BRP increases snowmobile production amid strong consumer demand

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Ski-Doo and Sea-Doo maker BRP Inc. BRP is defying the novel coronavirus pandemic, increasing its profit forecast and extending its snowmobile production run in response to strong consumer demand.

The Valcourt, Que.-based manufacturer reported much stronger-than-expected third quarter revenues and profits Wednesday and says the surge will continue. Earnings per share excluding special costs and non-recurring items will now be at least $5 and as much as $5.25 for BRP’s current fiscal year, which ends Jan. 31, up 37 per cent from previous projections, the company said. Total revenues should slip 1 per cent to 5 per cent from last year’s $6-billion, but that’s still better than the 5 per cent to 9 per cent decline previously expected.

“Given the increased popularity of our product, we feel fortunate to be where we are during this time of international instability,” BRP chief executive Jose Boisjoli said on a conference call. “It has been an exceptional period and it’s not over yet.”

Mr. Boisjoli is trying to maintain the momentum for BRP, which has resumed factory production at full capacity after government-mandated shutdowns last spring. The company is taking market share from rivals through a steady introduction of new products and attracting new customers, with its internal data showing one-third of sales in its most recent quarter were made to people buying a powersports vehicle for the first time.

Riding a snowmobile or all-terrain vehicle is the ideal activity during a health crisis, the CEO has said. That belief is showing up in the numbers, with BRP’s North American retail sales up 16 per cent year-over-year during the past quarter.

Excluding Sea-Doo products, for which inventory was at an all-time low during the period, retail sales were up 29 per cent compared with a mid-teen percentage gain for the industry as a whole, BRP said. Retail sales also grew 22 per cent in the Asia Pacific region and 16 per cent in Latin America. Only Europe and the Middle East were down, and this is because dealers did not have enough products in stock to sell.

BRP normally builds snowmobiles for several months into December to meet orders placed well in advance by dealers. This year, however, demand is so high the company said Wednesday it will extend production at its Valcourt factory by two weeks until mid-January.

So where are all the new gearheads coming from? Jaime Katz, an equity analyst with Morningstar Research Services, says it amounts to people not having many other options to spend their discretionary dollars in a pandemic. With pursuits such as leisure travel and restaurant dining largely dead, consumers are looking for other ways to have fun and blow off steam. So, people who might have never previously considered buying a BRP powersports vehicle are doing just that.

“[These vehicles] have kind of rolled into favourability given the restrictions that exist around consumer consumption right now,” Ms. Katz said.

BRP believes the strong consumer interest can be sustained. The company is spending about $185-million on a new plant in Mexico that will build side-by-side vehicles, which will increase its production capacity of those products by 50 per cent. Side-by-sides are off-road buggies in which the driver and passenger sit next to one another instead of front and back.

But Ms. Katz says BRP will likely return to more normalized level of sales growth when the coronavirus crisis eases, which will bring back more balanced supply-demand dynamics to the industry. Manufacturers will then be forced to compete in earnest again on pricing and boost promotional incentives.

“Right now, that’s totally dislocated,” she said.

BRP shares climbed as much as 8 per cent to $73.40 in intraday trading on the Toronto Stock Exchange, closing up 3 per cent to $70.24.

The company reported net income of $198.7-million or $2.22 a share for the three months ended Oct. 31 on revenue of $1.67-billion. That compares with a net profit of $135.3-million, or $1.49 a share, on revenue of $1.64-billion for the same period a year ago. Adjusted earnings per share was $2.13, beating the $1.41 analysts expected.

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