BRP (DOO) Posts A Quarterly Loss And Raises Its Outlook Anyway

On September 3, BRP Inc. (NASDAQ: DOO ) reported a second quarter that looked ugly on the bottom line and strong everywhere else. Revenue climbed 18.5% year over year to $2.24 billion, yet normalized diluted EPS swung to a loss of $0.18 a share from a profit of $0.92 a year earlier. Tariffs did the damage. Demand did not. Management raised full-year guidance anyway, and that contradiction is the whole story here.

The off-road vehicle business is why BRP can absorb a tariff hit and still lift guidance. Side-by-side retail share rose more than three percentage points in current model year units, with Can-Am capturing nearly a third of everything sold in North America, an all-time high for the brand. ATV retail rose mid-single digits even as the broader industry fell, pushing Can-Am into the number two spot in that category. Utility cab units have quadrupled over the past six years and now make up almost half the utility side-by-side industry, prompting BRP to expand manufacturing capacity by roughly 33%.

Asia Pacific retail grew 8%, well ahead of a low-single-digit industry pace. On the strength of that momentum, plus a favorable side-by-side mix, management raised full-year revenue guidance to a range of $9.23 billion to $9.475 billion and lifted normalized EPS guidance by $1, to $4 to $4.5. Free cash flow came in at $193 million for the quarter and $560 million year to date, and dealer inventory stayed disciplined at roughly 100 days for off-road vehicles despite rising 2% year over year.

The quarter's real story sits in the gross margin line, which fell 940 basis points to 11.7%. Section 232 tariffs alone accounted for a large piece of that, and a one-time $74.8 million payment to support a struggling supplier cut another 330 basis points. Normalized EBITDA dropped 34.9% to $138.8 million. Management now expects $200 million of net tariff exposure for the fiscal year, or roughly $225 million annualized, and a new 50% Section 338 tariff on Spyder units imported from Canada is projected to add a $60 million to $65 million headwind next year.

Elevated commodity and freight costs tied to oil and energy prices are squeezing things further. Personal watercraft retail declined in the low single digits in North America, which led BRP to cut planned shipments for the rest of the year, and Latin America retail fell 4% on softer Mexican demand. Management is guiding for Q3 normalized EPS to fall 50% to 60% year over year, almost entirely because of incremental tariff timing.