Undeterred by NAFTA uncertainty, BRP to invest in $100M expansion
CEO says company has ‘no choice but to follow’ plan amid explosive demand
Despite growing uncertainty surrounding contentious NAFTA renegotiations, Bombardier Recreational Products Inc. announced Friday it will spend $100 million over the next two years to expand its global production capacity, including at one of its manufacturing facilities in Mexico.
The investment, which was approved by the recreational vehicle company’s board of directors on Thursday, will be used in part to double side-by-side vehicle production capacity at its Juarez 2 plant in Mexico, as well as to invest in tooling and equipment at the supplier level.
“We cannot manage our business waiting for the government to finalize negotiations,” BRP chief executive José Boisjoli said in an interview. “Right now, we are in a situation where we have more demand for our product than we can produce. We have no choice but to follow our business plan, and make these decisions.”
The investment announcement came as BRP reported a revenue increase of $160.3 million, or 14.8 per cent, to $1.24 billion in the three-month period ending Oct. 31, largely due to increased demand of side-by-side vehicles and earlier shipments of snowmobiles. The Valcourt, Que.-based company also reported a gross profit of $329.4 million, up from $307.2 million at the same time last year, while net income fell $9 million to $77.8 million.
The United States remains BRP’s largest and most crucial market, representing nearly half — $595
million — of the $1.24 billion in revenues recorded last quarter. With three of its eight global manufacturing facilities located in Mexico, BRP’s trade volume between Mexico and the U.S. has increased from $1 billion in 2016 to $1.2 billion this year, said chief financial officer Sébastien Martel in a conference call with analysts.
If NAFTA is terminated, as U.S. President Donald Trump has repeatedly threatened to do, Martel said he expects that BRP would be subject to WTO tariffs in the range of two per cent to 2.5 per cent.
“Obviously it’s not a scenario that we would prefer,” he said, adding that such a tariff could potentially have a $25 million to $30 million impact on the company’s results.
“It’s something that we could manage and that would be addressed through supplier reductions, or increases over to the consumer, or do as we do every year and optimize our business.”
Regardless NAFTA uncertainty, BRP continues to grow. The company’s stock has increased by more than 70 per cent since January.
Boisjoli said he sees further opportunity for BRP to capitalize on the U.S. market, a well as other markets.
“Our six-product line is extremely competitive,” he said. “Because of our product diversification, we can keep growing, even if the economy is not perfect in certain countries.”
National Bank analyst Cameron Doerkson said in a note to clients Friday that the momentum of BRP shares is expected to continue through next year, and that strong economies around the world can help bolster growth going forward. “BRP is seeing particularly strong growth in Latin America (Brazil and Mexico especially), good growth in Asia Pacific (very strong growth in China off a low base) along with stable, but growing markets in North America and Europe, including some recent improvements in Russia,” he wrote.