BRP CEO brushes off concerns over global economy

BRP’s Can-Am Ryker. PHOTO: BRP

VALCOURT, Que. — The possibility of a recession did little to dampen the spirits of BRP Inc.’s CEO, who highlighted encouraging consumer trends as the company raised its financial outlook for 2020 following record second-quarter revenues and a profit boost of 128%.

Jose Boisjoli, chief executive of the maker of Ski-Doo snowmobiles and Sea-Doo watercraft, cited strong consumer spending, low unemployment and a year-over-year uptick in housing starts in the US, where BRP generates a majority of its sales.

“We’re not economists, but this is the thing that we believe is affecting our business. And so far we’re very happy with the state of the economy and the consumer,” Boisjoli told investors on a conference call.

“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.”

Consumers may be showing resilience, but the overall economic picture is weakening. In the US, gross domestic product advanced at a moderate two per cent annual rate in the April-June quarter, down from a 3.1% gain in the first quarter. Other headwinds include higher interest rates at the Federal Reserve, lower US manufacturing output and a tariff war with Beijing.

As it expands into the multi-billion-dollar fishing and pleasure boating market, BRP has slightly increased its exposure to the trade feud between the U.S. and China, where material for some of the company’s boats originates.

Chief financial officer Sebastien Martel said the dent would be small, amounting at most to a $20-million hit over 12 months.

“The whole tariff dispute between the US and China is having a minimal impact on our results,” Martel said.

Earlier this month the company closed a deal to acquire a majority stake in Australia’s largest aluminum boat maker, Telwater Pty. Ltd., the firm’s third push into watercraft over the past year after buying Alumacraft Boat Co. and Manitou Pontoon Boats last summer.

Last quarter, sales of utility vehicles and BRP’s new three-wheeled motorcycle drove profits up to $93.3 million, topping forecasts.

The company increased sales of its Can-Am side-by-side vehicles nearly 30% year over year in its second quarter. Sales of its three-wheeled roadsters jumped more than 100%, propelled by the new Can-Am Ryker. With a starting price of US$8,500, the sporty trike nearly halves the price tag of its older cousin, the Can-Am Spyder, in a bid to attract riders who are younger and more cost-conscious than BRP’s typical three-wheel buyer, whose average age is 59.

Marine product sales lagged, however, with boat and engine sales down between 10% and 20% year over year, which Martel attributed to “unfavourable weather” across the US Upper Midwest.

“We had a more difficult season than we had hoped for. But the marine strategy is a long-term strategy,” Boisjoli added.

Analyst Cameron Doerksen of National Bank of Canada stressed “another solid quarter of industry outperformance” by BRP.

Its North American retail sales rose 14% year over year last quarter compared with industry-wide percentage growth in the mid-single digits.

“Although there are a few signs that demand for powersports products may have softened in recent months – particularly in the marine segment – as we noted previously, we believe BRP shares are already pricing in a slowdown in demand,” Doerksen said in a note to investors.

The buoyant outlook prompted BRP to boost its 2020 financial guidance to between $3.65 and $3.80 earnings per share, up from between $3.55 and $3.75.

The company, based in Valcourt, Que., now predicts revenue for the year to grow between 10% and 13% – totalling up to $5.93 billion – compared with earlier expectations for growth of nine to 13%.

Revenue in the company’s second quarter rose nearly 21% to $1.46 billion from $1.21 billion a year earlier, BRP said.

— with a file from The Associated Press