BRP, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Execution and Results: Third quarter results above expectation driven by Snowmobile shipment timing and operating expense management. Retail performance reflected challenging market dynamics, but progress made on network inventory reduction.
• Marine Business Sale: Decided to sell Marine businesses to focus on core Powersports. Initiated sales process for Alumacraft, Manitou, and Telwater.
• Inventory Progress: Inventory down 10% overall, with ORV down 22% ahead of plan. Notable improvement in three-wheeled vehicle, personal watercraft, and switch pontoons.
• Product Launches: Can-Am electric motorcycle lineup launch underway, ramping up production in December with shipments starting in fiscal 2026. Strong product lineup in off-road with new models and platforms introduced.

Segment Performance

• Year-Round Products: Revenues down 12% to $1 billion. Can-Am side by side down mid-single-digit, gaining share in the utility segment. ATV retail down mid-single-digits, gained ~4 percentage points of market share in the Mid-CC segment with the new Outlander platform. Three-wheeled vehicle retail down high-teen percent, outpacing the industry.
• Seasonal Products: Revenue down 29% to $616 million. Snowmobile retail in line with industry, PwC retail down high 20% range but ended season with number one position. Sea-Doo Switch retail down mid-40%.
• Powersports, Parts, Accessories and Apparel and OEM Engine: Revenues down 6% to $303 million due to lower shipments. ORV parts business increased, while accessories sales were softer in line with unit retail.

Guidance

• Reaffirmed guidance for the year, maintaining revenue between $7.6 billion and $7.8 billion, normalized EBITDA between $1,020 million and $1,070 million, and normalized EPS between $4.25 and $4.75.
• Selling Marine business improves financial profile, with continuing operations expected to generate ~$130 million more in normalized EBITDA, improve normalized EBITDA margin by 200 basis points, and increase normalized EPS by $1.50.

Risks

• Industry Dynamics: Soft industry trends and high promotional activity from other OEMs.
• Macroeconomic Factors: Impact of inflation and interest rates on consumer demand.
• Tariffs: Uncertainties in trade agreements and potential impact on sourcing and production.

Question and Answer

• Q: Directional perspectives on Powersports segments and seasonality for fiscal '26? A: Plan for flattish industry overall. Well-positioned with product line; off-road has strong lineup with new models expected next year. Seasonal products like Snowmobile and watercraft to see good retail.
• Q: Inventory rightsizing and tax rate impact? A: Happy with inventory progress, tax rate came down, progress on inventory depletion with Snowmobile and other product lines.
• Q: Electric motorcycle revenue contribution and margin impact? A: First year rollout with small production, incremental headwind of $20-30 million next year due to investment in marketing and launch.
• Q: Dealer behavior and interest rates? A: Dealers appreciate inventory reduction efforts. Canada and US dealers see progress, but need to deliver on retail performance; interest rate impact on consumer demand expected to take time.
• Q: Tariff impact on cost of goods sold and production in Mexico? A: Less than 10% sourcing from China, over 70% production in Mexico; able to navigate trade dynamics and adapt as needed.
• Q: Dealer health and financial position? A: Dealers in good health, well-capitalized; supported with floor plan financing, no significant risks of repo observed.
• Q: Gross margin ex-marine next year? A: Slight improvement expected due to programs and cost efficiencies driving better gross margin percentage.
• Q: Current unit sales strength and share gain? A: New ATV platforms and ORV models well-received, driving current unit sales and confidence in gaining share as inventory normalizes.
• Q: Consumer sentiment post-elections? A: No significant change in consumer sentiment observed; some customers waiting for election outcomes to make decisions.
• Q: Used market impact and dealer sentiment? A: No major trends in used market; dealers rightsizing business to focus on more profitable brands and products.
• Q: OpEx rate improvement and cost savings? A: Modest improvement expected, with ~50-50 split between operating leverage and cost efficiencies driving the improvement.
• Q: Floor plan financing and carryover into next year? A: Support varies, including risk assurance to cover floor plan costs into next season, with accruals accounted for in financials.
• Q: Season end inventory metrics and ORV market share next year? A: Details on PwC and Switch inventory to be provided offline; believe current product strategy will retain loyalty and help regain market share as inventory normalizes.