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BRP reports fiscal year 2022 third quarter results

by BRP 2 Dec 2021 04:21 PST
BRP logo © BRP

BRP Inc. (TSX:DOO; NASDAQ:DOOO) today reported its financial results for the three- and nine-month periods ended October 31, 2021.

  • Revenues of $1,588.0 million for the quarter, down 5.2% reflecting the previously anticipated decrease of product deliveries mainly caused by supply chain disruptions and $5,300.4 million for the nine-month period ended October 31, 2021, up 28.1% compared to the same periods last year
  • Net income of $127.7 million, or diluted earnings per share of $1.53
  • Normalized diluted EPS[1] of $1.48, down 30.5% for the quarter and $6.93, up 95% for the ninemonth period ended October 31, 2021 compared to the same periods last year
  • Normalized EBITDA[1] of $251.7 million, down 27.8% for the quarter and $1,045.7 million, up 52% for the nine-month period ended October 31, 2021, compared to the same periods last year
  • Market share gains in ORV and PWC in North American Powersports with retail sales down 20% compared to a record quarter last year due to limited product availability in the network
  • Increase of the low end of the full year guidance by $0.75 with a revised annual guidance for Normalized EPS - diluted [1] now ranging from $9.00 to $9.75, representing a growth of 67% to 81% compared to FY21, and up from previous guidance of $8.25 to $9.75
  • Renewal of the normal course issuer bid program which allows for the repurchase of up to 3.8 million of subordinate voting shares over the next twelve months, subject to approval by the TSX

All financial information is in Canadian dollars unless otherwise noted. The complete financial results are available on Sedar as well as in the section Quarterly Reports of BRP's website.

"In this challenging environment, our team's agility allowed us to continue to outpace the Powersports industry in retail sales, gain market share and deliver stronger than expected profitability, translating into record results year-to-date. Our third quarter results reflect the previously anticipated decrease of product deliveries due to supply chain disruptions," said José Boisjoli, President and CEO.

"Given our strong year-to-date performance and our ongoing initiatives to mitigate supply chain issues, we are confident to meet our FY22 year-end guidance. As a result, we have raised the lower end of our range implying a Normalized EPS growth of 67% to 81% over last year. Building on this momentum, we expect to generate further solid growth in FY23, driven by the sustained consumer interest in powersports, demand from new product introductions, the upcoming significant inventory replenishment cycle and additional production capacity," concluded Mr. Boisjoli.

Other assumptions for FY22 Guidance

  • Depreciation Expenses: ~$275M
  • Net Financing Costs Adjusted: ~$60M (previously ~$65M)
  • Weighted average number of shares - diluted: ~85.5M shares
  • Capital Expenditures: ~$705M to $730M (previously ~$575M to $600M)

Third quarter results

As expected, in the third quarter of FY22, the Company experienced a greater level of supply chain related disruptions and inefficiencies when compared to the first half of FY22 and the third quarter of FY21. As a result, it limited the Company's ability to satisfy consumer demand and to replenish dealer inventories and, in turn, further limited product availability in the network. Such supply chain related disruptions also resulted in an increased level of substantially completed units awaiting missing components thereby postponing wholesale delivery and unfavourably impacting revenue and profitability.

Revenues

Revenues decreased by $86.7 million, or 5.2%, to $1,588.0 million for the three-month period ended October 31, 2021, compared to the $1,674.7 million for the corresponding period ended October 31, 2020. The revenue decrease was primarily due to a lower wholesale volume of YearRound Products and Seasonal Products due to supply chain disruptions, partially offset by a favourable product mix and pricing. The decrease includes an unfavourable foreign exchange rate variation of $53 million.

  • Year-Round Products[6] (46% of Q3-22 revenues): Revenues from Year-Round Products decreased by $66.7 million, or 8.3%, to $736.3 million for the three-month period ended October 31, 2021, compared to $803.0 million for the corresponding period ended October 31, 2020. The decrease was primarily attributable to a lower volume of products sold due to supply chain related disruptions, partially offset by a favourable product mix combined with favourable pricing of SSV and ATV sold. The decrease includes an unfavourable foreign exchange rate variation of $31 million.

  • Seasonal Products[6] (28% of Q3-22 revenues): Revenues from Seasonal Products decreased by $71.0 million, or 14.0%, to $437.3 million for the three-month period ended October 31, 2021, compared to $508.3 million for the corresponding period ended October 31, 2020. The decrease was primarily attributable to a lower volume of snowmobiles sold due to supply chain related disruptions, partially offset by a favourable pricing of snowmobiles and PWC sold and by a favourable product mix of PWC sold. The decrease includes an unfavourable foreign exchange rate variation of $6 million.

    Powersports PA&A and OEM Engines[7] (18% of Q3-22 revenues): Revenues from Powersports PA&A and OEM Engines increased by $24.0 million, or 9.2%, to $283.9 million for the three month period ended October 31, 2021, compared to $259.9 million for the corresponding period ended October 31, 2020. The increase was mainly attributable to a higher volume of accessories, favourable pricing, increased usage of vehicles by consumers and strong product demand. The increase was partially offset by an unfavourable foreign exchange rate variation of $11 million.

