitors as the market normalizes over time, you know, we'll see how that goes. But at the moment we're. It's important for us to continue to gain share because of everything we've discussed, plus the attachment rate for P and A that we get over time. So we try and think about this somewhat in the long term. I think it is clear from some of the commentary and announcements last year that the margin pressures are fairly acute amongst some of our competitors. But, you know, they're better to speak to that. Okay, thanks. And then maybe you mentioned the repower market. Just kind of wondering if you could update us a little bit of how big that is for you guys. I think previously it Talked about maybe 20% of engine sales are kind of repower, but it seems like maybe it's growing a bit more. Maybe. Can you talk about repower and where that's going? Thank you.
Diane
Yeah, Diane, I can take that. It's still about 15 to 20% of units sold that, you know, it hasn't changed materially. It does differ by jurisdiction and where you are. There's some markets certainly outside the US which is very high repower, like Australia, New Zealand. So really no changes there. We're just seeing good volume throughout the. Throughout all the channels. Yeah.
David Foulke (Chairman and CEO)
What I would say is our share of reap power is lower than our share of oem. And one of the reasons for that is when you repower, there are more repowers typically in the saltwater markets where corrosion and higher performance tend to take more of a toll on the engines. And that saltwater market is a market that we've really been expanding into only over the last really five, six years or so. So we would expect to have a higher right to win in that market as our OEM share becomes more reflected in the overall ballpark. And then over the next three or five years, we would expect share gains in repower as more of our product comes up to be in the repower cycle of kind of 8 to 10 years.
OPERATOR
The next question is from Anna Glaskin from B. Riley Securities. Please go ahead.
Anna Glaskin (Equity Analyst)
Good morning. Thanks for taking my questions. I guess I'd like to start on the commentary on guidance. You know, on the one hand, lower tariffs and flowing through the 1Q beat while also balancing with the conservative macro. I guess. Could you provide a little bit more perspective on how that's informing the guidance and potentially, if we don't see any disruption, what that could potentially look like for the year? Thanks.
Ryan Gwillim (CFO)
Well, maybe I'll start and then Dave can fill in. So as you know and you know as well, I mean, we are three months into the year and the first quarter is generally the smallest quarter. You know, first and fourth quarter. We had a really nice start to the year, which we're very happy about. And we did get some. A little bit of tariff goodness. Right. So if we looked at the, if I look at the tariff calculation, the Iefa going away and being replaced by 122 was a good guy, but then the changes to 232 were a slight bad guy. What that did was it didn't really take us outside our initial tariff range for the year, but it put us from the high end of the range, where we probably started the year, down to the low end of the range. So. So that Q1 beats a good guy and tariffs is another small good guy. But then we just look at the cautiousness in the consumer and we look at everything that's going on in the world and we're entering our core selling season and, you know, we feel comfortable where we are with guidance. I think if the world stays where it is today and the other shoe doesn't drop, I think we can get to our high end of our range or better. Right. I think our point on guidance was really to move up the bottom end, certainly to take some risk off the table from what we've seen already thus far. But, you know, it's obvious that being a little bit cautious given the world activities is prudent at this stage as we really come into the next two quarters where we make, you know, 55, 60% of our sales and profit for the year. So we tried not to overthink it, but we gave some of the beat through, which includes some of the goodness and tariffs. And the offset was just being thoughtful about what's going on.
Anna Glaskin (Equity Analyst)
Great. Thanks, Ryan. And then on 1Q results, thinking through the upside versus initial expectations on EPS, to what extent were potentially lower tariffs in the quarter contributing to that? Just want to understand the upside versus guide. And were there any expenses that shifted into 2Q? Thanks.
David Foulke (Chairman and CEO)
No, no, not on either. No. I think tariffs came in pretty much spot as we expected. And no, we did not push any expenses out of the quarter. It was basically a straight beat based on improved revenues and really nice, really nice leverage. And you know, obviously we have some additional tariff headwind in Q2 that is informing Q2 guidance. But like Ryan said, we're really, you know, I think this year particularly, we'd rather be in a beat and raise cycle than take everything to the bank.
