BRP Inc. expects plummeting oil prices will help rev up demand for the company’s sports vehicles, with more consumers having disposable income in their pockets to spend on snowmobiles, Sea-Doos and motorbikes.
“We believe worldwide, this is a positive driver and that could be positive demand for our product. So we view this trend favourably,” chief executive Jose Boisjoli said in an analyst call Friday following the release of the company’s latest financial results.
Boisjoli said lower crude prices means consumers will save money to fill up the vehicles, which can range between $250 to $400 a season for a snowmobile. Over the long-term, declining oil will also help the company cut down on its transportation costs and on some of the vehicles’ components.
Oil prices have fallen about 40 per cent since mid-summer highs due to an oversupply. On Friday, the January crude contract in New York moved down $1.78 to a fresh, five-year low of US$58.17 a barrel with analysts unable to say when prices will hit rock bottom.
Earlier on Friday, the Valcourt, Que.-based manufacturer, which spun off from Bombardier Inc. (TSX:BBD.B) in 2003, reported a six per cent increase in revenue for the third quarter, but overall earnings that came in under analyst expectations.
BRP Inc. (TSX:DOO), most known for its Ski-Doo snowmobiles, Sea-Doo personal watercraft and Can-Am wheeled and side-by-side all-terrain vehicles, said revenue for the three months ended Oct. 31 increased by six per cent, or $52 million, to $918 million, compared to the same period last year. Despite the jump, revenue was still below analyst expectations of $952 million for the quarter, according to Thomson Reuters data.
Currency fluctuations accounted for $29 million of the increase, as the Canadian dollar fell against the U.S. dollar and euro, while the rest was mostly from higher snowmobile sales and related parts, accessories and clothing.
The company reported normalized earnings — which exclude certain items — five cents below the analyst estimate of 65 cents per share.
The former Bombardier recreational products division had $37.2 million of net income and $71.9 million of normalized net income in the company’s fiscal third quarter, also below analyst estimates.
The normalized profit amounted to 60 cents per share, up from 50 cents a year earlier. BRP’s net income without the adjustments was down 22 per cent from $48.2 million in last year’s third quarter.
Investors reacted negatively to the results, pulling down the stock to a new 52-week low of $21.02. By mid-morning, shares bounced back slightly, to $23.18 — down about nine per cent from the Thursday close.
BRP also warned that the continued currency weakness in Russia — the company’s third largest market — has led it to reduce its forecast for full-year revenue growth and normalized earnings per share.
It’s now estimating normalized net income for the current financial year will now be between $1.47 to $1.57 per share — down from the $1.55 to $1.65 per share BRP had expected earlier.
“The situation has deteriorated significantly since the end of October, with a steep decline in the value of the ruble and this makes all imported products more expensive for Russians while affecting customer confidence,” Boisjoli told analysts.
It said since September, the value of the ruble has dropped between 39 to 45 per cent, due to the drop in oil prices and Western sanctions on Moscow related to its involvement with Ukraine.
As a result, Boisjoli said the retail environment in Russia has become “more challenging” and has led its Russian distributor to cut its order for recreational vehicles from BRP in half. The move will lead to a negative impact on the company’s upcoming fourth quarter, which is typically the peak season for snowmobile sales in Russia.
BRP said overall, international sales grew seven per cent in the third quarter, including the impact of Russia, but this long-term momentum will be difficult to maintain in certain countries such as Brazil, Argentina and the region of Latin America. Boisjoli classified sales growth in Australia, New Zealand, Germany, Italy and the U.K. as well as expected in the quarter.
Desjardins Capital Markets analyst Benoit Poirier said despite the earnings miss, he still sees value in the company moving forward.
“We believe the lower fuel price environment and the improving economic outlook in the U.S. create tailwinds for BRP over the coming years given the more favourable consumer spending expected on discretionary products,” he wrote in a note.
“As a result, we would see any weakness in the share price today as a buying opportunity.”
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