BRP Q4 FY15 Earnings Call & Analyst Day

The Can Am Maverick Xds Turbo was introduced in 2015.

The Can Am Maverick Xds Turbo was introduced in 2015.

BRP, manufacturer of Can-Am branded off-road vehicles recently announced their financial results for the fourth quarter of fiscal year 2015, and also made a presentation to industry analysts. The following is a summary of some of the key points from the earnings call and analyst presentation, mostly related to the utility vehicle market. (all $ figures in Canadian dollars)

  • For the year total company revenues were up 10% to $3.5 billion and net income increased to $70.1million from $59.7 million.
  • For the year, Year Round Products revenue, which includes ATVs, UTVs and the Can Am Spyder, increased to $1.3 billion from $1.2 billion.
  • Gross Profit Margins decreased by 1% to 24% because of currency issues.
  • In the Q4 2015, which ended January 31, Year Round Products increased 53% year over year to $416.0 million from $272.5 million. The large increase is attributed to continued growth, dealer shipments for new product introductions for ATVs, UTVs and the Spyder and a new dealer ordering system that shifted some shipments from Q3 to Q4.
  • The Maverick Xds and Xds Turbo were introduced but slightly behind the optimum schedule.
  • Management reports that North American industry side-by-side sales are up mid-teens percent for the season starting in June while the ATV industry remains flat.
  • Can-Am side-by-side sales were up mid-single digits. While Can AmMaverick and Commander maintained market share in their respective sport and recreation focused market segments, BRP’s lack of product in the more utility oriented segments puts their sales growth behind the overall industry pace.
  • New product introductions increased inventory for UTVs and ATVs slightly.
  • Promotional activity for the UTV market is reported to be normal.
  • UTV OEMs continue to collaborate through the ROHVA association in discussions with the CPSC regarding new UTV regulations.
  • BRP continues to expand their NA dealer network. They added 38 dealers in FY14 and 76 in FY15. Of the latter 76, 72 are carrying off-road vehicles and 31 are located in the South or Southwest. Dealer network coverage for ORV and Spyder has increased by 10%. The management is targeting 200 to 300 new dealers in total by the end of FY17. 
  • Management is focusing not only on increasing the number of dealers but improving the quality with better showrooms, as well as increasing the number of BRP product lines that existing dealers are carrying.
  • Ramp up time for new dealers is averaging about 12 months, which is slower than expected but management appears satisfied with the quality of the dealers and is taking a long-term approach.
  • The company is continuing to invest in and shift manufacturing operations with an emphasis on their facilities in Mexico, which have lower production costs, are closer to ORV and water products market and a offer a good location for international shipping.
  • Their Queretaro facility in Mexico will build engines for ORVs and other products. BRP is investing $55 million in their Juarez II facility in Mexico which will handle new ORV growth and brings chassis painting in-house. The facility is expected to have enough capacity for their growth plans through at least FY2020.
  • Capital expenditures will increase significantly from $175 million in FY2015 to $200-220 million in FY2016.
  • Guidance for Year Round Products for FY2016 is an increase in revenues of 7%-11%.

ORV Related Growth Areas

  • Management is targeting the utility segment of the UTV market as a growth area and the biggest opportunity in the Year Round Products division.
  • Overseas, China represents a sizable off-road opportunity and BRP plans to increase the number of dealerships from 19 to 30 by the end of FY16.
  • Another growth area related to ORVs that is being targeted is in Parts, Accessories and Clothing which has grown at a CAGR of 12% over the last five years.

Comment:  While not explicitly stated by the management, expect BRP to introduce new UTVs this year targeting the utility/work market segment. The challenge for the powersports UTV manufacturers is reaching the utility/work customers with their existing dealer networks. Some portions of this market segment is often reached by non-powersports distribution channels and involve different selling processes at which powersports dealers may not excel or be interested in pursuing. Nevertheless, the continued entry into other UTV segments by various powersports manufacturers as well as the expansion of dealer networks should help drive growth in the NA UTV market. Overseas, there are some currency and macro economic headwinds but BRP and other OEMs appear to be committed to the long term development of the ORV market.

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