BRP’s Q1 revenues down 6%

News Release

BRP Inc. (TSX: DOO) today reported its financial results for the three-month period ended April 30, 2014. All financial information is in Canadian dollars unless otherwise noted. The complete financial results are available at www.sedar.com.

“Our financial results for the first quarter were as expected and consistent with our outlook,” said José Boisjoli, president and CEO. “Our sales in international markets grew in the quarter despite the situation in Russia, but this was offset by the long winter affecting sales of off-road vehicles in North America. We continue to fulfill our strategic initiatives and we are very much on track to accomplish our annual plan.”

Commenting on the outlook for Fiscal Year 2015, Boisjoli added: “We are fine-tuning our guidance for Fiscal Year 2015, but as a whole, forecasted growth for Revenues and Normalized Net Income is unchanged. We anticipate a stronger second half of the year resulting from strong spring snowmobile orders, the introduction of the Can-Am Outlander L ATV, the restart of the Sea-Doo Spark manufacturing in Querétaro and upcoming product launches. For the second quarter, we expect our financial performance to be similar to last year’s, factoring in the continued uncertainty in Eastern Europe.”

Highlights for the Three-Month Period Ended April 30, 2014

Revenues decreased by $45.7 million, or 5.7%, to $758.6 million for the three-month period ended April 30, 2014, compared with $804.3 million for the corresponding period ended April 30, 2013. The revenue decrease was mainly due to lower wholesale in Year-Round Products and to lower wholesale and unfavourable mix in Seasonal Products. The decrease in revenues was partially offset by a favourable foreign exchange rate variation of $49 million mainly related to the strengthening of the U.S. dollar and the Euro against the Canadian dollar.

QUARTERLY REVIEW BY CATEGORIES

Seasonal Products

Revenues from Seasonal Products decreased by $22.1 million, or 10.7%, to $184.6 million for the three-month period ended April 30, 2014, compared with $206.7 million for the corresponding period ended April 30, 2013. The reduction resulted primarily from a decrease of traditional PWC volume partly offset by the new entry-level Sea-Doo Spark PWC. The decrease of volume was attributable to a longer than anticipated production ramp-up at the Querétaro, Mexico facility causing delays in the delivery of certain PWC products. The decrease in revenues was partially offset by a favourable foreign exchange rate variation of $11 million.

Year-Round Products

Revenues from Year-Round Products decreased by $39.3 million, or 9.7%, to $365.4 million for the three-month period ended April 30, 2014, compared with $404.7 million for the corresponding period ended April 30, 2013. The decrease resulted primarily from lower shipments of SSVs due to the impact of the introduction of the Can-Am Maverick models in the corresponding period last year. To a lesser extent, the decrease was also attributable to ATVs mainly due to the decrease of volume sold in Russia, which was primarily driven by the political and economic instability in Eastern Europe. The decrease in revenues was partially offset by a favourable foreign exchange rate variation of $22 million.

Propulsion Systems

Revenues from Propulsion Systems increased by $4.4 million, or 4.7%, to $97.3 million for the three-month period ended April 30, 2014, compared with $92.9 million for the corresponding period ended April 30, 2013. The increase in revenues was mainly attributable to a favourable foreign exchange rate variation of $9 million. The increase in sales related to the new jet propulsion system was more than offset by the lower volume of motorcycle engines sold.

PAC (Parts, Accessories & Clothing)

Revenues from PAC increased by $11.3 million, or 11.3%, to $111.3 million for the three-month period ended April 30, 2014, compared with $100.0 million for the corresponding period ended April 30, 2013. The increase was mainly attributable to a favourable foreign exchange rate variation of $7 million and from a higher volume of PAC related to Seasonal Products due to better winter conditions in North America.

Gross profit decreased by $44.6 million, or 20.5%, to $173.4 million for the three-month period ended April 30, 2014, compared with $218.0 million for the corresponding period ended April 30, 2013. Gross profit margin percentage decreased by 420 basis points to 22.9% from 27.1% for the three-month period ended April 30, 2013. The decrease in gross profit margin percentage was primarily due to lower wholesale in Year-Round and Seasonal Products, an unfavourable product mix in Seasonal Products, expenses related to the production ramp-up at the Querétaro, Mexico facility and to the transfer of PAC distribution to third-party logistics provider. The margin decrease was partially offset by a favourable foreign exchange rate variation of $7 million.

Operating expenses increased by $13.1 million, or 9.9%, to $145.0 million for the three-month period ended April 30, 2014, compared with $131.9 million for the three-month period ended April 30, 2013. This increase was mainly due to a negative foreign exchange impact of $12 million.

Normalized net income of $16.6 million, a decrease of $36.8 million, which resulted in normalized basic earnings per share of $0.14, a decrease of $0.38 per share. The decrease in normalized net income is primarily due to lower wholesale in Year-Round and Seasonal Products, cost related to the production ramp-up at the Querétaro facility and to the transfer of PAC distribution.

Fiscal Year 2015 Guidance

BRP’s financial guidance targets as presented on March 28, 2014 are revised as follows (no change unless otherwise noted):

Financial Metric, FY15 Guidance vs FY14 Results

Revenues
Seasonal Products: Up 9% to 13% (Increased from Up 5% to 10%)
Year-Round Products: Up 9% to 13% (Lowered from Up 12% to 15%)
Propulsion Systems: Up 7% to 10%
PAC: Up 10% to 15%
Total Company Revenues: Up 9% to 13%

Normalized EBITDA: Up 11% to 15%

Effective Tax Rate[1]: 26% – 27%

Normalized Net Income[2:] Up 10% to 17%

Normalized Earnings per Share — Diluted: $1.55 – $1.65 (Up 10% to 17%)[3]

Capital Expenditures: $165M to $175M

[1] Effective tax rate based on Normalized Earnings before Income Tax.
[2] Assuming $116M of depreciation expense.
[3] The 10% to 17% increase assumes a constant weighted average number of diluted shares of 118.9 million for both Fiscal Year 2015 and Fiscal Year 2014