BRP reports Q1 results

BRP Inc. (TSX:DOO) reported its financial results for the three-month period ended April 30, 2016. 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 delivered in line with our expectations and are consistent with our outlook,” said José Boisjoli, president and CEO. “We had solid retail momentum worldwide in the first quarter of fiscal year 2017, where we significantly outpaced the industry. We also recorded the highest North American market share in Ski-Doo snowmobile retail sales during the 2016 season ended in March.”

In closing, Boisjoli added: “The BRP team is aligned in its focus on our strategic priorities of growth, agility and Lean enterprise, our R&D projects are on track and we have exciting product introductions coming up in the next few months. I consider that we are currently in an excellent position and confident that we will achieve our guidance.”

Highlights for the Three-Month Period Ended April 30, 2016

Revenues increased by $31.8 million, or 3.5%, to $929.9 million for the three-month period ended April 30, 2016, compared with $898.1 million for the corresponding period ended April 30, 2015. The revenue increase was attributable to a favorable foreign exchange rate variation of $40 million mainly due to the strengthening of the U.S. dollar and the euro against the Canadian dollar.

Year-Round Products

Revenues from Year-Round Products increased by $2.1 million, or 0.5%, to $400.2 million for the three-month period ended April 30, 2016, compared with $398.1 million for the corresponding period ended April 30, 2015. The increase was primarily attributable to a higher wholesale in ATV, a favorable product mix in roadsters and a favorable foreign exchange rate variation of $16 million. The increase was mostly offset by lower wholesale in roadsters.

Seasonal Products

Revenues from Seasonal Products increased by $15.6 million, or 5.8%, to $286.8 million for the three-month period ended April 30, 2016, compared with $271.2 million for the corresponding period ended April 30, 2015. The increase resulted primarily from a higher volume and a favorable mix of PWC sold and from a favorable foreign exchange rate variation of $12 million. The increase was partially offset by additional sales program costs for snowmobile in North America as a result of poor snow conditions and an economic slowdown experienced in Western Canada.

Propulsion Systems

Revenues from Propulsion Systems increased by $8.6 million, or 8.4%, to $111.1 million for the three-month period ended April 30, 2016, compared with $102.5 million for the corresponding period ended April 30, 2015. The increase in revenues was primarily attributable to a favorable foreign exchange rate variation of $6 million and to a higher volume of aircraft engines sold.

PAC (Parts, Accessories, Clothing and other services)

Revenues from PAC increased by $5.5 million, or 4.4%, to $131.8 million for the three-month period ended April 30, 2016, compared with $126.3 million for the corresponding period ended April 30, 2015. The increase was mainly attributable to a favorable foreign exchange rate variation of $6 million and a higher volume of ATV and SSV PAC sold. The increase was partially offset by a lower volume of snowmobile PAC sold resulting from poor snow conditions.

Gross profit decreased by $18.8 million, or 8.8%, to $194.1 million for the three-month period ended April 30, 2016, compared with $212.9 million for the corresponding period ended April 30, 2015. The gross profit decrease includes an unfavorable foreign exchange rate variation of $11 million. Gross profit margin percentage decreased by 280 basis points to 20.9% from 23.7% for the three-month period ended April 30, 2015. The decrease in gross profit margin percentage was primarily due to higher sales programs in snowmobiles and unfavorable foreign exchange variation, partially offset by favorable product mix in PWC and roadsters and general price increases.

Operating expenses increased by $38.5 million, or 25.8%, to $187.6 million for the three-month period ended April 30, 2016, compared with $149.1 million for the three-month period ended April 30, 2015. This increase was mainly attributable to higher general and administrative costs due to an unfavorable litigation verdict recorded this quarter and, to a lesser extent, higher research and development costs. The increase includes an unfavorable foreign exchange rate variation of $5 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 US$15.5 million (CA$19.5 million) in compensatory damages. As the verdict concluded to a willful infringement by the Company, the trial judge will be required to make the determination on potential punitive damages, which could lead to a maximum total amount in damages of US$46.5 million (CA$58.4 million). For the three-month period ended April 30, 2016, the Company recorded as an expense the preliminary compensatory damages of $19.5 million. Management believes that the verdict is unfounded and unsupported by either law or evidence and intends to file an appeal.

Normalized net income stood at $4.8 million, a decrease of $32.4 million, which resulted in a normalized diluted earnings per share[1] of $0.04, a decrease of $0.27 per share. The decrease was primarily due to lower gross profit, mainly explained by higher sales programs, and higher operating expenses.