BRP Inc. executives said the Ski-Doo maker needs to stay calm in the face of tariffs proposed by U.S. president-elect Donald Trump 鈥� tariffs that could hurt a manufacturer that depends on Mexican production.
"I don't think we should overreact right now," chief financial officer S茅bastien Martel told analysts on a conference call Friday. "We should not speculate too much, because there are hundreds of different possibilities."
Last month, the incoming president threw markets into turmoil when he threatened to slap a 25 per cent tariff on all products entering the U.S. from Canada and Mexico. Trump also proposed a 10 per cent tariff on Chinese imports.
Some 70 per cent of BRP's production stems from Mexico, Martel said. The company also churns out Ski-Doo snowmobiles and some of its Can-Am three-wheeled motorcycles at a factory in Valcourt, Que.
He stressed the advantage of Mexico's lower labour costs as well as its skilled workforce and the benefits of a North American free trade agreement.
"We believe we would not be the same company had we not had that footprint in Mexico," Martel said.
Roughly 10 per cent of BRP's goods are sourced from China, Martel noted, adding that those parts are "less technically complex."
"There are parts that we could easily transfer to another supplier," he said. "Obviously, it would require work."
Many observers have framed Trump's tariff threat as a gambit to gain negotiating leverage, rather than an announcement set in stone.
"We are used to dealing with evolving trade agreements and have always succeeded in finding solutions to new tariffs," said CEO Jos茅 Boisjoli.
National Bank analyst Cameron Doerksen said the "uncertainty on this issue" remains a problem.
"With the return of the Trump administration, the risk of tariffs on powersports imports into the U.S. market has risen materially, with BRP potentially vulnerable," he said in a note to investors.
The uncertainty over tariffs could hardly come at a worse time for the company.
BRP saw earnings plunge across all product lines amid dropping demand last quarter, capping off a tough year for the recreational vehicle manufacturer.
Net income at the Sea-Doo maker fell 70 per cent year-over-year to $27.3 million in the quarter ended Oct. 31. Third-quarter revenue decreased 17 per cent to $1.96 billion.
"Our retail performance was as anticipated, reflecting a challenging market dynamic due to soft industry trends," Boisjoli said, stating that discounts from competitors added to the company's woes.
A slow start to the snowmobile season has not helped either.
"The snow is a bit late, but now it鈥檚 catching up. And we expect good retail this season," Boisjoli said, adding that Ski-Doo sales over the next three months remain a "big question."
After an urge for outdoor activity sparked a sales boom during the COVID-19 pandemic, buyers responded to inflation and interest rate hikes by pulling back from pricey recreational purchases.
BRP's revenues have fallen year-over-year for eight straight quarters.
Last month, the company laid off more than 120 employees in its home province of Quebec. The cuts followed some 1,150 layoffs across North America earlier this year, leaving it with roughly 20,000 workers globally.
In October, BRP put its marine businesses up for sale as it looks to focus on powersports products and cut the cable to its money-losing boat brands.
Nonetheless, its diluted earnings of $1.16 per share beat analysts' expectations of 69 cents, according to financial markets firm LSEG Data & Analytics. The performance boosted BRP's stock price seven per cent; it closed at $72.75 on the Toronto Stock Exchange on Friday.
The company forecast that sales of seasonal products such as Ski-Doos and Sea-Doos will fall by more than 30 per cent this year. The category accounted for a third of BRP revenues last quarter.
It predicted sales of all-terrain vehicles and other year-round products 鈥� comprising more than half of revenue in the quarter 鈥� will drop by more than 20 per cent.
This report by The 91原创 Press was first published Dec. 6, 2024.
Companies in this story: (TSX:DOO)
Christopher Reynolds, The 91原创 Press