Ryan Gwillim (CFO)
Yeah, Dave, you brought Q2. Just to be very clear on Q2, the only real disconnect between our guidance and what the street was modeling was the tariff impact. And it's rather material still. If you remember, we said on the January call that Q1 was about 2/3 or 60% of our tariff impact for the year and the remainders in Q2. And that holds true and what it ends up being. And there's a lot of mechanics here, balance sheet and LIFO and cap variances that nobody wants to go talk about on an earnings call. But the upshot is that the first half is a bad guy outside the 35 to 45 range, and the second half is actually a good guy that brings us back down into the range. So if you normalize Q2 just for the anticipated tariff impact, your EPS growth would be very similar to what we delivered in Q1. And so that's why the Q2 guide is just slightly down from what the street anticipated. I think they just hadn't caught up to all the tariff movement yet.
OPERATOR
Thanks, guys. The next question is from Garrick Johnson from Seaport. Please go ahead.
Garrick Johnson (Equity Analyst)
Morning, Garrick.
OPERATOR
Garrick, your line is open. Move on to the next question. Next question is from Joe Altobello. From Raymond James. Please, go ahead.
Joe Altobello (Equity Analyst)
Hey, guys, good morning. First question. Want to ask about the industry outlook, you're still calling for flat to up for the year. And I'm curious, are you assuming any underlying fundamental improvement over the balance of the year or does that just extrapolate current trends and then you're lapping the post liberation date slowdown last spring because you did mention you're not anticipating any
David Foulke (Chairman and CEO)
rate cuts, any additional rate cuts.
Joe Altobello (Equity Analyst)
Yeah, hi Joe. Yeah, I think we certainly are anticipating that at least early Q2 will be up over last year. And that's what we're seeing as we head into the second quarter. We're still, we're also seeing, I think dealers pretty optimistic despite everything that's going on around us. So, and they have their ear to the ground. So we, we were continuing to get good order patterns, show sales were good. And then honestly, you know, the, the back half of the year last year was, was, was okay as well. So we just need to get through Q2, particularly early Q2 with a bit of over performance I think, to realize flat to up market and once again premium is, you know, continues to outperform value. So there are a couple of, there's a bit of stratification inside there. But yeah, I think the environment is pretty good. If you look at the interest rate environment, boat loan rates are still kind of 200 basis points down, maybe a bit more than from that peak, about 7.5%. Our dealers still getting flow through from last year's cuts into their floor plan financing. So that tailwind is definitely, definitely present. And we are also seeing that slightly improved discount environment which is a good indicator of some retail strength. Well, that was sort of my next question, Dave, which was, you know, last year inventories were a little bit heavier across the industry than they are today. And obviously there was a lot of spending behind that. So how much of a benefit do you think you'll get this year from the lower promotional spending? We still think our estimate of about
David Foulke (Chairman and CEO)
40 basis points is a good one and we got about 100 basis point benefit. But even with another 40 basis points, we'll still be a couple of points above historical norms back. If you look back to 2018 or 2019, something like that. Yeah, so there's, there's, you know, good room to, we think we'll, we'll grab some back this year. That's what we're seeing, about 40 basis points. But we still think that there's some room to run in a more normalized market situation as we move forward.
Joe Altobello (Equity Analyst)
Got it, thank you.
OPERATOR
The next question is from Garrick Johnson from Seaport please. Go ahead.
Garrick Johnson (Equity Analyst)
Great. Thanks. I'm back. Hey, I want to dive a little bit deeper into trends in your boat group. Better sales growth in aluminum. We've seen that in the numbers. And then rec was kind of okay. And then down in saltwater. Saltwater has been down for a number of quarters. Can you talk about what's going on within the boat group and the segments there?
David Foulke (Chairman and CEO)
Yeah. Hi, Garrick. Yeah, you know, we're seeing particularly a strength in our Lund brand, which is our premium freshwater brand, which is driving a lot of the increase. We're also seeing really good performance performance with our Harris pontoon boats, which is also outperforming the market in both cases. We have strong premium end of aluminum brands with a lot of recent investment in new products. So good outperformance. If you think of the characteristics of the freshwater markets as well. Typically pretty dedicated to fishing, not a very high leverage of fuel prices, for example, they don't go a long way. They go to a fishing spot and hang out or on a pontoon, something similar. So I think our brands, particularly the premium end of our aluminum brands, are performing very well. As you said, rec fiberglass is up a bit. But I would say, as you know, we rationalized our value portfolio in wrecked fiberglass, so that is really a product of our Searay brand and to some extent on the Van brand being up. Both of those are premium brands. And then in Saltwater, Whaler, which is our premium saltwater brand, is actually up year over year. And the bit of softness that we're seeing is more in the value side of our saltwater. So those are some of the kind of trends behind the trends, if you like.
