Workers assemble Ski-Doos at the BRP facility in Valcourt, Que., in May.Graham Hughes/JOBFlocks
BRP Inc. DOO-T, the maker of Ski-Doo snowmobiles and Can-Am off-road vehicles, said the impact of U.S. tariffs will be less painful than it initially expected as it boosted its financial forecast for the year.
Valcourt, Que.-based BRP is cutting back on employee travel and taking other steps to mitigate the tariff impact. It’s also being helped by a shift in market trends touching the off-road models used by farmers and other blue-collar workers, some of which receive more favourable import tax treatment than others.
The company is vowing to keep pushing out new and innovative products in a bid to build market share and drive long-term growth.
BRP expects the manufacturer will take a $200-million net hit from U.S. tariffs this fiscal year and $225-million next year, the company’s executives said in comments with a revised financial guidance on Thursday. That’s far less than the $500-million headwind they had initially calculated for the balance of the year this past spring – a warning that prompted a 30 per cent drop in BRP’s stock price.
“Our team’s ability to manage the business in this volatile geopolitical and macroeconomic environment, combined with our solid performance in off-road vehicles and overall strong execution, reinforce our confidence in the outlook,” BRP chief executive Denis Le Vot told analysts on a call.
The more optimistic tone from BRP’s top leadership suggests that while increased trade uncertainty between the U.S. and Canada threatens business investment and economic growth, some companies are finding paths to profitability. It also shows that the tariff picture for an individual company can change once it digs into the fine print.
Mr. Le Vot was barely into his third month as BRP’s chief executive when U.S. President Donald Trump amended Section 232 import tariffs on finished products made with steel, aluminum and copper in early April. The new rules impose a 25-per-cent tariff on the entire value of the finished good that contains any of the three metals whereas previously, the duty was 50 per cent on the value of the metal itself that was used in the product.
The change hit BRP soon after. The company does almost all its production at factories in Mexico and Canada, while the U.S. market makes up about 60 per cent of its global sales.
BRP suspended its financial forecast in mid-April, warning its business could take a hit of at least $500-million for the remainder of the year. It reinstated the forecast a month later with its first quarter report, saying it was working to soften the impact of the U.S. levies with about $200-million worth of mitigation measures.
The company is cutting overhead and speeding up previously planned efficiency initiatives, while preparing more drastic measures if needed. It hasn’t announced any layoffs and hasn’t touched investments in research and development.
Now, BRP is hiking guidance as it adapts to the tariffs. It expects adjusted profit per share of between $4 and $4.50 for the full year, up from the previous estimate in May of $3 to $3.50. And it expects a slight increase in revenue from previous forecasts that ranged between $9.13-billion and $9.38-billion to between $9.23-billion and $9.48-billion.
What’s changed since May? For one, the Section 232 tariff changes have actually resulted in a decline in levies affecting BRP’s all-terrain vehicles, which have gone from 25 per cent to 15 per cent, chief financial officer Sébastien Martel told analysts. Second, some new off-road models that BRP is rolling out, specifically certain side-by-side utility vehicles that are growing in popularity, are not subject to Section 232 tariffs.
Demand is also holding up, even with higher gasoline prices. Retail sales in North America climbed 1 per cent during the most recent quarter. The gains were higher in some other areas of the world, including an 8 per cent increase in the Asia Pacific region.
National Bank analyst Cameron Doerksen said in a research note: “Although the company still faces tariff headwinds to earnings in the coming quarters, we are more positive on management’s ability to continue to work down the tariff cost impact.” BRP should be able to make more product changes in the coming two years that will lead to more models becoming exempted from levies, he said.
However, BRP is also dealing with higher commodity inflation, which has implications for interest rates and end-market demand, Scotiabank analyst Jonathan Goldman said. The company needs “a stable tariff regime before enacting larger strategic and capital decisions,” he added.
BRP reported a net loss of $136.8-million or $1.88 per share for the three-months ended July 31 – the first full quarter reflecting Section 232 tariff changes. Gross profit fell 34 per cent from the same period last year, to $262.5-million as the company digested the impact of the tariffs, as well as the fallout from a supplier’s financial restructuring.
Revenue climbed 18.5 per cent to $2.2-billion, fuelled by higher shipments of off-road vehicles. The adjusted loss was $0.18 per share, better than the $0.66 analysts were expecting.