MONTREAL — BRP Inc. saw its third-quarter profits tumble by half from a year earlier, triggering a stock price decline as the recreational vehicle maker felt the squeeze of sluggish consumer spending.
The financial drop marked a sharp U-turn from the previous quarter, when earnings jumped 42 per cent year-over-year and optimism rode high atop near-record sales for the period.
“Consumer confidence declined since July," CEO José Boisjoli said of the U.S. market, pointing to weaker demand for the Ski-Doo maker's products.
"In October, the decline happened in almost all markets, but especially international. And the trend is continuing in November."
Sea-Doos, three-wheeled motorcycles and pontoon boats all saw lower sales in the quarter ended Oct. 31. "Marine had a tough quarter in particular," Boisjoli told analysts on a conference call.
The consumer slowdown pushed BRP to lower its financial forecast. The company is now projecting normalized earnings per share this fiscal year will drop six to eight per cent, instead of rising by up to seven per cent as previously predicted.
The Quebec-based company's share price closed lower by 12 per cent or $11.20 on Thursday, at $83.80 on the Toronto Stock Exchange.
"Generally, we are expecting a softer industry," Boisjoli said. But he qualified that demand for premium products remains strong, including for its pricier models of three-wheeled and side-by-side vehicles.
The boost in expensive purchases last quarter helped offset the sales drop-off for cheaper items, with three-wheelers serving as a prime example. Sales for the $12,200 Can-Am Ryker fell 20 per cent, but rose 20 per cent for the $27,600 Spyder F3 and the $32,400 Spyder RT, Boisjoli said.
Across the industry, sales for "value products" declined by roughly half, he said — "and this is definitely helping us."
"We want to win in each category, but we more skew to premium products."
The average household income of the company's customer base in North America sits at $165,000 — 40 per cent higher than four years ago — shaping BRP's marketing strategy, Boisjoli said in September.
Buyers with less disposable income are more sensitive to inflation and rising interest rates, which could deter them from taking on further debt to buy a turbo-charged toy. Meanwhile, those with more money to spare often skew older — the vast majority of BRP's three-wheeled vehicle buyers are over the age of 50 — and can put more cash down on a purchase.
"There is more traction on the premium. Consumers that have lower household incomes are more hesitant to finance the product," Boisjoli said.
The decline in spending on powersports, especially lower-priced items, partly reflects North America's shaky economic ground this year.
The Canadian economy shrank in the third quarter, as the gross domestic product contracted 1.1 per cent on an annualized basis, Statistics Canada said Thursday. So far, however, the country has managed to avert a recession.
National Bank analyst Cameron Doerksen proclaimed the "long-awaited powersports downturn finally here," while Craig Kennison of Baird said it was "surprising" how quickly the sector's fortunes shifted into reverse.
BRP reported a profit of $63.1 million or 81 cents per diluted share for the quarter, down 55 per cent from $141.6 million or $1.76 per diluted share a year earlier.
Revenue for the quarter fell 10 per cent to 2.47 billion from $2.71 billion in the same quarter last year.
Normalized earnings per share for BRP's most recent quarter amounted to $3.06 per diluted share, a 16 per cent drop from $3.64 per diluted share the year before.
In its outlook, the company now says revenue for its 2024 financial year is expected to grow four to five per cent, compared with earlier expectations for growth of seven to 10 per cent.
This report by The Canadian Press was first published Nov. 30, 2023.
Companies in this story: (TSX:DOO)
Christopher Reynolds, The Canadian Press