Garrick Johnson (Equity Analyst)
Great. Thank you, Dave.
OPERATOR
Next question is from Molly Baum from Morgan Stanley. Please go ahead.
Molly Baum (Equity Analyst)
Hi. Thanks for taking our question. My first question, I just wanted to ask a little bit about some of the operational efficiencies that you saw in the quarter, you know, where you're seeing the most room in the business to take cost out. And, you know, if you've seen any benefit from the footprint rationalization on the value side of the boat business, and, you know, if not, when we can expect to see some of that as well. Thank you.
David Foulke (Chairman and CEO)
Yes. Well, I think, you know, the biggest businesses that are experiencing efficiency benefits at the moment from footprint and other sources are Navco Group and Bulk Group. I'll do bulk group first because you mentioned it earlier. The process of rationalizing those facilities is on track, but they're actually a headwind to us from a cost basis. This year will flow through to, I think, more than 10 million of efficiencies next year. So we would expect to see the majority of that then. But we continue to work on consolidating production lines and introducing more operational efficiencies in various ways in the Boat Group, notably a lot of work on, on value engineering across all of our product lines, making sure that what we're putting in the boat is really what consumers want and making sure we deliver it as efficiently as possible. Navico Group continues to rationalize footprint and closed two smaller facilities within the last, I think at the end of the fourth quarter or early this year, so continues to benefit from that and a whole range of other operational efficiencies. We're getting Navico Group now to the point where the footprint is just about right. The investments in new products are coming through strongly with some market share gains, as you saw. And so we're getting, we got that really nice pop in margins which I think we, we believe is sustainable and will continue to grow. So, yeah, I would say Boat Group is proceeding to plan, but we won't get the full benefit this year. We'll get some benefit in the second half of the year. And Navico Group continues on its journey. But we've done an awful lot of work, including in their recent quarters.
Molly Baum (Equity Analyst)
Got it. Thanks so much. And if I could just ask one, follow up, a boilerplate one, can you remind us what level of IEBA tariffs he's actually paid on an annualized basis and if all of those are eligible for refunds, should they get paid out? And that's not included in guidance, but if you do get a payout, if all of those would qualify,
David Foulke (Chairman and CEO)
I think the answer is yes. Yes. So, yes. So we have begun the process of applying for IPA tariff refunds. It's happening in phases. We've made our first applications. The total value of IE for refunds that we now estimate is something like $50 million. And we expect at the moment where we would plan to recognize it as we receive the cash, which we would expect to be some over the balance of this year and some next year.
Molly Baum (Equity Analyst)
Got it. Thanks so much.
OPERATOR
The next question is from Tristan Thomas Martin from BMO Capital Markets. Please go ahead.
Tristan Thomas Martin
Good morning. Just wanted to ask about the value voter. We kind of remove all the macro pressures. What do you think it takes for them to kind of come back to market or is it truly just the macro pressures that are keeping them up?
David Foulke (Chairman and CEO)
Well, I think what we're trying to do is meet them where they want to be met. And I would differentiate between the fishing related boating and general purpose boating. And fishing, as you saw, is actually up. Aluminum boats are up certainly at the, on the premium end, but also pretty strong in the value end. If it's part of your lifestyle, it's. If it's what you do outside work and other things, then you keep doing it and they keep being enthusiastic voters. On the fiberglass side, on the value end, it tends to be more general purpose, runabout type boating. And that's where we think there is a bit more fungibility between people spending on boating and people spending on other leisure alternatives and, or being potentially more pressured with discretionary spending. However, that is where Freedom Boat Club can play a very big role in changing the kind of spending patterns, if you like, for boating. So instead of a large capital outlay, you have a joining fee and, and then monthly dues. And that does give you access to a wide variety of boats. And it's very convenient, which is often what that kind of boater is looking for. They may be not as dedicated to the lifestyle as somebody who goes fishing and maybe just looking for a bit more convenience. So we're trying to meet those boaters with alternatives, but we have obviously taken the step to rationalize our product line in that area and invest more in Freedom Buckload.
