BRP, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Inventory Management: Adjusting production to reduce dealer inventory in response to softer market conditions, uncertain economy, and high interest rates. Revised guidance reflects plans to reduce powersports shipments by 15%-20% and further reduce marine production.
• Market Conditions: Dealers cautious due to economic uncertainty and high interest rates, with many OEMs using aggressive promotions. Marine industry softer than expected since April, impacting Sea-Doo switch and personal watercraft.
• Product Performance: Year-round products showed growth and market share gains, while seasonal products were affected by weather and industry trends. Off-road utility segment positive, premium vehicles gaining traction globally.
• Marine Adjustments: Reduced marine production until end of year, cautious stance on Sea-Doo switch due to inventory and promotional activity, but confident in long-term prospects with new products in pipeline.

Segment Performance

• Powersports: Revenue reached $2 billion. North American powersports sales were down 5%, with year-round product retail up 11% and market share gains. Geographically, Canada retail up 18% (excluding snowmobile), US down 4% (excluding snowmobile), Latin America up 11%, EMEA and Asia Pacific down. Off-road utility segment positive, premium vehicles gaining traction. Seasonal products: snowmobile retail down high-single-digit due to unfavorable winter, marine softer since April, Sea-Doo switch and personal watercraft affected by industry trends.
• Marine: Revenue down 58% to $50 million. Alumacraft retail up low 20%, Manitou flat, Quintrex down low teen percent. Production reduced, focus on depleting inventory due to industry softness.
• Parts, Accessories, Apparel, and OEM Engine: Revenue up 1% to $289 million, driven by higher volume and favorable pricing, offset by higher sales program.

Guidance

• Revenues expected to be between $8.6 billion and $8.9 billion.
• Normalized EPS expected to be between $6 and $7.
• Free cash flow expected to be approximately $750 million.
• Q2 revenues expected to be down high-single-digit, normalized EBITDA down mid-20% from Q1; H2 expected to improve with Q4 growth.

Risks

• Macroeconomic Uncertainties: High interest rates and uncertain economic conditions impacting dealer profitability.
• Intense Competition: Aggressive promotional activity by competitors putting pressure on dealer margins.
• Inventory Challenges: Excess inventory in marine and seasonal products, requiring production adjustments to deplete stock.
• Marine Industry Softness: Slower recovery expected for marine market, impacting Sea-Doo switch and personal watercraft sales.

Q: Craig Kennison asks about the percentage of powersports inventory that is non-current.

A: Jose Boisjoli responds that 65% of retail was current inventory, non-current model year 2023 is less than 1% of total inventory.

Q: James Hardiman asks about goodwill play for dealers and broader industry support.

A: Jose Boisjoli states BRP supports dealers and has invested in R&D, expecting to gain market share, and believes supporting dealers is right for long-term success.

Q: Jonathan Goldman asks about competitive environment change and confidence in production adjustments.

A: Jose Boisjoli mentions more promotional activity, but BRP believes reducing inventory will help dealer inventory turnover and maintain market share.

Q: Cameron Doerksen asks about marine recovery actions and re-ramp challenges.

A: Jose Boisjoli says marine production reduced, focusing on depleting inventory, and will maintain skilled labor for re-ramp.

Q: Mark Petrie asks about Q2 guidance and cost structure.

A: Sebastien Martel explains Q2 shipment adjustments, cost efficiencies driving second half EBITDA improvement.

Q: Fred Wightman asks about promotional outlook and rate cut impact.

A: Jose Boisjoli says promos in line with pre-COVID, rate cuts would help dealer comfort.

Q: Benoit Poirier asks about marine stealth technology and Canada-US discrepancy.

A: Jose Boisjoli says stealth technology well received, Canada strong but too early to conclude US trend.

Q: Robin Farley asks about marine exit consideration.

A: Sebastien Martel states marine is long-term play, needing to go through inventory normalization.

Q: Tristan Thomas-Martin asks about May retail trend and pricing consideration.

A: Sebastien Martel says May softer than expected, pricing depends on product value and competitive analysis.

Q: Martin Landry asks about retail sales volume assumptions and EBITDA margin.

A: Sebastien Martel says ORV retail expected low-single-digit growth, seasonal down, EBITDA margin expected to return to 17%.

Q: Brian Morrison asks about retail volume expectations and EBITDA margin.

A: Sebastien Martel says retail volume expectations flat to down, EBITDA margin targeted at 17%.

Q: Luke Hannan asks about marine inventory normalization and free cash flow assumptions.

A: Jose Boisjoli says marine inventory correction may take 12-18 months, Sebastien Martel says working capital expected to provide tailwind for free cash flow.