BRP beat earnings expectations in the third quarter despite a dip in dealer orders and renewed trade uncertainty.Christinne Muschi/The Canadian Press
BRP Inc. DOO-T continued to ride out dips and swerves in demand for its powersports vehicles last quarter, beating earnings expectations despite a recent trough in dealer orders and renewed trade uncertainty.
The Valcourt, Que.-based Ski-Doo maker boosted its third-quarter profits by 150 per cent year-over-year to $76.5 million on the back of off-road-vehicles. Its revenue grew 14 per cent to $2.25 billion. And it raised its revenue forecast for the year to $8.3 billion versus earlier projections of $8.15 billion to $8.30 billion.
CEO José Boisjoli acknowledged that anxious consumers are watching their wallets, particularly when it comes to lower-end products, but said he expected demand to pick up, especially if interest rates decrease as expected in the U.S.
“Dealers are obviously always concerned with the macroeconomic. Have we reached the trough? Some speculate that we have,” he told analysts on a conference call Thursday.
“But obviously as we see rates come down ... the level of appetite from dealers is also increasing to take on more inventory.”
The company earns the bulk of its revenue via wholesale orders from its vast network of dealers, though retail purchases are an essential indicator of what they will buy from BRP.
Uncertainty around cross-border trade remains a source of angst at the Quebec-based company, given that roughly 60 per cent of its revenue comes from the United States.
U.S. Trade Representative Jamieson Greer said President Donald Trump could opt to pull out of the U.S.-Canada-Mexico free-trade agreement next year, according to news reports on Thursday – which Boisjoli addressed during the call.
He said the company has been laying out its point of view to industry associations and “some governments” about renewing the trade deal.
“We’re not reacting to news every day, because it will be too painful,” he said, giving a wry chuckle.
All BRP vehicles made in Canada and Mexico are compliant with the North American trade pact, he has said, which allows American buyers to avoid 25-per-cent tariffs.
Maintaining that compliance is key. Most of the inventory sold in the U.S. is made in Mexico – 70 per cent of total production happens south of the Rio Grande – or Canada, where Ski-Doos and some of BRP’s Can-Am three-wheelers roll off the line.
In October, BRP saw record retail sales for that month in side-by-side and all-terrain vehicles, driven by the latest Can-Am Defender, a new generation of side-by-sides with beefed-up shocks and horsepower, Boisjoli said Thursday.
However, overall retail revenue in North America fell 4 per cent amid lower snowmobile sales after finishing the spring with 60 per cent market share.
“This environment will be here for maybe another few quarters, and that obviously impacts the profitability of everybody’s business,” Boisjoli said.
The average household income of BRP customers sits at US$175,000 per year, which insulates the outfit from big drops in sales of pricier vehicles, he added.
“The high-end products are selling well, but the lower-end models – the more entry-level models – traffic is lighter.”
Shares rose nearly seven per cent or $6.77 to $105.42 in late-morning trading on the Toronto Stock Exchange.
On Thursday, BRP reported its normalized earnings for the quarter ended Oct. 31 amounted to $1.59 per diluted share, up from $1.20 per diluted share a year earlier and beating analysts’ expectations of $1.24, according to financial markets firm LSEG Data & Analytics.
The company said it now expects normalized earnings per diluted share to amount to $5, up from earlier projections of $4.25 to $4.75.