June 24th, 2024

BRP slashes production as cooler Ski-Doo demand drives down revenue

By Christopher Reynolds, The Canadian Press on May 31, 2024.

BRP Inc. reported a first-quarter loss as revenues fell compared with a year earlier, saying it would lower production to reduce network inventory amid current macroeconomic challenges. A BRP logo is shown at the research and innovation plant is seen in Valcourt, Que., Friday, November 9, 2012.THE CANADIAN PRESS/Graham Hughes

BRP Inc. said it will further cut production this year after sagging demand for Ski-Doos pushed the powersport company to its first quarterly loss since 2017.

Chief executive José Boisjoli said “unfavourable” conditions last season – the warmest winter on record in Canada and the United States – hurt retail sales, with unsold Ski-Doos accounting for nearly half of the buildup in overall stock at its dealers.

“Our dealers are very cautious with respect to inventory as uncertain economic conditions and high interest rates are impacting them more than anticipated,” Boisjoli said on a conference call with investors on Friday.

“Obviously these one-time headwinds are certainly impacting our financials this year,” he said, highlighting steep discounts at competitors as well as high interest rates – new snowmobiles cost between $8,500 and $22,000, making financing essential for most buyers.

The softer sales and price reductions at BRP resulted in a 16 per cent year-over-year revenue drop to $2.03 billion in the quarter ended April 30,marking a tough comedown from COVID-19 highs.

It also prompted BRP to slash production by 15 to 20 per cent for the coming year, versus earlier plans for 10 to 15 per cent.

The Sea-Doo maker announced a more modest financial forecast as well. It now projects full-year revenue of $8.6 billion to $8.9 billion compared with a previous prediction of $9.1 billion to $9.5 billion. The figures stand in contrast with record revenue of $10.37 billion last year, when production increased to meet the tail end of soaring pandemic demand for powersports products.

This year’s production ramp-down will erase as much as $775 million from the company’s projected income statement, the chief executive said. That total would amount to eight per cent of last year’s revenue.

Revenue from seasonal products alone, which account for more than a quarter of sales, could fall by up to 28 per cent this year, more than the drop suffered last quarter thanks toits snowmobile segment.

BRP shares fell by $5.40 or almost six per cent to close at $85.26 on the Toronto Stock Exchange on Friday.

Retail sales of side-by-side and all-terrain vehicles rose substantially, but revenues for the broader year-round category fell 13 per cent, the company said.

As for Sea-Doos, purchase trends can be tough to predict, Boisjoli said.

“The big retail season for watercraft is May, June, July. And the watercraft customer, it’s an impulse buy,” he said. “It can go very fast up or down depending on the weather.

“We have good momentum in Canada, softer in the U.S.,” the CEO said, but added that “it’s too early to call.”

However, BRP’s marine segment – its smallest – which sells Manitou pontoons and Alumacraft and Quintrex boats, may take longer than expected to turn a profit.

“It’s a drag on earnings … that’s unacceptable,” Boisjoli said, projecting that it could take a year to right that portion of the ship.

Analyst Cameron Doerksen said market conditions for powersports will likely remain soft through the year.

“We cannot discount the possibility that BRP’s guidance may need to be trimmed further,” he said in a note to investors.

While this fiscal year will see “trough earnings for the company,” the following year should yield better results after dealer inventories have been “reset.”

On a normalized basis, BRP forecast that adjusted earnings will hit between $1.2 million and $1.3 million this year versus earlier guidance of $1.4 million to $1.5 million.

The Valcourt, Que.-based company reported a net loss of $7.4 million for its first quarter, down from a profit of $154.5 million a year earlier.

BRP reported normalized earnings of 95 cents per diluted share in its latest quarter compared with a normalized profit of $2.38 per diluted share a year earlier.

This report by The Canadian Press was first published May 31, 2024.

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