BRP Inc (DOO) (Q2 2027) Earnings Call Highlights: Revenue Surges 18% and EPS Guidance Raised ...

Negative Points

• BRP Inc. ( NASDAQ:DOO ) faced an incremental net tariff impact of about CAD145 million in the second quarter compared to the prior year, pressuring profitability.

• Gross margin declined year-over-year due to tariff headwinds of approximately 740 basis points and a one-time impact from a supplier financial restructuring of about 330 basis points.

• The company experienced softer PWC industry conditions, leading to a proactive decision to further reduce shipments for the balance of the year.

• Inflationary pressures, including higher commodity and freight costs, are expected to impact gross margin by 100-125 basis points this year, up from prior expectations.

• Three-wheel vehicle retail declined mid-single digits, and two-wheel (marine) retail declined almost 30% due to softness in the marine industry.

• The company expects third-quarter normalized EPS to be down 50%-60% year-over-year, mainly due to incremental tariff impacts, implying a much stronger Q4.

Q & A Highlights

Q: Can you break down the puts and takes behind the increased full-year guidance, and what has changed regarding the tariff backdrop since the beginning of the year? A: Sebastien Martel (CFO): The guidance increase is driven by a few factors. Better ORV deliveries provide a small tailwind of about CAD0.10-CAD0.15, which is offset by reduced PWC volumes. Inflation is a CAD0.50 headwind due to higher commodity and freight costs. The primary driver is an improved net tariff exposure, which adds CAD1 to the guidance. Specifically, Section 232 tariffs on ATVs dropped from 25% to 15%, and new Section 338 tariffs on Spyder imports from Canada were introduced. However, the mix of new, non-tariffed utility models launched at Club BRP is shifting demand favorably, reducing the net annualized exposure to CAD225 million.

Q: Regarding the CAD75 million supplier financial restructuring charge, can you shed light on the nature of the transaction and any downstream implications? A: Sebastien Martel (CFO): This was an exceptional circumstance where a key supplier faced financial difficulties. To ensure a continued supply of quality parts, we stepped in to provide financial support. The objective is to maintain the relationship, and while there may be slight price increases from the supplier in the future to maintain their profitability, the most material impact is the adjustment booked this quarter. The bulk of the charge is reflected in Q2 results.

Q: Can you clarify the tariff cadence for the second half and the annualized impact for next year? A: Sebastien Martel (CFO): We expect higher tariff impacts in Q3 versus Q4, roughly CAD30 million-CAD35 million in Q3, as the transition to newly launched, non-tariffed products occurs mostly in Q4. For next year, the impact will be more skewed to the first half as we ship ORV units. Additionally, the new Section 338 tariffs on Spyder will represent a CAD60 million-CAD65 million headwind next year.

Q: Is the Mission 28 EBITDA target of CAD1.45 billion still the right starting point for fiscal 2028, and is the CAD8 normalized EPS target still achievable? A: Sebastien Martel (CFO): The fundamentals of Mission 28 are in place, with dealer network expansion and ORV market share gains progressing well. The main variable is inflation, which is running 100-125 basis points higher than initially expected. However, we believe we can offset this with higher volume and continued lean initiatives. The Mission 28 objective of CAD8 for next year is still very much reachable, net of tariffs, assuming the macro environment stabilizes.

Q: Can you provide more color on the inflationary pressures, specifically regarding freight and transportation? A: Sebastien Martel (CFO): The inflation headwind has increased from 70-75 basis points to 100-125 basis points. While the price of crude oil has come down, refined products and fuel prices remain high, impacting plastics and commodities. Steel and copper are also higher. The biggest challenge is on land freight, where the availability of trailers and drivers has tightened significantly over the last 12 months, continuing to put pressure on pricing.

Q: Why do you think ORVs are outperforming other discretionary categories, and how sustainable are your market share gains given the competitive landscape? A: Denis Le Vot (CEO): The momentum is driven by a structural shift from recreational to utility segments. The utility cab segment has quadrupled in four years and now represents half of the utility side-by-side industry, with applications in farming, construction, and first response. Our Defender lineup, especially the cab models, is well-positioned. We are investing heavily in this area, expanding capacity, and introducing new models like the XU. We are confident in our ability to sustain growth and gain share.

Q: What are the opportunities for incremental capital deployment given the strong free cash flow and the completion of the NCIB program? A: Sebastien Martel (CFO): We have strong free cash flow generation this year with no major variation in CapEx planned. A new NCIB window opens in early December, and we could easily deploy an additional CAD200 million of cash towards buybacks from now to the end of the year. We have the flexibility to execute on this if we decide to do so.

Q: Can you discuss the decision to launch BRP Financial Services and its implications for the P&L? A: Sebastien Martel (CFO): This was a major announcement at Club BRP with excellent dealer reception. It is about elevating the dealer and consumer experience to match what car OEMs provide. It allows us to get closer to the customer, understand repurchase rates, and be more tactical with promotions. After just two weeks, 90% of our dealer network has signed up, and we are already originating loans. While it may have positive financial implications, the broader impact is about strengthening the BRP brand and building direct customer relationships.

Q: Can you elaborate on the factory expansion for cab units and the associated capital requirements? A: Denis Le Vot (CEO): The expansion is not very capital-intensive. It involves extending the building and reorganizing the physical line to accommodate the additional manufacturing steps for cab units. This will increase throughput by roughly 33% for these models. Given the strong demand and low dealer inventory for cabs, we are confident the market will absorb the increased production.

Q: Can you break down the revenue growth for the quarter in terms of volume, pricing, and mix? A: Sebastien Martel (CFO): Excluding the tariff impact of 740 basis points and the supplier restructuring of 330 basis points, gross profit margin improved by 140 basis points year-over-year. This improvement was driven by leverage on fixed costs (110 basis points), positive pricing (80 basis points), and manufacturing efficiencies (110 basis points). These were partially offset by inflation and other headwinds of about 160 basis points in the quarter.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .