Just how long the powersports equipment manufacturer can keep up its sales strength as its biggest market gears down is a key question for the company.Christinne Muschi/The Globe and Mail
BRP Inc. is brushing aside fears of an economic downturn as the maker of Ski-Doo snowmobiles and Sea-Doo watercraft delivered better-than-expected earnings for its latest quarter and raised its financial outlook for the year.
Shares in the Valcourt, Que.-based company jumped 15.5 per cent to close at $46.40, their biggest one-day gain since May.
Just how long the powersports equipment manufacturer can keep up its sales strength as its biggest market gears down is a key question for the company. BRP has now bested analyst earnings expectations for seven consecutive quarters, even as the economy in the United States, which represents about 54 per cent of its overall sales, shows evidence of slowing.
“I’m confident we can continue our momentum,” BRP chief executive José Boisjoli told analysts and investors on a conference call Thursday morning. “Despite talk of an economic slowdown, our industry remains healthy, our dealer traffic is good and we continue to observe strong retail trends in August.”
The data points BRP tracks most closely for its business in the United States, including unemployment and consumer spending, remain robust, Mr. Boisjoli said. Housing starts remain positive, although they are not as strong as they were, he said.
But the U.S. economy appears to be decelerating. Gross domestic product increased at a 2-per-cent annualized rate during the second quarter, the U.S. Commerce Department said Thursday in a revision of earlier numbers. That’s down from a 3.1-per-cent growth rate in the January to March quarter. The economic expansion, now in its 11th year, is under threat from the Trump administration’s year-long trade war with China, which has undercut business investment and manufacturing.
“Our biggest concern surrounds cyclical risk, with North America probably closer to the peak of its economic cycle than the trough,” Morningstar analyst Jaime Katz said. Spending on the kinds of products BRP makes is discretionary and “should be crimped first in the event of a downturn,” she said.
For now, BRP is riding the benefits of a major new product offensive over the past four years, particularly in vehicles sold year-round. While growth remains tepid for seasonal products such as snowmobiles and personal watercraft, the company said it has more than doubled its annual retail sales volume in off-road side-by-side vehicles since it rolled out the Can-Am Defender model in its fiscal 2016 fourth quarter.
Growth in sales of BRP’s year-round products increased 33 per cent, to $735-million, during the latest quarter. Sales of side-by-sides – vehicles where the driver sits beside the passenger instead of in front – fuelled most of the gain, while positive consumer reception to the new Ryker three-wheeler also helped, BRP said.
The company will continue to introduce new side-by-side models and variants as time goes on, but not at the same quick cadence as in the past, Mr. Boisjoli said. “It’s not necessarily a new [vehicle] platform every six months, but you can expect that we will continue to push in the side-by-side industry."
Over all, BRP tallied a net profit of $93.3-million, or $0.96 a share, for the three-month period ending July 31, as revenue climbed 20 per cent to $1.46-billion.
Adjusted earnings before interest, taxes, depreciation and amortization, which the company says provides a better reflection of performance because it excludes non-operational elements such as the impact of foreign-exchange changes on long-term debt, came in at $168-million, a 16-per-cent increase over the same period a year ago. Analysts had predicted adjusted EBITDA of $161-million for the quarter and revenue of $1.35-billion.
BRP is now forecasting revenue growth of at least 10 per cent for the fiscal year, compared with a previous forecast of at least 9 per cent. It expects to generate normalized earnings of between $3.65 and $3.80 a diluted share for the year, up from a previous forecast of between $3.55 and $3.75.
“We believe BRP shares are already pricing in a slowdown in demand,” National Bank of Canada analyst Cameron Doerksen said in a research note Thursday. “We also believe BRP can continue to outperform the broader industry as it executes on its strategy of new vehicle model investment that has led to market share gains."
With a report from Reuters
Nicolas Van Praet