BRP reaping benefits of diversification plan
Revenues jump to Q2 record of $1.03B largely due to year-round product unit
BRP Inc.’s chief executive says its diversification strategy is paying off after the snowmobile maker reported another solid quarter Friday, posting a $100-million net profit and revenue increase of 20 per cent.
In results from the second quarter ending July 30, the Valcourt, Que.-based company, which makes recreational vehicles including snowmobiles, ATVs, personal watercraft and three-wheeled motorcycles, saw revenues jump from $856.1 million last year to a second quarter record of $1.03 billion.
At the same time, the company increased its net income from a loss of $68.8 million in 2016 to $100 million or 89 cents per diluted share, a boost of $1.50 from a year earlier.
The results were largely driven by solid revenues in the company’s year-round product division, which includes its side-by-side vehicles, ATV and Spyder. Revenues increased by $113.1, or 34.7 per cent, to $439.4 million, and BRP continued to gain market share in the side-by-side vehicle segment, which saw sales increase by 50 per cent in the quarter.
BRP’s seasonal product division also bolstered results, increasing to $318.6 million, a 13.6-per-cent jump from the same time last year.
Chief executive Jose Boisjoli said the company is reaping the benefits of the various strategies it deployed over the last several years to diversify its product line while revamping its manufacturing footprint.
“I think one of the strengths of BRP right now is our product diversification, our geographical sales diversification and manufacturing footprint,” Boisjoli said in an interview. “At the end of the day, product innovation is the base of our strategy, but it is complimented by our diversification.”
Despite the positive results, the company did not significantly boost its end-of-year guidance, a move that Desjardin Capital Market analyst Benoit Poirier said in a note to clients was not a concern but could lead to “a neutral to slightly negative reaction in the market.”
BRP shares hit a high of $43.88 early Friday, but dropped 1.5 per cent to $40.88 around 2:30 p.m. E.T.
“We remain cautious as the global environment continues to be volatile,” said Boisjoli in a conference call with analysts Friday.
“We are keeping an eye on the constantly evolving geopolitical situation, the ongoing NAFTA renegotiations and recent rapid movement in currency. Still, we are confident in our ability to deliver on our guidance as our business fundamentals remain strong.”
Boisjoli shrugged off the ongoing NAFTA renegotiations, saying the company is going to wait to see what happens.
While other Canadian companies are benefiting from the strengthening loonie, BRP said a weakening U.S. dollar has the potential
to be a headwind for their financial results going forward. The company had an $8-million headwind this quarter.
Sébastien Martel, BRP’s chief financial officer, said the company had an $8-million headwind on currency this quarter. “If there was going to be a significant drop of the value of the U.S. dollar, it might put a bit of pressure on our ability to achieve guidance for the end of the year,” Martel said on Friday.
National Bank analyst Cameron Doerksen raised BRP’s stock price target from $45 to $46 Friday, citing positive demand and a valuation that remains reasonable.
“Our positive view is supported by ongoing market share gains by BRP that we expect will sustain growth in the coming quarter,” he said in a note to clients.