BRP reports fiscal year 2023 second quarter results
by BRP 15 Sep 2022 05:50 PDT
BRP logo © BRP
Highlights
- Revenues of $2,439 million, up 28% compared to the same period last year, arecord performance for a single quarter in the Company's history;
- Normalized EBITDA[1] of $418 million, slightly higher compared to the same period last year and also representing a record performance for a single quarter;
- Retail sales increase on a percentage basis in the high single-digits and market share gains for SSV in North America despite limited product availability;
- Normalized diluted EPS[1][2] of $2.94, an increase of $0.05 per share or 2%, while diluted EPS of $2.94, an increase of $0.48 per share, or 20%, compared to the same period last year;
- Increasing full-year guidance for Revenues, Normalized EBITDA[1] and Normalized EPS - diluted[1] upward by $0.30, now ranging from $11.30 to $11.65.
Recent events:
- During its Club BRP 2023, the Company introduced three new Can-Am Off-Road youth ATVs and unveiled new PWC models and updates to its ORV products. It also introduced thefully redesigned Manitou, Alumacraft and Quintrex boats featuring the all-new Rotax outboard engine with Stealth Technology. The Company is also pushing forward with its EV plan and revealed two all-electric Can-Am motorcycle models and introduced the Sea-Doo Rise, a completely new electric hydrofoil board;
- Subsequent to the end of the second quarter, the Company completed the acquisition of 80% of the outstanding shares of Pinion GmbH, a leader in the design and manufacturing of mechanical gearboxes for traditional and electric bicycles. The Company also announced the signature of a definitive agreement with Kongsberg Automotive ASA for the acquisition of substantially all the assets related to the powersport business of Kongsberg Inc., a long-standing BRP supplier of electronic and mechatronic products;
- On August 8, 2022, the Company was the target of a cyberattack, impacting its operational and information technology systems. One week later, it announced that its production operations were progressively resuming.
BRP Inc. (TSX:DOO; NASDAQ:DOOO) today reported its financial results for the three- and six month periods ended July 31, 2022. All financial information is in Canadian dollars unless otherwise noted. The complete financial results are available on SEDAR and EDGAR, as well as in the section Quarterly Reports of BRP's website.
"We delivered record second quarter results while continuing to advance on our strategic initiatives. Our team's agility and resilience and the strength of our portfolio allowed us to continue to deliver robust performance in this unique operating environment," said José Boisjoli, President and CEO.
"As we are entering the second half of the year, demand for our products continues to be strong across our portfolio of products and markets. With current improvements in supply chain and our additional production capacity, we are in a favourable position to deliver an expected record second half of the year. Taking these factors into account and a stronger than expected second quarter, we are increasing our full-year guidance with an expected Normalized EPS of $11.30 to $11.65," concluded Mr. Boisjoli.
FY23 Quarterly Outlook[5]
The Company continues to expect another solid year with a Normalized EBITDA [3] increase ranging from 14% to 17% compared to the previous year. The Company anticipates that its Normalized EPS - Diluted[3] for the third quarter could be up over 50% compared to the third quarter of Fiscal 2022 as the Company intends to take advantage of an increase in planned production capacity towards the back half of the third quarter to accelerate the pace of product deliveries.
[3]See "Non-IFRS Measures" section of this 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 2023 guidance.
Second quarter results
The Company experienced a high level of demand for its products and a continuing level of supply chain related disruptions and inefficiencies in an increasingly inflationary environment when compared to the second quarter of Fiscal 2022 and the first quarter of Fiscal 2023. As a result, this limited the Company's ability to satisfy consumer demand, most notably for PWC, and to replenish dealer inventories and in turn further limited product availability in the network compared to seasonal optimal levels. Such supply chain related disruptions also resulted in an increased level of substantially completed units awaiting missing components.
