BRP Inc. Q1 FY2027 earnings call

• Overall Operational Performance

  • BRP delivered a solid Q1 performance that exceeded internal expectations, driven by stronger-than-forecast volumes, disciplined cost management, and a more favorable promotional environment than anticipated, even with the early impact of new Section 232 tariffs.
  • Dealer network inventory is near optimal levels, down 3% year-over-year, with good alignment between wholesale shipments and retail demand across core segments.
  • Global retail performance was solid overall: North America retail up 2%, EMEA retail up 10% (in line with industry growth), Latin America retail up 7%, Asia-Pacific retail down 4% (driven by high PWC exposure in the region).

• Mitigation Strategy for New Tariffs

  • After the introduction of amended 25% Section 232 tariffs on most imported ORV and snowmobile models in late Q1, BRP teams quickly identified $200 million in initial mitigation measures to partially offset incremental tariff costs, with all actions focused on avoiding harm to long-term growth.
  • Mitigation levers include: scaled back growth in overhead spending (delaying non-critical exploratory/long-term projects), accelerating existing lean manufacturing initiatives targeted to deliver $350 million in efficiency gains over three years, and small targeted pricing adjustments in international markets driven by favorable currency movements, with minimal price changes in the core U.S. market to preserve retail momentum. BRP has left core product development CapEx for future model years fully intact.

• Strategic Priorities

  • BRP remains focused on executing its M28 long-term strategic plan, with priorities including continued product innovation, dealer network expansion (on track to open 40 new dealers in fiscal 27, meeting annual targets), and growing international revenue to hit the M28 target of $2.5 billion in international sales by fiscal 28, which remains on track.
  • BRP will share new Model Year 27 product announcements at its dealer event in August 2026 in Orlando, Florida.

BRP delivered overall Q1 revenue of $2.4 billion, a 30% increase year-over-year, with gross profit of $562 million (23.5% margin, up 210 bps YoY), normalized EBITDA of $334 million (up 67% YoY), and normalized EPS of $1.83 (nearly tripled YoY). Free cash flow hit $367 million, with ending cash of ~$700 million and a net leverage ratio of 1.4x. By product segment:

• ORV (Off-Road Vehicles): This is BRP's primary growth driver, delivering strong volume and market share gains. In North America, the overall ORV industry grew mid-single-digit, while BRP retail grew high single-digit; BRP gained over 3 points of market share in premium current ORV units, and reached the #1 position in North American ORV retail in April 2026 for the first time ever. The new Can-Am Defender HD11 model drove particularly strong growth in the fast-growing utility ORV segment, where BRP grew low double-digits. Strong ORV trends were seen across most global regions, with 7% ORV-driven retail growth in Latin America (record Q1 performance in Brazil and Mexico).
• Snowmobiles: The 2026 season ended in March with industry retail up low single-digits; BRP trailed the industry slightly due to its disciplined, non-discounted inventory strategy, but achieved a record 70%+ market share in current units and cut dealer inventory by 40% year-over-year, leaving inventory at healthy levels. The new 2027 model year has generated one of BRP's most successful spring pre-order campaigns ever, with pre-orders 50% higher than last year.
• Personal Watercraft (PWC): Q1 is an off-peak season for PWC, and industry demand was pressured by unfavorable weather and heavy discounting of carryover inventory from competing OEMs. BRP's overall PWC retail was down year-over-year, but the company outperformed competitors in current model unit sales; retail activity picked up in late April and remained positive into May as weather improved. BRP holds strong market share gains in current PWC units, with product innovation supporting long-term momentum.
• Three-Wheel Vehicles & Pontoons: These categories faced similar off-season and industry headwinds to PWC, with no major disruptions to BRP's performance or positioning.
• Parts & Accessories (P&A): P&A dealer orders came in above initial guidance, contributing positive upside to full-year forecasts, and part consumption was very strong in Q1 driven by strong product usage.

