BRP released its fiscal Q1 earnings today, with Wells Fargo Securities analyst Tim Conder providing a closer look via a research note provided to Powersports Business readers prior to the company’s call with analysts. We’ll also share the complete BRP press release below.
Here’s a look at Conder’s report.
“Another consecutive revenue/EPS beat FQ121 (Apr) with upside in the core Year-Round/Seasonal segments. Margin flow-through somewhat light given greater-than-anticipated volume absorption impact. DOO shares should trade higher on strong N.A. retail trends likely ahead of expectations, especially the +low-40% SxS growth. Updated FY21 revenue outlook appears above Street consensus (but slightly below our estimates) when adjusting for Evinrude outboard discontinuation, but this could prove conservative given N.A. retail. Our primary concern would be the lower ongoing expected demand outside of the U.S. — need more color on retail recovery cadence.
“Outlook. Revenues down ~40% FQ221, down 10%-20% FH221 with ongoing weaker demand expected outside of U.S. and discontinuation of outboard engine production. Biggest COVID impact FQ221 due to production suspension (key plants in Juarez, Queretaro, Valcourt restarted May 18) with gradual improvement through FQ321/FQ421. Capex $220MM-$250MM, Depreciation ~C$265MM, Net Financing Costs ~$135MM, Tax 26%-27%, Shares ~89MM.
“Industry Retail Read-Through. DOO continued N.A. consolidated retail share gains led by ORV. FQ121 core powersports DOO/industry: N.A. +4%/-LSD% (+10%/+LSD% ex-snowmobiles) with SxS +low-40%/+HSD%, ATV +HSD%/+MSD%, 3WV –low-40%/-mid-30%, PWC -LSD%/-MSD%, snowmobile –high-teen%/-mid-30%. N.A. channel inventory units +7% yr/yr on weaker 3WV demand and to support strong SxS demand.
DOO geographic detail (ex-snowmobiles): U.S. +14%, Canada -14%, EMEA -4%, Asia-Pacific -13%, Latin America +22%. Boats: Alumacraft –low-20%, Manitou +low-teen%.
“FQ121: Revenues -7.8% yr/yr C$1.230B (including C$13MM favorable FX) vs. our/Street C$1.124B/C$1.128B. Year-Round C$640MM vs. our/Street C$533MM/C$524MM, Seasonal C$323MM vs. our/Street C$308MM/C$315MM, Powersports PAC/OEM Engines C$157MM vs. our/Street C$157MM/C$160MM, Marine C$110MM vs. our/Street C$126MM/C$126MM. Gross margin 19.1% vs. our/Street 20.7%/20.8%, -340bps on favorable SxS/PWC/3WV mix and FX, offset by lower volume absorption and unfavorable pricings and promotions. Normalized EBITDA C$123MM vs. our/Street C$112MM/C$112MM. Normalized EPS C$0.26 vs. our/Street C$0.18/C$0.20.
And here’s the company press release.
BRP Reports Fiscal Year 2021 First Quarter Results
Highlights for the quarter vs Q1 FY20:
- Revenues of $1,229.8 million, a decrease of $103.9 million or 7.8%;
- Gross profit of $235.1 million representing 19.1% of revenues, a decrease of $65.5 million;
- Net loss of $226.1 million, a decrease of $249.9 million, which resulted in a diluted loss per share of $2.58, a decrease of $2.83 per share;
- The Company recorded a non-cash impairment charge of $171.4 million related to its Marine segment;
- Normalized net income of $22.7 million, a decrease of $30.0 million, which resulted in a normalized diluted earnings per share of $0.26, a decrease of $0.28 per share or 51.9%;
- Normalized EBITDA of $123.0 million representing 10.0% of revenues, a decrease of $23.7 million or 16.2%.
In addition, during the three-month period ended April 30, 2020:
Following government measures, adopted in response to the COVID-19 pandemic, the Company announced that all of its powersports and marine manufacturing operations around the world were temporarily suspended or slowed down and a series of cost reduction initiatives were undertaken, including the reduction of its global workforce and other temporary layoffs.
The Company amended its Term Facility to consolidate it into a single tranche which reduces the cost of borrowing by 0.50% for the previous U.S. $335.0 million tranche and extends the maturity from May 2025 to May 2027.
On May 8, 2020, the Company entered into an incremental U.S. $600.0 million tranche under its Term Facility. This new tranche matures in May 2027 and the cost of borrowing is LIBOR plus 5.00% per annum, with a LIBOR floor of 1.00%. Consistent with the existing credit agreements of the Company, the new tranche is exempt of financial covenants.
On May 27, 2020, the Company announced the re-orientation of its global marine business. As part of this announcement, BRP discontinued the production of its outboard engines and signed an agreement with Mercury Marine to support its boat packages.