  • Marine[7] (8% of Q3-22 revenues): Revenues from the Marine segment increased by $27.9 million, or 25.7%, to $136.3 million for the three-month period ended October 31, 2021, compared to $108.4 million for the corresponding period ended October 31, 2020. The increase was mainly due a higher volume of boats sold combined with lower sales programs, partially offset by an unfavourable foreign exchange rate variation of $5 million.

North American retail sales

The Company's North American retail sales for powersports vehicles decreased by 20% for the threemonth period ended October 31, 2021 compared to the three-month period ended October 31, 2020. The decrease in both Powersports and Marine segments was mainly driven by limited product availability.

  • Year-Round Products: retail sales decreased on a percentage basis in the low-twenties range compared to the three-month period ended October 31, 2020.
  • Seasonal Products: retail sales decreased on a percentage basis by high-teens compared to the three-month period ended October 31, 2020.
  • Marine: boat retail sales decreased by 27% compared with the three-month period ended October 31, 2020.

Gross profit

Gross profit decreased by $76.3 million, or 15.7%, to $410.6 million for the three-month period ended October 31, 2021, compared to the $486.9 million for the corresponding period ended October 31, 2020. Gross profit margin percentage decreased by 320 basis points to 25.9% from 29.1% for the three-month period ended October 31, 2020. The decrease was attributable to higher logistics, commodities and labour costs due to inefficiencies related to supply chain related disruptions. The decrease was partially offset by a favourable product mix and pricing.

Operating expenses

Operating expenses increased by $22.5 million, or 11.1%, to $225.1 million for the three-month period ended October 31, 2021, compared to $202.6 million for the three-month period ended October 31, 2020. This increase was mainly attributable to lower expenses in FY21 following cost reduction initiatives to mitigate the impact of Covid.

Normalized EBITDA[8]

Normalized EBITDA decreased by $96.9 million, or 27.8%, to $251.7 million for the three-month period ended October 31, 2021, compared to $348.6 million for the three-month period ended October 31, 2020. The decrease was primarily due to lower gross profit and higher operating expenses.

Net Income

Net income decreased by $71.0 million to $127.7 million for the three-month period ended October 31, 2021, compared to the $198.7 million for the three-month period ended October 31, 2020. The decrease was primarily due to lower operating income, partly offset by lower financing cost and income tax expense.

Nine-month period ended October 31, 2021

Revenues

Revenues increased by $1,162.6 million, or 28.1%, to $5,300.4 million for the nine-month period ended October 31, 2021, compared to $4,137.8 million for the corresponding period ended October 31, 2020. The revenue increase was primarily due to a higher wholesale of SSV, PWC, 3WV and PA&A due to Covid impact last year, lower sales programs due to a strong retail environment and favourable pricing combined with a favourable product mix of SSV and PWC. The increase was partially offset by the wind-down of the Evinrude outboard engines production and resulted in a lower volume of outboard engines sold and an unfavourable foreign exchange rate variation of $245 million.

Normalized EBITDA[9]

Normalized EBITDA increased by $359.8 million, or 52.5%, to $1,045.7 million for the nine-month period ended October 31, 2021, compared to $685.9 million for the nine-month period ended October 31, 2020. The increase was primarily due to a higher gross profit, partially offset by higher operating expenses, when excluding the impairment charge relating to the Marine segment recorded in FY21.

Net Income

Net income increased by $486.3 million to $585.0 million for the nine-month period ended October 31, 2021, compared to $98.7 million for the nine-month period ended October 31, 2020. The increase was primarily due to a higher operating income and a favourable foreign exchange rate variation on the U.S. denominated long-term debt, partially offset by a higher income tax expense and higher net financing costs.

Liquidity and capital resources

The Company generated net cash flows from operating activities totalling $61.2 million for the ninemonth period ended October 31, 2021 compared to $635.6 million for the nine month period ended October 31, 2020.

The Company used its liquidity primarily to invest in capital expenditures for $364.7 million to support its future growth, partially repaid its Term B Loan for a net amount of approximately US$300 million and returned $670 million to its shareholders through share repurchases and a quarterly dividend payout.

On May 4, 2021, the Company amended its $700.0 million revolving credit facilities to increase the availability to $800.0 million and to extend the maturity from May 2024 to May 2026 (the "Revolving Credit Facilities"). The pricing grid and other conditions remain unchanged. As at October 31, 2021, the Company had $46.0 million of outstanding indebtedness under the Revolving Credit Facilities and $12.5 million under bank overdraft.

Dividend

On November 30, 2021, the Company's Board of Directors declared a quarterly dividend of $0.13 per share for holders of its multiple voting shares and subordinate voting shares. The dividend will be paid on January 14, 2022 to shareholders of record at the close of business on December 31, 2021.

[1] See "Non-IFRS Measures" section of this press release.
[2] See "Non-IFRS Measures" section of this press release.
[3] See "Non-IFRS Measures" section of the press release.
[4] Effective tax rate based on Normalized Earnings before Normalized Income Tax.
[5] Please refer to the "Caution Concerning Forward-Looking Statements" and "Key assumptions" sections of this press release for a summary of important risk factors that could affect the above guidance and of the assumptions underlying this Fiscal Year 2022 guidance.
[6] The inter-segment transactions are included in the analysis
[7] The inter-segment transactions are included in the analysis
[8] See "Non-IFRS Measures" section of the press release
[9] See "Non-IFRS Measures" section of this press release.

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