BRP Inc. DOO-T has deeply slashed its profit forecast for the year as the Canadian maker of Ski-Doo snowmobiles and Can-Am off-road vehicles grapples with softer consumer demand and heightened competition.
Its shares fell 4.5 per cent to $85.30 in Friday trading on the Toronto Stock Exchange.
Valcourt, Que.-based BRP reported net income of $7.2-million or 9 cents a share for its second quarter ended July 31. On an adjusted basis and not including restructuring costs, it generated normalized diluted earnings of $0.61 a share compared with the $0.35 analysts had predicted. Revenue came in at $1.84-billion, in step with the $1.88-billion analysts expected.
But the company cut its earnings guidance for the full year by 54 per cent, saying it now expects earnings per share to come in between $2.75 and $3.25. That’s down from a previous forecast of $6 to $7. The manufacturer also lowered its revenue forecast for the year to between $7.8-billion and $8-billion, down from $8.6-billion to $8.9-billion.
“Our results were in line with expectations and reflect our ongoing focus on reducing network inventory to maintain our dealer value proposition. We have made great strides on that front, but the retail environment is more challenging with the economic context pressuring consumer demand,” BRP chief executive José Boisjoli said in a statement. “As such, our priority is to continue to proactively manage production and inventory levels, which leads us to revise our year-end guidance.”
Investor sentiment on BRP was quite bearish heading into the results release, with most expecting a guidance cut, Desjardins analyst Benoît Poirier said in a research note. But he said the magnitude of the cut is “significantly worse than expected.”
The revision represents a stunning turn of events in a short period of time. A year ago, expectations for BRP’s earnings per share for fiscal 2025 were about $14. Now they’re barely a quarter of that amount.
“Unfortunately, this extreme volatility could spook investors, resulting in lower valuation multiples,” Stifel analyst Martin Landry said in a note Friday. BRP has had to boost its promotional activity in the face of softer demand and to compete with the discounts rivals are offering, he said.
Powersports vehicles are considered to be highly discretionary and are often the first thing that gets cut when consumers are watching their spending or lose their jobs. As a result, dealers are offering sweeter deals to stoke sales and get inventory out the door.
Sales as measured in individual vehicles fell by high single-digits during the last quarter in North America. BRP’s unit sales were down 18 per cent, suggesting it lost market share.
“We believe that difficult industry conditions could be present next year as well as it may take time for consumer demand to return and for the excess inventory to clear,” Mr. Landry said.
In the United States, the biggest market for powersports vehicles, consumers reported higher optimism and a greater willingness to spend in the third quarter as confidence in their household finances grew, according to McKinsey & Co.’s latest sentiment survey. But the consultancy warned emerging economic indicators could dampen this newfound optimism.
“The next few months may be turbulent,” McKinsey’s ConsumerWise team said in a report published late last month. “Market uncertainty, the upcoming US general election, and ongoing geopolitical conflicts may test US consumers’ faith in the economy.”
BRP is controlled by Bombardier Inc.’s founding family and Bain Capital, which together held roughly 56 per cent of the total voting power as of April this year. Caisse de dépôt et placement du Québec is also a major shareholder.