• BRP withdrew its initial fiscal 27 guidance after the new Section 232 tariffs took effect, and has now issued revised full-year guidance incorporating both stronger-than-expected underlying business fundamentals and the net impact of incremental tariffs.
  • Full-year fiscal 27 guidance: Revenue of $9.125 billion to $9.375 billion, normalized EBITDA of $925 million to $975 million, normalized EPS of $3.00 to $3.50. The midpoint of full-year gross margin guidance is slightly above 19%.
  • Strong underlying business trends (better ORV demand, higher-than-target snowmobile pre-orders, improved product mix, higher P&A dealer orders) generate ~$60 million (or $0.60 per share) of upside to the initial guidance, before accounting for incremental tariffs.
  • BRP expects a total gross incremental tariff impact of $500 million to $550 million for the full fiscal year, with $200 million of this impact offset by the mitigation plan, leaving a net incremental tariff headwind of $300 million to $350 million.
  • BRP continues to expect full-year free cash flow of over $600 million, supported by working capital tailwinds including a new floor plan factoring facility in Scandinavia and lower-than-expected cash taxes.
  • BRP expects to resume share repurchases under its Normal Course Issuer Bid (NCIB) shortly. The incremental tariff burden is expected to be fairly evenly distributed across remaining quarters, with a slightly larger impact in Q3 due to snowmobile shipment timing.
  • Q2 27 is expected to see a year-over-year EPS decline of ~$1.60 to $1.65, driven by the net tariff impact, shifted PWC shipment timing, and a non-recurring tax credit recorded in Q2 last year.
  • Underlying industry assumptions remain unchanged from prior guidance: BRP expects the North American power sports industry to be flat for the full year, with BRP capturing market share to drive top-line growth.

• The revised Section 232 25% tariffs on most imported ORV and snowmobile models represent a major near-term headwind, creating significant incremental cost that is only partially offset by current mitigation measures.
  • Trade policy uncertainty remains high, with ongoing renegotiation of the USMCA trade agreement, meaning the current tariff structure is expected to be temporary, but the final permanent trade framework remains unclear.
  • If the current high tariff structure remains permanent for the long term, BRP will need to make large capital investments to reconfigure its manufacturing and supply chain footprint, which would impact near-term profitability.
  • Input cost inflation outside of tariffs is slightly higher than initial guidance, with expected 70 to 75 basis points of cost pressure from freight and commodity inputs, up from the prior 60 basis point forecast.
  • Off-season seasonal categories (PWC, pontoons, three-wheel vehicles) face near-term industry headwinds from discounting of competitor carryover inventory and unfavorable weather.

Q: Where does the $200 million of tariff mitigation come from, how much can you raise prices without hurting demand, and what is the connection between Section 232 tariffs and ongoing USMCA renegotiations? / A: The bulk of mitigation comes from overhead scaling back (delaying non-critical long-term projects, slowing overhead growth) and accelerating existing lean efficiency initiatives. Only small targeted price adjustments are planned, mostly in non-U.S. markets driven by favorable currency movements, with minimal U.S. price increases to preserve retail momentum and competitiveness. Core product development CapEx for future models is fully protected. Management notes they are actively engaging with Canadian, U.S., and Mexican governments to highlight the industry and consumer impact of Section 232, and expect tariff policy will be clarified as part of ongoing USMCA renegotiations in the coming months.

Q: How much of the $200 million fiscal 27 mitigation is sustainable long-term, and have you seen any impact of macro uncertainty on consumer demand for BRP products? / A: It is too early to forecast next year's mitigation, but roughly $100 million of the current accelerated lean efficiency initiatives will remain permanent even if tariffs are removed. If tariffs are rolled back, BRP will reinstate delayed overhead and project investments. On demand, management notes BRP's core customer base is affluent households that are relatively insulated from macro headwinds like high energy prices and inflation. No broad demand impact has been seen so far: ORV momentum remains strong, and 2027 snowmobile pre-orders are 50% higher than last year, with only very minor softness seen in Europe.

Q: If the current 25% Section 232 tariff structure becomes permanent, what more drastic mitigation levers could you pull, and how difficult would it be to shift sourcing or production to reduce tariff exposure? / A: Management confirms BRP is already preparing multiple contingency scenarios, but will not commit to large capital investments until trade policy is stable and clear. Available long-term levers include shifting production between existing facilities, opening new U.S. production capacity, and reconfiguring supply chains, all of which BRP has executed successfully in the past. The company's strong balance sheet gives it the flexibility to deploy large amounts of capital if needed to adapt to a permanent new trade regime, but management believes the current tariff structure is temporary and will be revised as part of USMCA renegotiations.

Q: What is driving the large market share gains BRP is seeing in the utility ORV segment, and how will small price increases impact BRP's competitive positioning relative to larger competitors? / A: Share gains in the utility ORV segment are driven primarily by the strong early performance of the new Can-Am Defender HD11, which offers class-leading horsepower, towing, and cargo capacity tailored to professional and utility use cases. BRP has a long-standing presence in the utility ORV segment, where over 50 of North American ORV demand is for professional/utility use. Management emphasizes that any price increases tied to tariffs are minimal, far below 1% of total revenue, and BRP's premium positioning driven by continuous innovation means it will retain its existing competitiveness, as proven by the ongoing strong retail momentum and market share gains.