Ryan Gwillim
Thanks, Dave, and good morning everyone.
Brunswick's first quarter results were solidly ahead of expectations, but remained below prior year due to the continued challenging US retail marine market and macroeconomic conditions. Versus the first quarter of 2024, net sales in the quarter were down 11%, with adjusted operating margins of 6%, resulting in an adjusted EPS of $0.56.
First quarter sales were below prior year, as the impact of continued lower wholesale ordering by dealers and OEMs and prudent pipeline management throughout the channel was only partially offset by modest annual price increases and benefits from well-received new products.
Adjusted operating earnings were down versus prior year as a result of the impact of lower sales, lower absorption from decreased production levels, and the negative impact of changes in foreign currency exchange rates, partially offset by new product momentum, annual price increases, and ongoing cost control measures throughout the enterprise.
Lastly, we used $44 million of free cash flow in the quarter, a significant improvement versus Q1 of 2024, and the second best start to a year in over a decade, as Dave stated earlier. Now we'll look at each reporting segment, starting with our propulsion business, which saw a 16% decrease in sales, primarily resulting from continued pipeline management and overall lower wholesale shipments to OEM boat builder customers, which, although below prior year first quarter, were slightly ahead of expectations.
Segment operating earnings were below prior year due to the impact of sales declines and lower absorption, partially offset by cost control measures. Our aftermarket le engine parts and accessories business had another solid quarter, with a 3% decrease in sales versus the same period last year due to slightly lower shipments, but a 7% increase in adjusted operating earnings resulting from the efficient operation of the business and slightly lower cost inflation.
Sales in the product business were down 90%, while the distribution business sales were up 2% compared to prior year. While the segment's adjusted operating margin was seasonally strong at 15%, up more than 100 basis points versus prior year.
Medical Group reported sequentially stronger sales versus fourth quarter 2024 and a slight sales decrease of 1% versus Q1 of 2024, primarily driven by reduced sales to marine and RV OEMs, resulting from lower customer OEM production levels, mostly offset by strong aftermarket sales and new product momentum.
Like operating earnings decreased due to the lower sales. Navico continues its progress with new product introductions with the successful recent launches of the Eagle and Elite FS multi-function displays, together with the recontrolling motor, leading to share gains in the fishing segment.
Finally, our Boat business reported a 13% decrease in sales resulting from anticipated cost of wholesale ordering patterns by dealers, which was only partially offset by the favorable impact of modest model year price increases. Freedom Boat Club had another strong quarter, contributing approximately 11% of segment sales, including the benefits from recent acquisitions. Segment operating earnings were within expectations as the impact of net sales declines and lower absorption from the reduced production was partially offset by pricing and continued cost control.
Next, I want to provide additional information on our anticipated tariff impact for 2025 should the current tariff rates continue for the remainder of the year. This slide shows the approximate percentage of COGS affected by tariffs currently enforced, along with our anticipated 2025 net tariff impact for each category after planned mitigation measures are considered.
The largest tariff impact relates to China, and while only approximately 5% of our COGS could represent $75 to $100 million of tariff expenses due to the current 145% tariff rate on supply from China and China tariffs on US imports. These incremental tariffs are in addition to the approximately $30 million of section 301 tariffs that were included in our initial guidance for the year.
We continue to make strides in lowering our dependency on the China supply chain and are working with our Chinese supply partners on cost sharing and other mitigation efforts. Mexico and Canada supply accounts for approximately 15% of US COGS, but most of the supplies from these two countries are imported under the USMCA, meaning that our tariff exposure here is small, assuming the continued USMCA exemption.
Finally, there are other smaller tariffs on rest of world imports. Not included in this analysis or other impacts or potential impacts, both positive and negative to the enterprise, including potential retaliatory tariffs from the EU and Canada on US manufactured boats and possibly engines and parts.
There are some boats imported into the US by our European OEM partners that use Mercury engines and parts. Mercury engine competitors, which are paying tariffs on the importation of engines from Japan or other non-US manufacturing locations.
And maybe most importantly, the disruption of the capital markets and the corresponding impact on our consumer during this critical point in the retail voting season. As everyone is aware, this is an extremely dynamic situation, and the entire Brunswick team is committed to minimizing the overall impact that tariffs ultimately have on our enterprise.
My last slide shows our updated for your guidance, taking into account the uncertainties that we have been discussing. Earlier, Dave walked through the components of our adjusted EPS range of $2.50 to $4 which is driven by anticipated revenue of between $5 million and $5.4 billion. We are strongly focused on cash generation and believe we can still reach or exceed our initial guidance of $350 million of free cash flow for the year.
We anticipate the Q2 market conditions looking similar to Q1, with sequentially stronger revenue and earnings driven by the annual seasonality of our businesses.
Lastly, while we still believe a flat US retail boat market is achievable for full year 2025, our guidance contemplates potential volume impacts resulting from the tariff environment and general uncertainty in the macroeconomy and its anticipated impact on our consumer, which we believe could result in both unit sales being slightly down versus 2024, with weakness primarily related to value product.
I will now pass the call back today for concluding remarks.
David Foulkes
Thanks, Ryan. As we wrap up, I want to highlight some of the key product launches and events from the first quarter, as well as some of the notable awards we've received so far this year.
During the 2025 Miami Boat Show, Simrad launched the all-new NSS 4 multi-function display. The latest premium chartplotter and fishfinders in the Simrad portfolio, which for the first time, allows anglers to track 4 sonar sources on a single display. One had a very busy start to the year with the January launch of the 185 Impact GL and an all new heavy gauge product line on the way.
In February, Ryan and I were able to attend the annual Freedom Forum, another successful gathering of our outstanding Freedom Boat Club franchise partners and corporate team. We all have the opportunity to experience the power of being part of the Brunswick family and celebrate freedom's continued growth and success.
Light launched the all-new Series 5 flight board with a highly efficient light jet 2 propulsion system in Miami, hosting a media event and on water demos featuring their full product lineup. While the Bayliner C21 had its European launch at the Dusseldorf boat show and was very well received by its international channel partners.
Lastly, Navan C30 and S30 models had a strong boat show season following their North American introduction late in 2024, with sales at multiple shows already in 2025. They've also been very well received as a premium option at a select number of Freedom Book Club locations.
Finally, we've continued our rapid pace of awards in the quarter for our people, products, and commitment to innovation, and are on pace to eclipse 100 awards again in 2025. In the quarter, we won a pair of Newsweek awards, including being named to the list of the most trustworthy companies in America for the third consecutive year.
Brunswick ranked in the Top 10 companies within the manufacturing and industrial equipment category. Also for the first time, Brunswick was named to Newsweek's list of America's greatest workplaces for women, and two of our outstanding female leaders were selected as women make winners, the highest honor for women in manufacturing, from the National Association of Manufacturing.
Our product awards continued in the first quarter, with the flight board team winning a pair of red dot awards, one of the world's most prestigious design awards. And Princecraft winning its first ever National Marine Manufacturers Association innovation award at the Minneapolis boat show. We also expect to be able to announce a number of additional product awards in the near future.
Finally, Boating Industry magazine announced its [202,540] under 40 list, recognizing six emerging leaders from Brunswick Corporation of Freedom Boat Club, among the industry's top young professionals.
Congratulations to all the winners. Despite the continued external headwinds, we never take our eye off the importance of making Brunswick one of the most exciting and rewarding places to work.
That's the end of our prepared remarks. We'll now turn it back over to the operator for questions.
Operator
Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions)
Mike Swartz, Truist Securities.
Mike Swartz
Hey guys, good morning. There was a lot of numbers and scenarios thrown out in terms of the guidance update for '25, but maybe Ryan, Dave at a high level, could you help us just understand what's embedded at the at the lower end and maybe what's embedded at the higher end of your outlook for the year?
Ryan Gwillim
Yeah, good morning, Mike. I'll take a stand and then Dave can fill in.
It's pretty straightforward. I think the high end of the range would anticipate a couple of things. It would probably be a moderation a bit of the tariff environment and or combination of us being able to continue to mitigate the cost better than anticipated, which by the way, we're, I think we're as an enterprise doing the best we can and really been on this since day one on mitigation exercises.
So, that would, if the tariff environment moderated a bit, I think you would have an argument that the volume degradation that's in the bridge there could be lessened or even go away. So it's kind of that simple on the high end on the low end for the opposite, right, it's the tariff environment that it goes to the far end of our range that we should apply, and the volume does.
So we see the decline in volumes of the year, and you know maybe there's not the best benefit, that we've shown, so it's kind of all those things on the chart so pretty negative versus on the top end.
Just a little bit of relief.
Mike Swartz
Okay, that's helpful and just with the tariff outlook of the mitigation efforts, I would assume that's only is that only half year I mean if we are annualizing that would you anticipate another $100 million next year? I'm just trying to think through how that works?
Ryan Gwillim
Yeah, we lost you there in the middle of the question a little bit, but I think I have the question right about a full year annualized you.
Mike Swartz
No, I would say, well, obviously what's on the sly, the flight is a 2025 impact right year started but it does assume that be as they are today.
Ryan Gwillim
Including an extremely high China rate, which is our biggest impact. However, if you go to, you're going to have a lot more ability to mitigate and a lot more time to do that, Mike, and I think we've shown the ability to be very thoughtful and quick in mitigation. You would also have some of the benefits from tariffs paid in '25 that would actually not show up until '26, and that would include duty to drawback and substitution, primarily at Mercury.
[The accounting], there's a bit of a delay on when we pay them, and when incurred, and then when we are able to do some of the mitigation drawbacks or substitution and some of that timing would benefit a future year. So, it's really hard for me to give you an exact number, but I am confident it would be lower than just an annualized full year '25.
Mike Swartz
Okay, perfect. Thank you for that.
Operator
James Hardiman, City.
James Hardiman
Hey, good morning, and maybe just a quick follow up on that last point, Ryan, if we were to think about 100 to $125 million of net impact this year, what's the gross number, i.e., how much are you assuming you're able to mitigate away?
Ryan Gwillim
Yeah, it's hard to give that number. I mean you can take the COGS that we've given you on the slide and multiply it by the rates, but there, there's so much that goes in there, James, including, as I said, the timing of when the tariff comes in.
It's obviously we're mitigating a good amount, I would say, the gross number is probably not double that, but it's somewhere south of it. But again, with all the moving pieces on how you have to account for it and actually pay it versus incur it's just not as simple as a as a cost calculation that that you'd want to make.
James Hardiman
Got it and then.
Let's talk about Q2 and then sort of what's implied for the second half of the year. Certainly, the Q2 guidance came in pretty materially beneath the street. What's driving that? And I guess it's part of that question, if we think about tariffs, how much of that 100 to 125 is in Q2.
And what are you assuming for inventory? Normally Q2 is an inventory drawdown quarter? Is that going to be more aggressive this year? Just trying to be through a second half guidance assumes material growth year-over-year despite a bunch of tariffs in there. How realistic of an expectation that will really?
Ryan Gwillim
Alright, thanks, James. A couple of several questions in there. I'll try to respond.
Help as well, so I will say first on Q2, yes, there is a tariff impact. Obviously, the way you have to account for anticipated full year tariff impact would include capitalizing the cost that you anticipate for the full year. As incurred, so there is, there's a portion of that tariff impact that is in Q2. There, there's probably a little bit of conservatism there in terms of the sales figure. You saw the volume drop on our bridge.
I think we would anticipate that starting in the second quarter, it's an important quarter for retail, it's an important quarter for wholesale, and if there's still uncertainty in the tariff environment and in the macros, I think you could see that come through in the second quarter. But also, it also could, it could be a little bit of a delay.
The other thing, FS is kind of a good guy for us in the quarter and there's probably some mix in there as well, with a little bit more sales to P&A, so a lot of back and forth between what you kind of what we saw in Q1 and what we'd anticipate in Q2.
The last thing I'd mention, and you can correct me if I left anything out, for inventory, we do still plan on an inventory reduction through the year. One of the big drivers of our cash flow success in the quarter is inventory and working capital usage being down.
So we are keen on keeping inventory to match our production. And should there be volume reductions needed in the back half because of, sales, pressure, we will, and have shown the ability to ensure that we put the brakes on inventory coming in.
David Foulkes
Yeah, I would just, James that there might be, I think there might be an implication in there that we had some sales pull ahead into Q1, which has been the case in some other industries like automotive, for example, but we really didn't. We had negligible sales pull ahead into Q1, and really we did embed the quite a bit of the revenue.
Uncertainty in that bridge into Q2 just because of the extremely dynamic environment which we think I, driving more hesitancy and uncertainty at the moment versus what will hopefully be a bit more of a certain environment in the in the back half of the year. So, there's plenty of opportunity for us to do better in that second quarter if things stabilize.
James Hardiman
I guess ultimately my question, if you don't mind just sort of following up and maybe distilling my question a little bit better as I think about the second half, you've got earnings up year-over-year. Obviously, a big tailwind is that you were reducing inventory in the back half of last year, right? So that was a big negative a year ago.
This year you're going to have significant tariff exposure. Are we, as we work through our models is the assumption that, the good guy is bigger than the bad guy as we work through all of that math, particularly given an uncertain consumer environment.
Ryan Gwillim
Yeah, James, that's a good point. And yeah, that's a good point. I think you're really talking about pipeline inventories and a little bit more than our inventory, in which case, yeah, remember that we, Mercury took their production down the second half dramatically, more than 50% even in Fond du Lac and our high horsepower and both did something similar.
So we've done a really nice job of lowering production and lowering the pipelines in advance. What we anticipated was going to be a strong 2025 and actually was actually a good start to the year. I think even on balance the good outweighs the bad as we look to the second half, even in even in a tear impact environment.
David Foulkes
Yeah, I think the only one of the main components of that is we were operating in a very inefficient way in the back half of last year. Our production lines were not optimized. We had too many people because we're all we're kind of always kind of trailing, trying to get people optimized for production rates. Mercury is, as Ryan said, was running, essentially every other week.
So we should be operating much more efficiently in this environment in the back half of the year. And that'll come through on the absorption line too, James. That that's a big, the year-over-year production swings look much more favorable in the back half, even in tariff impacted environment.
James Hardiman
Got it. Thanks Dave, tanks, Ryan.
Operator
Craig Kennison, Baird.
Craig Kennison
Hey, good morning. Thanks for taking my question. The press release mentions plan to streamline entry-level boats. I'm wondering if you could shed more light on those plans and maybe even comment on which categories or brands might be impacted.
David Foulkes
Yes, thank you, Craig, very much. Yeah, we already are essentially in process at a kind of model-by-model level. Obviously, as we showed in the slide deck, the entry level really is the most impacted, at least in our portfolio at the moment, which, tends to correlate to the more economically sensitive.
Consumer, I would say, and as we've seen these successive declines in volume. If we were anticipating a year of, increasing volumes in that segment, then we could maybe tolerate those lower gross margins for a while, but, given the current environment, it seems appropriate to take action in that segment.
So the first thing you'll see is really reducing the number of models that we continue to offer in that category. I would say, broadly, probably fiberglass value is weaker than aluminium value at the moment. Every model that you continue really, carries the cost of, not just the immediate cost of kind of lower gross margin, if you like, but also the requirement for future investment to develop new models or enhanced models or, model year changes.
And as we think about where we prioritize our investments, we clearly would like to prioritize it in the areas with the highest margins for us and the biggest growth opportunities. So, we'll be working on that. We're certainly studying additional ways to make sure that we optimize manufacturing in that area.
One of the things I would just point out though is, a lot of the margins on those products are relatively small for the Boat Group. Of course, there are margins that flow through to Mercury and Navico Group. All those boats, carry Mercury engines, so we have to think, holistically as we're doing this to make sure we don't.
We don't compromise Mercury share, for example, as we take those actions, but you should expect to see, more detail on those as we go through the year and firm up the direction.
Craig Kennison
Should we think of those as more tactical decisions to reduce the number of models you have within a brand, or are you making more strategic decisions with respect to some of your brands or some of the bulk categories themselves?
David Foulkes
Yeah, I would.
I wouldn't say that we're making any strategic decisions at a brand level, but I would say that we're studying, options that would have long-term, cost benefits to us, not just short term technical, opportunities.
Craig Kennison
Great. Thank you.
Operator
Megan Clapp with Morgan Stanley.
Megan Clapp
Hi, good morning. Thanks so much.
I wanted to ask, I think Ryan, you talked a lot about impacts that could impact the guide that aren't included in your analysis today, one of which was the disruption of capital markets. I wanted to ask, premiums held up very nicely.
Over the last couple of years and I think you said was flat in 1Q, but anything you're seeing or hearing from dealers kind of month to date in April as it relates to discernible impacts from that consumer in particular, just as we've seen more stock market volatility.
David Foulkes
Yeah, maybe I'll start and Ryan can follow up.
I would say our premium brand seems to be in a pretty decent spot overall, I would say that there's been If you look, it's always difficult to segment our brands exactly, cause even our premium brands have small models for Boston Whaler has a 16 ft super sport.
So I think what we're seeing at the moment is it tends to be smaller product like less than 100,000 that we might see a bit of weakness in. And then I think some of the very large product categories that we don't really participate in.
So fundamentally, I think our brands are in pretty good shape, but certainly, the stock market is, going to have a fairly it could be concerning for a whole broad range of consumers. I think we're feeling okay at the moment.
So, yeah, I think we're in a good position relative to others in the marketplace with our products. But yeah, that certainly could be some short-term hesitancy. I would say that, both buyers, particularly in that premium segment, are not just holding up well now, they've held up well for a number of years in the face of quite a few headwinds.
So they're a very resilient consumer. They tend to be very, Engaged in the water lifestyle, so we continue to expect them to be pretty resilient, even in the face of the current uncertainty, but, everybody's impacted, right?
Ryan Gwillim
And if maybe you translate that into wholesale, this is where the very lean pipelines, especially at Whaler, Cray, some of the premium Van products, really helps us, our Q2 wholesale for those products is already kind of in the books if you would.
So, retail, whether it slows for a temporary period or doesn't, still our dealers are feeling the need to take product just because their boats per rooftop, if you would, are still extremely lean and that's a result of all the activity we did at the end of last year.
David Foulkes
Yeah, I would maybe another. The component here is, you're right that the capital market, turmoil is certainly a headwind. I would say a bit of a tailwind for our brands, particularly the premium brands and core brands, but really all of them, is that they're produced domestically, and most of them carry Mercury engines that are produced domestically.
So versus some of the imported brands, we are not, we're in a, beneficial tariff environment at a boat level anyway, so I think as, dealers look at where to place their bets in terms of, wholesale orders, we're probably in a preferred position at the moment, which to some extent, mitigates some of the other headwinds.
Megan Clapp
Okay, that's helpful and maybe just to follow up on propulsion, it seems like just looking in the appendix that by segment that is where the bulk of the at least bottom line cut is coming from, which presumably I think that's because you're importing components from China, but correct me if I'm wrong, but how do you think about again I think Ryan, another factor you mentioned was the potential for, I think what would be a tail end given some competitors are importing from importing the full engine from other countries?
So I guess how do you kind of think about that potential tailwind today? Is that anything you're seeing or hearing yet from OEMs and you know when could that potentially play out?
David Foulkes
Yeah, thanks, Megan, and you're correct on the first piece, Mercury is the recipient, if you would, on a majority of our tariff impact and also the tariff impact on their sales into China, which are actually not immaterial given that they sell engines and parts into China at 125% retaliatory, those are going to be very challenged.
But yes, I, one of the potential benefits is the non-US engine manufacturers paying tariffs on the importation of their, on their engines to the United States, all the way back to 2017, this has been a pretty sore subject around Mercury as, many of us use similar Chinese supply chains and have for a number of years. Some of our competitors take those same components, go to their facilities in Japan, manufacture the engine, and sell the engine into the United States with zero tariff.
We take the same components, sell it, send them to the United States, use all of the United States labor and up in Fond du Lac, make those products here in the United States, but we pay tariffs on the importation of those exact same components.
And so yeah, that there's certainly a benefit there if the non-US engine manufacturers continue to have a tariff inbound. I don't know if we've seen any of that benefit yet. I think there's a whole lot of people that are just being cautious and looking at each other right now and keeping their inventories steady until they see where it's ultimately going to land, but that is one where I think that would be a pretty nice advantage for Mercury moving forward.
Craig Kennison
Okay, great, super helpful thank you.
Operator
[Yanu with BMP Paraba].
Hi guys, thanks for the question.
You mentioned the mittigants. Can you maybe give us a little bit more color on what the mitigation actions would be in terms of mitiggans against tariffs? Is it pricing? Is it moving sourcing, and how confident are you to realize the mittigants?
Ryan Gwillim
Yeah, thank you for the question. Yeah, it's, the things that you just, mentioned certainly are, well, maybe we'll start with pricing. We have some ability to take, price, but we have to be very careful about how we do it. For example, we are not intending for Mercury to take a big pricing, this year despite the tariff impact. It's just not an environment where we can introduce additional pricing and not affect volume or market share and other things, but we can do it selectively on some.
On some product lines and certainly internationally we have a little bit more freedom to do that, we certainly are continuing to migrate our supply base, either to other to lower tariff, international locations or to onshore it. We've been doing that for a long time, and we have plans to reduce our China source components very substantially, and that is well in flight.
Just making sure that we can do it with quality. It can't happen instantaneously. We need to make sure that we do it well, but those actions are very important to us. The other thing, to be honest, is just how you classify components. The HTS that harmonized tariff schedule components, you know have the HTS codes have incurred differential tariffs in some instances.
For example, making sure that the products that we manufacture components that we manufacture in Mexico and Canada are appropriately classified for USMCA. So, there's quite a lot of work in making sure that we appropriately classify all our components to minimize the tariff exposure.
I would say all of this was really and has been in flight for a long time. This is not, stuff that we suddenly had to action, or at least most of it is stuff that we didn't have to suddenly action. Recently, our exposure to China back in 2017 was much larger, and we could easily see our exposure to China reducing by, 50% by the end of this year. So, we have a lot of actions like that in flight.
That's super helpful and then maybe just on inventory at a pipeline I think you mentioned you you're hoping to reduce that over the course of the year. Could you maybe give us a sense of like where you hope to end in terms of weeks on hand for pipeline?
Ryan Gwillim
Yeah, I mean weeks on hand obviously is a function of what you anticipate retail being. I maybe in terms of units, I think we still think we'll take for a full year, we'll take 1,000, another 1,000 units out globally, which will get you, down another week or two. In the US, probably something similar, maybe a little less, maybe, 500 units or so, and that would land you really in the mid-30s, kind of comfortably where we've been historically and that's with a kind of assuming TTM that's still negative.
So, smart there and then maybe in the end, I know we don't talk about it as much, but even on the engine side, it's very likely that we'll take a significant engines out of the pipeline for the full year, which will, if you look at kind of a three or four year curve, kind of put us back to where we started almost coming out of the GFC with pipelines really about as lean as they've been certainly since we started the all the efforts on the 150 horsepower and above and taking all the market share.
So again, setting ourselves up for some nice wholesale benefits as we think the market eventually picks back up.
Great, thanks. Good luck.
Operator
Scott Stember, [Ross] MKM Partners.
Scott Stember
Good morning and thanks for taking my questions.
Hey Scott, good morning.
Can we talk about boating participation? It looks like, at least through the quarter through your, engine P&A sales that that it held up pretty good, but have you heard anything or from Freedom Boat Club or just through any other marina, data that for whatever reason since April 2nd that we've seen that slow down at all?
Ryan Gwillim
Oh hey Scott, no, it's the answer. I think, you know the exact phrasing of P&A sales, like, I hate to bring this up, but weather is important. So this year, the northern lake kind of ice off is about three weeks behind.
So we should see actually some, I think check-up in P&A sales as we get into April and May that might have been delayed from earlier parts of the year. And we are not seeing any material change in overall voting participation.
And freedom trips are actually very steady year-over-year. They're essentially flat, and that's with a relatively poor weather, respectfully and respectively and respectfully and respectively in in Florida, which is the busiest traffic state of freedom certainly this time of year.
Scott Stember
Got it.
And then just last question also in April, any signs of any tightening of lending from lenders or credit deterioration on the behalf of the consumer?
Ryan Gwillim
No, it's actually, both, kind of retail financing rates have been holding very steady, around 8% maybe a little bit less than that for larger loans if you have decent credit, so the spread to the mortgage rate is actually narrowed.
And interestingly, it's been 8% for several months now, we have not seen any change in that, it's also potential buyers can also get discounted rates. There are a number of a number of OEMs and other opportunities for getting discounted financing rates. I don't think that's haven't seen any deterioration in that, nor in credit quality.
And maybe on the wholesale side, I'd say the same thing, dealers came out of their curtailment holiday in late winter early spring and dealer health continues to be very strong. So, we're not seeing any degradation on dealer finance side as well.
Scott Stember
Got it. That's all I have. Thank you.
Operator
Joe Altobello, Raymond James.
Joe Altobello
Thanks. Hey guys, good morning. First question, I want to go back to the $0.75 reduction, to your EPS guidance owing to software volumes, and I apologize if I missed this, but does that assume demand trends here in April remain constant? Does it assume it gets better or worse in the second half?
David Foulkes
Yeah, I mean it's hard to put an exact time frame on it, Joe, but just think of it. It's our view on approximately 5% sales decline off of our original projection, right? So, $5 billion plus $0.75 with our variable margin looks like $250 million of sales.
As we said earlier, I think we in our minds think that that could be a little heavier in the second quarter as we know we're dealing with the tariff environment today. It could get better in the second half, but it would probably be an impact that would be felt throughout the year should the current macros continue.
Ryan Gwillim
Yeah, I would also say. So that the 5% it's really a revenue, but we, you should, that shouldn't be conflated with a boat unit sales number, I mean we could tolerate, boat unit sales in the, entry level brands deteriorating much more significantly than 5%.
Given the fact that, 60% of our earnings is coming from recurring revenue sources, and we expect P&A to hold up a lot better. So, I would say that 5% is, pretty aggressive in terms of an assumption. It could be unit sales down more than that.
David Foulkes
Right, that's a good point and worth reiterating that that chart anticipates or presupposes that the tariff environment lasts the whole year. So, the volume is a direct result. The volume reduction is a direct result of the tariff environment, pain that is on our end use customer. If that abates in any way, then, those things are very much interrelated.
Joe Altobello
Okay, perfect. And maybe just to follow up the outlook for share of purchases, I think it's still $80 million. You talked about that being the floor potentially given where the stock is today, any thoughts to upping that at some point?
Ryan Gwillim
Yeah, we'll see, Joe. Obviously, we're balancing a lot of things here, with our capital strategy, obviously debt and dividends, which are in pretty good shape. And then share purchases we obviously would like to be aggressive given where our stock prices. But we also want to make sure that we're, generating and using cash in the best way as possible.
And again, maybe just to reiterate, we had our second best cash quarter in really since the GFC, whether it's on the record or in a decade. Our records go back a long way, but our company was very different as far as, once you go too far back.
But we're in a situation where cash position today as we're on this call, we are now free cash flow positive for the year. The first time I certainly I've been able to say that as CFO and certainly it's something we've been working hard on. So this is about as early of cash generation as we've done.
So should that continue, that'll give us a good chance to be aggressive on shares and maybe even take another swing at some of the debt reduction work that we started last year.
Joe Altobello
Got it. Thank you.
Operator
Jaime Katz, Morningstar.
Jaime Katz
Hey, good morning. I just have one, quick one. It was mentioned in the prepared remarks that retail traffic was steady and that when the right incentives were working, there was some conversion on units. So, is there any insight that you guys have into what is working best for consumers right now? Is it rate buy downs or pricing promos or is there something else that might be noteworthy?
David Foulkes
Yeah, thank you. I think, to be honest, that the cash back is the thing that has the most persistent, consistent appeal. I think, there are opportunities for consumers to get, kind of portfolio benefits from cash off, plus in some cases, discounted, financing rates, but I would say that, the basics continue to probably work the best.
I would say though, your question raises something, and that is that we are being more targeted right now with our promotions and discounts. So, we are operating, particularly in the entry level, and it might be costing us a bit of volume there. We're operating with about a point lower of kind of aggregate promotions and discounts than we did last year.
So, we do have an opportunity to dial it up a bit more if we really need to, but at the moment, we're really trying to balance kind of volume and profitability. This is still a, promotional environment, but and the basics still work the best.
Operator
At this time, we would like to turn the call back today for some concluding remarks.
David Foulkes
Well, thanks everyone.
For your questions, so much appreciated. I think, as we noted, the resilient composition of our portfolio drives very strong earnings and cash flow generation for us, which is extremely welcome and certainly differentiates our business.
Our exceptional team also continues to execute extremely well, and we are focusing on all the levers we can control as you saw. Beyond that, we continue to pursue the initiatives that will yield growth and margin expansion and balance sheet strength in the future.
Despite the unique challenges at the moment, we elected to provide refreshed guidance in a form that we hope will be useful to our investors as they assess and react to the current environment and model future changes. So, we're a transparent company, and we wanted to share, the best of what we know at the moment.
Thank you very much.
Operator
This will conclude today's conference. Let me disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