VALCOURT, Quebec, May 28, 2020 — BRP Inc. (TSX:DOO; NASDAQ:DOOO) today reported its financial results for the three-month period ended April 30, 2020. All financial information is in Canadian dollars unless otherwise noted. The complete financial results are available at Sedar, as well as in the Quarterly Reports section of BRP’s website.
“The sudden impact of the COVID-19 crisis has brought rapid changes that significantly disrupted our business and forced us to quickly and successfully adjust our plan, thanks to the agility and resilience of our employees, suppliers and dealers. Today most of our manufacturing and dealers have re-opened for business. With the new travel restrictions and vacation at home trend, our retail is returning strongly and showing very positive signs”, said José Boisjoli, President and CEO at BRP.
Among the operational adjustments made in the current context is the discontinuation of our outboard engine production. “For our Evinrude employees, let me say that I am very proud of the part they have played over the past years and in particular, their efforts over the past 18 months. Although we have made progress, the impact of COVID-19 has left us no choice. I wish to thank them for their dedication and commitment in helping us create the Marine Group”, concluded Boisjoli. The marine strategy will focus on enhancing the boat business and new technologies to transform this industry.
Highlights for the Three-Month Period Ended April 30, 2020
Revenues decreased by $103.9 million, or 7.8%, to $1,229.8 million for the three-month period ended April 30, 2020, compared with $1,333.7 million for the corresponding period ended April 30, 2019. The revenue decrease was primarily due to lower wholesale of Seasonal Products and Marine products. The lower wholesale is mainly attributable to the COVID-19 pandemic impact, partially offset by a strong start of quarter. The decrease in revenue was partially offset by a favourable foreign exchange rate variation of $13 million.
The Company's North American retail sales for the three-month period ended April 30, 2020 decreased by 1% compared with the three-month period ended April 30, 2019, mainly due to a decrease in 3WV, outboard engines and snowmobiles. The decrease was partially offset by an increase in SSV and ATV.
Gross profit decreased by $65.5 million, or 21.8%, to $235.1 million for the three-month period ended April 30, 2020, compared with $300.6 million for the corresponding period ended April 30, 2019. The gross profit decrease includes a favourable foreign exchange rate variation of $12 million. Gross profit margin percentage decreased by 340 basis points to 19.1% from 22.5% for the three-month period ended April 30, 2019. The decrease was primarily due to the under- absorption of fixed costs resulting from plant closures and unfavourable pricing and sales programs variation. The decrease was partially offset by a favorable product mix in SSV, PWC and 3WV and a favorable foreign exchange rate variation.
Operating expenses increased by $150.8 million, or 71.3%, to $362.4 million for the three- month period ended April 30, 2020, compared with $211.6 million for the three-month period ended April 30, 2019. The increase was mainly attributable to the $171.4 million impairment charge recorded during the first quarter of Fiscal 2021 for the Marine segment, partially offset by cost reduction initiatives to mitigate the COVID-19 impact
QUARTERLY REVIEW BY SEGMENT
Revenues from Year-Round Products increased by $13.3 million, or 2.1%, to $640.3 million for the three-month period ended April 30, 2020, compared with $627.0 million for the corresponding period ended April 30, 2019. The increase was primarily attributable to a strong start of quarter and a favorable foreign exchange rate variation of $8 million, partially offset by the COVID-19 pandemic impact and higher sales programs.
North American Year-Round Products retail sales increased on a percentage basis in the low-teens range compared with the three-month period ended April 30, 2019.
Revenues from Seasonal Products decreased by $52.8 million, or 14.1%, to $322.6 million for the three-month period ended April 30, 2020, compared with $375.4 million for the corresponding period ended April 30, 2019. The decrease resulted primarily from the COVID-19 pandemic. The decrease was partially offset by a favourable foreign exchange rate variation of $3 million.
North American Seasonal Products retail sales decreased on a percentage basis in the low-teens range compared with the three-month period ended April 30, 2019.
Powersports PA&A and OEM Engines
Revenues from Powersports PA&A and OEM Engines decreased by $27.8 million, or 15.0%, to $157.5 million for the three-month period ended April 30, 2020, compared with $185.3 million for the corresponding period ended April 30, 2019. The decrease was mainly attributable to the COVID-19 pandemic with dealers closed or having limited activities.
Revenues from the Marine segment decreased by $39.2 million, or 25.9%, to $112.1 million for the three-month period ended April 30, 2020, compared with $151.3 million for the corresponding period ended April 30, 2019. The decrease was mainly due to the COVID-19 pandemic, partially offset by the acquisition of Telwater Pty Ltd during Fiscal 2020.
North American outboard engine retail sales decreased on a percentage basis in the mid-forties range compared with the three-month period ended April 30, 2019.
— Dave McMahon, editor, dmcmahon at powersportsbusiness.com