Despite these challenges, the Company optimized the shipment of missing components to its dealer network which resulted in a high conversion rate of substantially completed units available for retail and it revised its production schedule based on seasonality and component availability. The Company implemented strategic pricing initiatives aimed at reducing inflationary pressures, which nevertheless unfavourably impacted the Company's profitability. The higher revenues achieved for the second quarter and first half of Fiscal 2023 compared to Fiscal 2022 were further supported by strong SSV retail sales, demonstrating the continued consumer interest, and by the ramping up of the new Juarez-3 facility dedicated to SSV production.
Revenues
Revenues increased by $534.7 million, or 28.1%, to $2,438.5 million for the three-month period ended July 31, 2022, compared tothe $1,903.8 million for the corresponding period ended July 31, 2021. The increase was primarily due to a higher wholesale volume of SSV and 3WV sold due to strong retail demand, favourable pricing across all product lines and the introduction of the Sea-Doo pontoon. The increase was partially offset by a lower volume of PWC sold due to supply chain disruptions. The increase includes a favourable foreign exchange rate variation of $10 million.
- Year-Round Products[6] (56% of Q2-23 revenues): Revenues from Year-Round Products increased by $402.5 million, or 42.1%, to $1,358.1 million for the three-month period ended July 31, 2022, compared to $955.6 million for the corresponding period ended July 31, 2021. The increase was primarily attributable to a higher volume and favourable mix of SSV and 3WV sold and favourable pricing across all product lines. The increase includes a favourable foreign exchange rate variation of $14 million.
- Seasonal Products[6] (28% of Q2-23 revenues): Revenues from Seasonal Products increased by $116.7 million, or 20.3%, to $691.2 million for the three-month period ended July 31, 2022, compared to $574.5 million for the corresponding period ended July 31, 2021. The increase in revenues was primarily attributable to the introduction of the Sea-Doo pontoon and favourable pricing on PWC units sold, combined with a favourable mix of PWC. The increase was partially offset by an unfavourable foreign exchange rate variation of $7 million.
- Powersports PA&A and OEM Engines[6] (11% of Q2-23 revenues): Revenues from Powersports PA&A and OEM Engines increased by $8.8 million, or 3.5%, to $257.5 million for the three-month period ended July 31, 2022, compared to $248.7 million for the corresponding period ended July 31, 2021. The increase in revenues was mainly attributable to favourable pricing due to the strong retail environment, partially offset by lower volume of PA&A sold due to the lower volume of PWC units sold. The increase includes a favourable foreign exchange rate variation of $1 million.
- Marine[6] (5% of Q2-23 revenues): Revenues from the Marine segment increased by $10.7 million, or 8.3%, to $139.5 million for the three-month period ended July 31, 2022, compared to $128.8 million for the corresponding period ended July 31, 2021. The increase was primarily due to a favourable mix of boats sold and favourable pricing, partially offset by lower volume of boats sold due to supply chain disruptions. The increase includes a favourable foreign exchange rate variation of $2 million.
[6]The inter-segment transactions are included in the analysis
North American Retail Sales
The Company's North American retail sales for powersports products decreased by 14% for the threemonth period ended July 31, 2022 compared to the three-month period ended July 31, 2021. The decrease was mainly due to limited product availability driven by supply chain disruptions.
- Year-Round Products: retail sales decreased on a percentage basis in the low single-digits compared tothethree-month period ended July 31, 2021. Incomparison, the Year-Round Products industry recorded a decrease on a percentage basis in the high single-digits over the same period.
- Seasonal Products: retail sales decreased on a percentage basis in the high-twenties range compared to the three-month period ended July 31, 2021. In comparison, the Seasonal Products industry decreased on a percentage basis in the low-teens range over the same period.
- Marine: retail sales for Marine products decreased by 9% compared to the three-month period ended July 31, 2021 also as a result of lower product availability.
