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BRP grows revenue, profit in fiscal Q2

BPR Inc. (TSX:DOO) reported is fiscal Q2 results, with increases in year-round products, seasonal products, propulsion systems, and parts, accessories and clothing, leading to growth in revenue and profit. All financial information is in Canadian dollars unless otherwise noted. 

"Our team's execution has once again been excellent this quarter, leading to very positive financial results," said José Boisjoli, president and CEO. "We are clearly seeing the effect of our product innovation strategy that responds to consumer needs as our side-by-side business, particularly the new Maverick X3 and Defender vehicles, is performing well in all regions, and our all-terrain and watercraft products are providing better than expected results in many countries around the world."

"BRP continues to outpace the off-road industry, due in part to the excellent momentum in our dealer network, which is an important factor in our success. The continued growth of our off-road business provided a solid first half and helped balance yearly profitability," Boisjoli continued. "For the back end of FY2018, I am confident that our retail momentum will continue as planned, leading to the successful delivery of our guidance, which was adjusted to reflect the impact of our recent SIB."

Highlights for the Three- and Six-Month Periods Ended July 31, 2017

Revenues increased by $170.9 million, or 20.0%, to $1,027.0 million for the three-monthperiod ended July 31, 2017, compared with $856.1 million for the corresponding period ended July 31, 2016. The revenue increase was mainly due to higher wholesale in Year-Round Products and Seasonal Products. The increase includes a favourable foreign exchange rate variation of $8 million.

Gross profit increased by $41.7 million, or 24.2%, to $213.7 million for the three-monthperiod ended July 31, 2017, compared with $172.0 million for the corresponding period ended July 31, 2016. The gross profit increase includes an unfavourable foreign exchange rate variation of $4 million. Gross profit margin percentage increased by 70 basis points to 20.8% from 20.1% for the three-month period ended July 31, 2016. The increase in gross profit margin percentage was primarily due to a favourable product mix in SSV and a higher volume of SSV and PWC sold, partially offset by higher sales program costs driven by the increase in retail sales and higher production costs.

Revenues increased by $197.2 million, or 11.0%, to $1,983.2 million for the six-month period ended July 31, 2017, compared with $1,786.0 million for the corresponding period ended July 31, 2016. The revenue increase was primarily attributable to higher wholesale of Year-Round Products and Seasonal Products. The increase includes a favourable foreign exchange rate variation of $7 million.

Gross profit increased by $54.8 million, or 15.0%, to $420.9 million for the six-month period ended July 31, 2017, compared with $366.1 million for the corresponding period ended July 31, 2016. The gross profit increase includes a favourable foreign exchange rate variation of $5 million. Gross profit margin percentage increased by 70 basis points to 21.2% from 20.5% for the six-month period ended July 31, 2016. The increase in gross profit margin percentage was primarily due to a favourable product mix in SSV, partially offset by higher production costs and higher sales program costs driven by the increase in retail sales.

QUARTERLY REVIEW BY CATEGORIES

Year-Round Products

Revenues from Year-Round Products increased by $113.1 million, or 34.7%, to $439.4 million for the three-month period ended July 31, 2017, compared with $326.3 million for the corresponding period ended July 31, 2016. The increase resulted from a higher volume and a favourable product mix of SSV sold due mainly to the introduction of the Can-Am Maverick X3.

Seasonal Products

Revenues from Seasonal Products increased by $38.1 million, or 13.6%, to $318.6 million for the three-month period ended July 31, 2017, compared with $280.5 million for the corresponding period ended July 31, 2016. The increase resulted primarily from a higher volume of PWC sold.

Propulsion Systems

Revenues from Propulsion Systems increased by $5.5 million, or 5.5%, to $105.4 million for the three-month period ended July 31, 2017, compared with $99.9 million for the corresponding period ended July 31, 2016. The increase in revenues was mainly attributable to a higher volume and a favourable product mix of outboard engines sold, partially offset by a lower volume of motorcycle engines sold.

PAC (Parts, Accessories, Clothing and other services)

Revenues from PAC increased by $14.2 million, or 9.5%, to $163.6 million for the three-month period ended July 31, 2017, compared with $149.4 million for the corresponding period ended July 31, 2016. The increase was mainly attributable to a higher volume of SSV accessories sold.

Operating expenses decreased by $33.8 million, or 16.7%, to $168.8 million for the three-month period ended July 31, 2017, compared with $202.6 million for the three-month period ended July 31, 2016. This decrease was mainly attributable to the specific expense recorded last year following the unfavourable litigation decision described below, partially offset by an unfavourable foreign exchange impact of $4 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. Subsequently, the trial judge also established a royalty payable upon the sale of any future contravening vehicles. For the three-month periods ended July 31, 2017 and 2016, the Company recorded expenses of respectively $0.9 million and $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.

Declaration of dividend

The Board of Directors approved a quarterly dividend of $0.08 per subordinate and multiple voting share that will be paid on October 13, 2017 to shareholders of record as at the close of business on September 29, 2017. The payment of each quarterly dividend will remain subject to declaration of that dividend by the Board of Directors. The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date, is subject to the discretion of the Board of Directors.

Fiscal Year 2018 Guidance

BRP's financial guidance targets as presented on June 1, 2017 are adjusted to reflect the completion of the SIB as follows:

Financial Metric FY18 Guidance vs FY17 Results
Revenues  
  Year-Round Products Up 8% to 12%
  Seasonal Products Down 1% to Up 3%
  Propulsion Systems Flat to up 5%
  PAC Up 5% to 9%
Total Company Revenues Up 4% to 8%
Normalized EBITDA Up 10% to 13%
Effective Tax Rate 28% - 29% (vs 28.6% in FY17)
Normalized Net Income Up 10% to 16%
Normalized Earnings per Share - Diluted  Up 14% to 20% to a range of $2.23 to $2.35
(increased from up 12-18% or $2.20 - $2.32)
Capital Expenditures $240M to $255M

The complete financial results are available at www.sedar.com, as well as in the Quarterly Reports section of BRP's website.

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