Tristan Thomas Martin
Okay. And then just really quick, maybe you could provide an update on kind of
David Foulke (Chairman and CEO)
how you're thinking about normalized boat demand. In the short term. Our expectations remain kind of flat, slightly up market. I think at the, I think we clearly have seen a, what we believe is an inflection. The market is stabilizing. There are so many external factors, just exogenous factors at the moment, that it is very difficult to deconflate everything that's going on. But there appears to be a stabilization versus some of the declines from 2020 through to about 2024. So we're excited about that. We still see this stratification between premium and value. But absent some other major external change, and of course we've been hoping for that for several years now, we don't see any reason why the market can't return to growth as some of the things that are causing people to be a bit more cautious hopefully begin to alleviate. So we would anticipate in subsequent years modest regrowth of the market in the low to mid single digit range.
Ryan Gwillim (CFO)
Maybe I would just add, supported by two other things. One, the used market right now is actually in really good shape. If you've been tracking used Product on gently used product on most dealer lots. It's actually relatively light. And that then supports my second point, which is the value calculation for folks trading up and trading in is actually much improved today than it was a couple of years ago. People have more equity in their boats. If you bought a boat around Covid, you have more equity, you've had more years and your ability to get more for that trade in has improved. And so the dynamics to trade up and trade in has improved, which we believe are getting some folks off the sidelines. So that would continue. And then lastly, I would just offer that even in a very conservative US boat market, we are at half or 60% of replacement value as new boat sales. So we've got a lot of room to run. And that is a part of the calculation that we'll discuss on our investor day in August. Looking forward to it.
Tristan Thomas Martin
Thank you.
OPERATOR
Next question is from Noah Zatzkin from Keybanc Capital Markets. Please go ahead.
Noah Zatzkin (Equity Analyst)
Hi, thanks for taking my questions. Just on the guidance range, you know, what are kind of the, at a high level, the kind of differences between the $4 and the 450, is it fair to say, like the retail environment, expectations are consistent on both ends of the range. And I guess relatedly, could you remind us what sort of shipment tailwind you expect in kind of the flat to up slightly retail environment this year? Thank you.
David Foulke (Chairman and CEO)
Yeah. On the range, I think, you know, Ryan really said it earlier. If no other shoe drops, the top end of the range is, you know, or even, you know, we could do better than that. We're really at the moment trying to, trying to just overlay some caution based on some of the external volatility, which would potentially begin to create some additional caution, not necessarily in the US market, but in some of the markets in which we operate around the world. So that is just an overlay of caution, I think that gets us to the bottom end. Obviously we can link that with specific revenue assumptions from around the world and margin assumptions, but that's really what it is.
Ryan Gwillim (CFO)
And then just on your specific question on balancing retail and wholesale, if you assume a flat boat market, then wholesale is going to be up mid single digits on a unit basis. And that's just to match retail and wholesale, given lower wholesale to start the year last year. And on the engine side, it's actually a little bit greater than that. It's probably up mid to high single digits on units given that engine pipelines continue to be lower, even certainly in high horsepower as well. I mean, we, we took out. We've taken out 10% of 175 horsepower and above pipelines each of the last two years. So the balancing retail to wholesale there is a good dynamic even in a flat market. Thank you.
OPERATOR
This concludes the question and answer session. At this time, we would like to turn the call back over to Dave for some concluding remarks.
David Foulke (Chairman and CEO)
Thank you everyone for your questions. Another very encouraging quarter for us. Solid retail revenue up substantially across all of our businesses. Margin expansion, really good earnings leverage and continued really solid free cash flow. We continue to outperform the market and I think the external environments, I think our business, we're clearly firing on all cylinders now. All of the parts of our businesses are really doing well. So we're very excited about that and excited about both this year and the future in general. Our recurring revenue businesses still are doing great, providing extremely strong earnings and free cash flow. As we have said a couple of times in response to the questions, setting guidance in this environment is a little bit trickier even than normal. But we would prefer to be in a beaten race cycle then take everything to the bank right now, given how early we are in the year. And then finally, please reserve a spot at our investor event in August. We're very excited about it. It will be at our Mercury Marine headquarters in Fond du Lac. You will see all the production of those fantastic engines that are leading the market right now, hear from the leadership team and be able to experience some of our latest products on the water. Thank you very much.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment