The Can-Am Spyder is assembled at BRP manufacturing facilities in Valcourt, Que. BRP does almost all its production at factories in Mexico and Canada and its biggest market is the U.S.Christinne Muschi/The Canadian Press
Auto industry veteran Denis Le Vot had just taken over the wheel of BRP Inc. in February when the Canadian Ski-Doo and Sea-Doo maker was blindsided by new changes to U.S. import tariffs it warned could take a $500-million bite out of its business.
Now, Mr. Le Vot, who has more than 20 years of international experience with Renault, is betting he can slash costs enough to steer through the turmoil.
Mr. Le Vot and his executive team announced Thursday they’ve restored their financial forecast after yanking it in mid-April over U.S. tariff changes. Valcourt, Que.-based BRP said they’re working to soften the impact of the levies with about $200-million worth of mitigation measures, chiefly by cutting overhead expenses such as employee travel and speeding up previously planned efficiency initiatives.
The good news? Demand for BRP’s products is holding up even with higher gasoline prices and the company continues to take market share from rivals in off-roaders, prompting an increase in its annual revenue estimates. Preorders for next season’s snowmobile models, for example, are up 50 per cent over last year.
The bad? Adjusted earnings for the year could be roughly half of the amount previously forecasted. And with talks looming on the United States-Mexico-Canada Agreement, the trade picture is as blurry as ever, making it impossible for BRP to plot and approve any major changes to its operating strategy and manufacturing footprint if that becomes necessary.
“The quarter was marked by a significant shift in the North American tariff landscape,” Mr. Le Vot told analysts on a first quarter conference call Thursday, adding BRP teams moved quickly to find ways to offset the impact from the changes. “Looking ahead, we are focused on navigating these headwinds while also protecting our long-term growth prospects.”
The comments show the extent to which BRP is confident that it has enough levers to pull to stay profitable and maintain its industry-leading position in many product segments, including snowmobiles and all-terrain vehicles, against stiff competition from Polaris Inc. and other rivals. The company isn’t planning any layoffs to its 17,000-strong work force, isn’t touching investments in product development, and isn’t making any major changes to U.S. pricing, its officials said.
The U.S. market makes up about 60 per cent of BRP’s global sales.
But the tariffs also offer a stark reminder that the manufacturer, like many others in Canada, remains exposed to the trade policy whims of the White House. And without a permanent lock on the rules of engagement that a renegotiated trade deal with the U.S. might offer, companies are left trying to prepare for a range of scenarios from the best case to the nightmarish.
BRP’s executive team now expects the company to generate normalized earnings before interest, taxes, depreciation and amortization of $925-million to $975-million this fiscal year, compared to a previous forecast at the end of March of between $1.18-billion to $1.28-billion. Adjusted earnings per share should come in at between $3 and $3.50 for the year, compared to an earlier forecast of between $5.50 and $6.50.
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Revenue should increase to between $9.13-billion and $9.38-billion, compared to the March estimate of $8.9-billion to $9.15-billion, the company said.
The $200-million in mitigation measures is the right level to protect the long-term growth of the business under the current tariff environment, BRP chief financial officer Sébastien Martel said on the call. He said the company might take other steps as things evolve, including shifting production to other plants or opening new sites.
“The munitions we have are well known, well understood, and well controlled by us,” Mr. Martel said. “Once we need to pull the trigger, we’ll put them in execution. But my view is I don’t want to commit hundreds of millions of capital until we know what these rules are.”
Mr. Le Vot was barely into his third month as BRP’s chief executive when U.S. President Donald Trump signed a proclamation in early April amending Section 232 import tariffs on finished products made with steel, aluminum and copper. The new rule amendments from April impose a 25-per-cent tariff on the entire value of the finished good that contains any of the three metals whereas previously, the duty was 50 per cent on the value of the metal itself that was used in the product.
The change hit BRP soon after, resulting in a 25-per-cent levy on the total value of BRP-made snowmobiles sold into the U.S. and affecting the majority of its offroad vehicle models sold into the country. The company does almost all its production at factories in Mexico and Canada.
BRP suspended its financial forecast in mid-April, warning it faces a potential hit to its business of at least $500-million for the remainder of the year from the changes. The company subsequently lost more than one-third of its stock-market value, but the shares have been inching up since.
There are some positive elements to Thursday’s announcement, but BRP “still faces significant impact from the Section 232 tariff changes that fundamentally changes the near-term profitability profile for the company,” National Bank analyst Cameron Doerksen said in a note. The looming renegotiation of the USMCA also remains a potential risk for the company, he said.
BRP reported net income of $127-million or $1.73 a share on revenue of $2.34-billion for its latest quarter ended April 30. On an adjusted basis, EBITDA came in $334.4-million and earnings were $1.83 a share, ahead of analyst estimates.