BRP's Q2 2026 Earnings Call: Contradictions Emerge on Inventory, Tariff Mitigation, and Market Demand

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $1.9B, up 4% YOY
• EPS: $0.92 normalized EPS (includes ~$0.35 of tax credits); YOY not specified
• Gross Margin: 21.1%, down YOY due to lower capacity utilization, unfavorable mix, and tariffs

Guidance:

• FY26 revenue expected at $8.15B–$8.30B.
• FY26 normalized EBITDA expected at $1.04B–$1.09B.
• FY26 normalized EPS expected at $4.25–$4.75.
• Assumes ~$90M gross tariff impact for FY26.
• H2 revenue growth expected at 8%–12% YOY.
• H2 normalized EBITDA up 22%–31% YOY; EBITDA margin >14%.
• Q3 normalized EPS roughly flat YOY; majority of H2 growth in Q4.
• Wholesale aligned with retail as inventory rightsizing largely complete (except snowmobiles).
• Continued focus on operational efficiency and lower sales programs.

Business Commentary:

* Sales and Financial Performance: - BRP Inc. reported revenue of $1,900,000,000 for the second quarter, with normalized EBITDA at $213,000,000 and normalized EPS at $0.92. - The growth was driven by higher ORV shipments and cost efficiencies despite lower capacity utilization and unfavorable product mix.

• Inventory and Market Share:
• The company's dealer inventory ended the quarter down 20% year-on-year, with notable declines in ORV and personal watercraft product lines.

• This resulted from BRP's strategic plan to rightsize inventory levels and align wholesale with retail, aiming to protect brand value and strengthen dealer financial health.

• Product Innovation and New Launches:

• BRP introduced several new models and upgrades, including the launch of the new Can Am Defender, enhancing its product lineup with advanced technology and features.

• The new products and upgrades aimed to capture market share, particularly in the utility side by side segment, which represents over twothree of the side by side industry.

• Tariff Impact and Mitigation:

• BRP estimated an increased gross tariff impact on its operations, raising the estimate to $90,000,000 due to recent tariff adjustments.
• The company is mitigating these impacts through sourcing and operational adjustments, with a net negative impact of approximately $0.025 to $0.3 on the P&L post mitigation efforts.

Sentiment Analysis:

• “We’ve delivered better than expected results in our second quarter… We ended the quarter with revenue of $1.9B… normalized EPS of $0.92.” “Dealers’ inventory ended the quarter down 20% year over year.” “We are comfortable issuing a guidance at this time… revenues of $8.15B to $8.30B… H2 normalized EBITDA… margin in excess of 14%.” Management acknowledged a “challenging” environment but emphasized strong H2 outlook and healthy inventory.

Q&A:

• Question from Craig Kennison (Baird): What tariff scenarios are you contemplating under potential USMCA changes, and how are you positioned?
  Response: Products made in Canada/Mexico meet USMCA with ~two‑thirds North American content; not modeling alternative scenarios now, but BRP will adapt quickly to clear rules and timelines.

• Question from Craig Kennison (Baird): How will you mitigate the ~$90M tariff exposure in guidance?
  Response: Shifting sourcing and production, including insourcing assemblies and moving suppliers/production across countries, to minimize tariff costs.

• Question from James Hardiman (Citi): How do current vs. noncurrent dynamics affect your H2 retail outlook?
  Response: Industry inventories are cleaner; BRP’s low inventories and new products (e.g., Defender) position it to gain share; company expects industry trends similar to Q2 and is confident in H2 guidance.

• Question from James Hardiman (Citi): What could tariffs look like next year (FY27)?
  Response: Absent mitigation, gross tariff headwind could be ~$120M–$130M (with ~$10M of FY26 one‑time costs not recurring); teams will work to reduce this.

• Question from Brian Morrison (G.D. Cowen): How does inventory destock affect revenue and margins now and next year?
  Response: FY26 destock reduces revenue by ~$400M–$500M; with wholesale=retail next year, that headwind should disappear. Promotions are a 75–100 bps tailwind vs. last year; potentially another ~50 bps tailwind next year if conditions improve.

• Question from Robin Fairley (UBS): ORV H2 retail expectations and why ORV inventory is ~5% below pre-COVID despite higher retail?
  Response: Sequential ORV retail improved into August; expecting better than Q2. Lower ORV inventory is appropriate given higher unit dollar values/mix; dealer count is stable.

• Question from Subbaha Khan (RBC Capital Markets): How do you see retail evolving into H2 and capital allocation priorities?
  Response: Base case is continuation of recent trends with volatility; confidence stems from low inventories, orders, and new products. Capital allocation: invest in the business and dividend; remain prudent on buybacks to preserve flexibility.

• Question from Joe Altobello (Raymond James): What drives H2’s ~10% revenue uplift and what’s the net tariff EPS impact?
  Response: Easier comps, year‑round products growth, favorable mix, and lower programs. Net tariff impact is approximately -$0.25 to -$0.30 EPS after mitigation, largely offset via pricing (notably in P&A).

• Question from Cameron Doerksen (National Bank Financial): Which products are hit by expanded steel/aluminum tariffs and any CEO search update?
  Response: ATVs and some SxS models face the 50% steel/aluminum tariff based on steel content; impact is manageable and BRP will adapt as rules evolve. CEO search is ongoing with transition targeted by year‑end.

• Question from Tristan Thomas Martin (BMO Capital Markets): Where do you expect year-end channel inventory, and how are dealers ordering new products?
  Response: Channel inventory should be similar to Q2 levels, with focus on reducing snowmobile; dealers have orders on hand, and ORV bookings are taken monthly for deliveries two months out—tracking to plan.