Gross profit
Gross profit increased by $32.6 million, or 5.7%, to $602.7 million for the three-month period ended July 31, 2022, compared to $570.1 million for the corresponding period ended July 31, 2021. Gross profit margin percentage decreased by 520 basis points to 24.7% from 29.9% for the three-month period ended July 31, 2021. The increase in gross profit was primarily due to a favourable volume of SSV and 3WV sold and favourable pricing across all product lines. The decrease in gross profit margin percentage was attributable to higher logistics, commodities and labour costs due to inefficiencies related to supply chain disruptions, partially offset by higher volume and favourable pricing.
Operating expenses
Operating expenses increased by $25.2 million, or 10.9%, to $256.9 million for the three-month period ended July 31, 2022, compared to $231.7 million for the three-month period ended July 31, 2021. The increase was mainly attributable to an increase in research & development ("R&D") expense to support future growth and higher general and administrative expenses mainly for the modernization of the Company's software infrastructure to support future growth.
Normalized EBITDA[7]
Normalized EBITDA increased by $3.3 million, or 0.8%, to $418.3 million for the three-month period ended July 31, 2022, compared to $415.0 million for the three-month period ended July 31, 2021. The increase was primarily due to higher gross profit partially offset by higher operating expenses.
Net Income
Net income increased by $24.8 million to $237.7 million for the three-month period ended July 31, 2022, compared to the $212.9 million for the three-month period ended July 31, 2021. The increase was primarily due to a lower income tax expense and a favourable foreign exchange rate variation impact on the U.S. denominated long-term debt, partially offset by net financing costs.
[7]See "Non-IFRS Measures" section of the press release.
Six-month period ended July 31, 2022
Revenues
Revenues increased by $535.4 million, or 14.4%, to $4,247.8 million for the six-month period ended July 31, 2022, compared to $3,712.4 million for the corresponding period ended July 31, 2021. The increase in revenue was primarily due to a higher volume of Year-Round and Seasonal Products mainly attributable to SSV sold and the introduction of Sea-Doo pontoons, as well as favourable pricing across all product lines.
The increase was mostly offset by lower volume in PWC and ATV due to supply chain disruptions, and by an unfavourable foreign exchange rate variation of $17 million.
Normalized EBITDA[8]
Normalized EBITDA[8] decreased by $103.6 million, or 13.0%, to $690.4 million for the six-month period ended July 31, 2022, compared to $794.0 million for the six-month period ended July 31, 2021. The decrease in normalized EBITDA [1] was primarily due to lower gross profit due to supply chain disruptions and higher operating expenses, mostly in R&D and general and administrative expenses.
Net Income
Net income decreased by $98.6 million to $358.7 million for the six-month period ended July 31, 2022, compared to $457.3 million for the six-month period ended July 31, 2021. The decrease in net income was primarily due to lower operating income and the unfavourable foreign exchange rate variation impact on the U.S. denominated long-term debt, partially offset bya lower incometax expense and lower net financing costs.
Liquidity and capital resources
The Company used net cash flows from operating activities totaling $1.0 million for the six-month period ended July 31, 2022 comparedto net cash flows generated of $326.9 million for the six-monthperiod ended July 31, 2021. Concurrently, there was an increase in revolving facilities totaling $237.4 million.
The Company invested $220 million of its liquidity in capital expenditures to add production capacity and modernize the Company's software infrastructure to support future growth. The Company also returned $331 million to its shareholders through quarterly dividend payouts and its Normal Course Issuer Bid and Substantial Issuer Bid programs.
On June 10, 2022, the Company added $400 million to its available commitment under its revolving credit facilities and increased availability to $1,500.0 million. The pricing grid and other conditions remained unchanged.
Dividend
On September 13, 2022, the Company's Board of Directors declared a quarterly dividend of $0.16 per share for holders of its multiple voting shares and subordinate voting shares. The dividend will be paid on October 14, 2022 to shareholders of record at the close of business on September 30, 2022.
[8]See “Non-IFRS Measures” section of the press release.