MAKER OF SKI-DOO MAY NOT COMPLY WITH NAFTA DEAL.
ATVs affected, but penalty deemed minor
MONTREAL•Theheadof recreational products maker
BRP Inc. said it may not comply with Monday’s trade deal between the United States and Mexico, which would up the threshold of auto content to be made in those two countries.
BRP churns out more than $260 million worth of all-terrain vehicles and ATV parts in Mexico that are shipped to the U.S. annually, said president and chief executive Jose Boisjoli.
“In our case, we would not comply,” he told The Canadian Press on Thursday, buoyed by record-high share prices in the wake of BRP’s second-quarter earnings.
Boisjoli qualified that “if worse came to worst,” he would also consider shifting some of the company’s ATV component suppliers from Asia to North America to meet the higher threshold.
The side deal between Canada’s two NAFTA partners would require up to 75 per cent of auto content to be made in the U.S. and Mexico, up from 62.5 per cent. Between 40 and 45 per cent would have to be produced by workers earning at least US$16 an hour.
Breaking the rules would incur a penalty of two per cent on sales of ATVs — about $5 million — the only BRP product to fall under the auto classification.
The maker of Ski-Doos and Sea-Doos generated revenue of $4.5 billion last year with a net income of $274 million, making the penalty a drop in the ocean.
BRP shares hit an all-time high Thursday after the Quebec-based company raised its guidance for a secondconsecutive quarter as revenues surged in the second quarter, driven by higher sales of off-road vehicles and watercraft. The stock price peaked at $74.67 in Toronto and closed up 7.78 per cent at $70.22.
“Many of our customers, because they have a job, they have a roof, they have more disposable income, they’re buying our product,” he said.
“We are gaining market share in every product line we are in. And that’s why we feel quite good about the balance of the year and we’re comfortable increasing our guidance.”
BRP said it now expects its normalized earnings per diluted share for the year to increase 30 to 35 per cent compared with the previous year, up from an earlier prediction of 24 to 30 per cent.
Revenue is now expected to grow 12 to 16 per cent compared with earlier guidance for growth of six to 10 per cent, beating analyst expectations.
Sales of Sea-Doos and side-by-sides — four-wheeldrive off-road vehicles — propelled revenues to a new second-quarter record at the 76-year-old company.
Adjusted profit excluding one-time items was $66.4 million or 66 cents per diluted share, up from $22.9 million or 20 cents per diluted share a year ago.
Desjardins Capital Markets analyst Benoit Poirier said the robust results meant BRP outperformed the industry “in every segment in North America.”
Some of those gains are coming from BRP’s recent acquisitions AlumaCraft Boat Co. and Manitou Pontoon Boats.
Aluminum fishing boats and pontoons — uncharted waters for BRP — comprise more than half of the U.S. boat market, said Boisjoli.