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BRP grows revenue, profit in fiscal Q2

BRP Inc. (TSX: DOO) reported its financial results for the three- and six-month periods ended July 31, 2016. All financial information is in Canadian dollars unless otherwise noted.

"I am pleased with the second quarter of fiscal 2017 that has registered strong retail sales worldwide, particularly for Sea-Doo PWC and Can-Am off-road vehicles," said José Boisjoli, president and CEO. "We have good momentum with the Can-Am Defender models, introduced last September, and with the positive reception of the most recent product launches, such as the Evinrude E-TEC G2 engines or the Can-Am Maverick X3 vehicle."

"The rigorous focus on our strategic plan and our team's solid execution, around the world and across all functions, are paying off," Boisjoli added. "Our manufacturing operations are progressing as planned, allowing us to accelerate the pace of product introductions as promised. We are aligned on our strategic priorities and I am confident that we will reach our objectives."

Highlights for the Three- and Six-Month Periods Ended July 31, 2016

Revenues increased by $44.0 million, or 5.4%, to $856.1 million for the three-month period ended July 31, 2016, compared with $812.1 million for the corresponding period ended July 31, 2015. The revenue increase was mainly due to higher wholesale in Year-Round Products and to a favourable foreign exchange rate variation of $20 million related largely to the strengthening of the U.S. dollar and the euro against the Canadian dollar.

Gross profit increased by $2.6 million, or 1.5%, to $172.0 million for the three-month period ended July 31, 2016, compared with $169.4 million for the corresponding period ended July 31, 2015. The gross profit increase includes an unfavourable foreign exchange rate variation of $3 million. Gross profit margin percentage decreased by 80 basis points to 20.1% from 20.9% for the three-month period ended July 31, 2015. The decrease in gross profit margin percentage was primarily due to higher production costs and an unfavourable foreign exchange variation, partially offset by a favourable product mix in Year-Round Products and lower sales programs costs.

Revenues increased by $75.8 million, or 4.4%, to $1,786.0 million for the six-month period ended July 31, 2016, compared with $1,710.2 million for the corresponding period ended July 31, 2015. The revenue increase was primarily attributable to a favourable foreign exchange rate variation of $60 million mainly due to the strengthening of the U.S. dollar and the euro against the Canadian dollar and to higher wholesale of Seasonal Products.

Gross profit decreased by $16.2 million, or 4.2%, to $366.1 million for the six-month period endedJuly 31, 2016, compared with $382.3 million for the corresponding period ended July 31, 2015. The gross profit decrease includes an unfavourable foreign exchange rate variation of $13 million. Gross profit margin percentage decreased by 190 basis points to 20.5% from 22.4% for the six-month period ended July 31, 2015. The decrease in gross profit margin percentage was primarily due to an unfavourable foreign exchange variation and higher sales program costs, partially offset by a favourable product mix in Year-Round Products and PWC, as well as a general price increase.

Year-Round Products

Revenues from Year-Round Products increased by $27.9 million, or 9.3%, to $326.3 million for the three-month period ended July 31, 2016, compared with $298.4 million for the corresponding period ended July 31, 2015. The increase resulted from a higher volume of SSV sold following the introduction of the Can-Am Defender model, a higher wholesale in ATV and a favourable foreign exchange rate variation of $7 million. The increase was partially offset by lower wholesale in roadsters.

Seasonal Products

Revenues from Seasonal Products increased by $17.1 million, or 6.5%, to $280.5 million for the three-month period ended July 31, 2016, compared with $263.4 million for the corresponding period endedJuly 31, 2015. The increase resulted primarily from a higher volume and a favourable mix of PWC sold and from a favourable foreign exchange rate variation of $6 million. The increase was partially offset by a lower volume mainly attributable to earlier shipments last year and an unfavourable mix of snowmobiles sold.

Propulsion Systems

Revenues from Propulsion Systems increased by $4.5 million, or 4.7%, to $99.9 million for the three-month period ended July 31, 2016, compared with $95.4 million for the corresponding period endedJuly 31, 2015. The increase in revenues was mainly attributable to a favourable foreign exchange rate variation of $3 million.

PAC (Parts, Accessories, Clothing and other services)

Revenues from PAC decreased by $5.5 million, or 3.6%, to $149.4 million for the three-month period ended July 31, 2016, compared with $154.9 million for the corresponding period ended July 31, 2015. The decrease was mainly attributable to a lower volume of snowmobile PAC sold resulting from poor snow conditions in North America last winter and to a lower volume of roadster PAC. The decrease was partially offset by a favourable foreign exchange rate variation of $4 million.

Operating expenses increased by $55.5 million, or 37.7%, to $202.6 million for the three-month period ended July 31, 2016, compared with $147.1 million for the three-month period ended July 31, 2015. This increase was mainly due to an expense recorded this quarter following an unfavourable litigation decision rendered and, to a lesser extent, higher selling and marketing costs. The increase was partially offset by a favourable foreign exchange impact of $3 million.

The Company is involved in multiple lawsuits with one of its competitors whereby each party is claiming damages for the alleged infringement of some of its patents. On June 1, 2016, a verdict was rendered in one of those lawsuits against the Company for an amount of U.S. $15.5 million ($19.5 million) in compensatory damages, which was recorded during the three-month period ended April 30, 2016. On June 13, 2016, the trial judge formalized the verdict rendered on June 1, 2016 and awarded additional damages in favour of the plaintiff. For the three-month period ended July 31, 2016, the Company recorded as an expense total damages and related costs of $43.1 million. Management believes that the verdict and subsequent decisions are unfounded and unsupported by either law or evidence and filed an appeal on August 23, 2016.

Normalized net income stood at $1.0 million, a decrease of $3.0 million, which resulted in a normalized diluted earnings per share of $0.01, a decrease of $0.02 per share. The decrease was primarily due to higher operating expenses, partially offset by a decreased income taxes expense.

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