Workers on the assembly line making snowmobiles at BRP Inc. in Valcourt, Que. on Oct. 8, 2020.Christinne Muschi/The Globe and Mail
Canadian powersports vehicle maker BRP Inc. DOO-T is stepping up shipments to the United States and suspending its financial forecasts for the year as it deals with a volatile trade picture that’s rattling consumer confidence and hurting sales.
The Valcourt-Que.-based manufacturer, known for its Ski-Doo snowmobiles, Sea-Doo watercraft and Can-Am off-road vehicles, is shipping “every product” destined for the U.S. market immediately from its factories in Canada and Mexico even if dealers aren’t scheduled to take them until weeks from now, chief executive officer José Boisjoli said.
Since U.S. President Donald Trump first threatened to impose tariffs on its trading partners in December, the company has moved as much inventory into the U.S. as it can ahead of any levies, Mr. Boisjoli said. It’s even renting storage and yard space for more capacity, particularly in Texas.
“Our warehouses that we have in the U.S. are always full,” Mr. Boisjoli told analysts on a conference call Wednesday, estimating that BRP has built up one month of inventory across the border in its facilities. “We’re maximizing everything we can for product but also for parts and accessories.”
The stakes would be high for BRP if a trade war were to blow up between the U.S., Canada and Mexico. While the U.S. accounts for 60 per cent of the company’s sales, about 75 per cent of its output is produced in Mexico, with most of the balance produced in Canada and Europe.
Mr. Trump has enacted some tariffs and paused others, vowing a new broadside against Canada on April 2.
The potential escalation has exposed the hazards of concentrating production in one country and laid bare the fragility of a North American trade pact now at the mercy of a president’s political impulses. National Bank of Canada analyst Cameron Doerksen has said BRP is the corporation “most at risk” from tariffs among the transportation and industrial companies he researches.
The Quebec manufacturer is already feeling the pain. Tariffs already in place, including a 25-per-cent levy on steel and aluminum imports, will likely deal a $40-million hit to the company this year as measured by cost of goods sold, said Sébastien Martel, BRP’s chief financial officer.
Confusion about what other levies are to come, together with countermeasures from other countries, is showing up in dealer showrooms, according to BRP. “It’s been choppy” in terms of sales, Mr. Martel said. “With the uncertainty created by all of this, the consumers are holding back.”
Even the lure of cheaper vehicles now – ahead of possible price increases when tariffs are implemented – isn’t swaying buyers, he said. Consumers drawn to BRP’s entry-level models, such as the Sea-Doo Spark, which starts at US$6,999, are pulling back more than those purchasing higher-end vehicles, according to BRP data.
The shifting geopolitical context and trade dynamics have made the company’s operating and demand environment much less predictable, Mr. Martel said. As a result, BRP pulled its financial forecasts for the year, joining several other companies that have done the same in recent weeks.
The corporation has dealt with tariffs before and is used to adjusting operations to the rules, Mr. Boisjoli said.
“What’s difficult this time is the rules are not clear and they’re changing all the time,” he said.
BRP saw a major boost in sales during the pandemic, but softer demand in recent quarters has seen it reduce shipments to protect the brand and better align deliveries with retail sales. Dealers have been hesitant to carry a lot of inventory, and promotions have been increased to help sales.
On Wednesday the company reported a net loss of $44.5-million, or 60 cents a share, for the three months ended Jan. 31, reversing a profit of $302.8-million, or $3.95 a share, the year before. Revenue fell nearly 20 per cent to $2.1-billion. Overall, the results beat analysts’ expectations, as BRP benefited from new model introductions and a cost-cutting effort.
Citi analyst James Hardiman sees BRP in an untenable situation if tariffs increase significantly. U.S. rival Polaris Inc. would also suffer but to a lesser extent, he said.
“Were 25 per cent tariffs on Mexican and Canadian imports to be levied indefinitely (an unlikely but distinct possibility), we believe that both companies would immediately incur significant losses, impacting their long-term prospects,” Mr. Hardiman said in a note to clients.
“Even in the absence of this scenario, however, the weakening of fundamentals in conjunction with the incremental Chinese tariffs is enough to weigh on valuations going forward.”