BRP's Q3 2026 Earnings Call: Contradictions Emerge on Inventory Management, Tariff Strategies, and Promotional Impact

Business Commentary:

• Strong Financial Performance and Market Share Gain:
• BRP Inc. reported revenue of CAD 2.3 billion for the third quarter of fiscal 2026, with normalized EBITDA of CAD 326 million, normalized EPS of CAD 1.59, and free cash flow of CAD 320 million.
• The company gained market share in the off-road vehicle (ORV) segment, driven by the success of new models like the Can-Am Defender HD11 and the introduction of highly engaged dealer networks.

• ORV and Side-by-Side Product Performance:
• Year-round products, particularly ORVs, saw a 22% increase in revenue due to higher shipments following new product launches.

• Side-by-side retail was up in the high single digits, outperforming industry trends, with the company gaining four points of market share in the utility category.

• Snowmobile Market Dynamics:

• BRP maintained its strategy of right-sizing snowmobile inventory, resulting in a 2% decline in revenue to CAD 606 million, mainly due to a planned reduction in shipments.

• Despite the decline, the company outperformed in current unit sales, benefiting from strong pre-sold units and an early snowfall.

• Inventory Management and Future Outlook:

• The company ended the quarter with 17% lower inventory levels, aligning better with retail expectations, particularly in personal watercraft and switch products.
• With robust product introductions and lean inventory, BRP anticipates capturing upside when market conditions improve, positioning for potential future growth.
  

Contradiction Point 1

Inventory Management and Market Share

It highlights discrepancies in the company's approach to managing inventory levels, which directly impacts revenue, operational efficiency, and market positioning.

Can you break down the current versus non-current components and expect the promotional environment to normalize or improve next year? - James Hardiman(Citigroup)

2026Q3: We gained market share in current units and lost in non-current, which was planned. - José Boisjoli(CEO)

What is the current inventory level in the channel, and how much further reduction is needed compared to competitors? - Sabahat Khan(RBC Capital)

2026Q1: Our network inventory is down 21% compared to last year, with double-digit declines across all product categories. - Sebastien Martel(CFO)

Contradiction Point 2

Tariff Headwinds and Strategic Adaptation

It involves differing statements on the company's approach to addressing tariff headwinds and strategic adaptations, which could impact financial performance and operational strategies.

What are your current production levels based on visibility, and how might tariffs evolve? - Sabahat Khan(RBC Capital Markets)

2026Q3: Tariff headwinds continue to impact us, but not as much as we had expected. - Sébastien Martel(CFO)

Regarding trade policy, what tariff scenarios are you considering, particularly with USMCA under renegotiation and Mexico planning to raise tariffs on Asian imports? - Craig R. Kennison(Baird)

2026Q2: We are very comfortable with the inventory level that we have... We're very comfortable that we'll be able to manage the tariffs appropriately. - Sébastien Martel(CFO)

Contradiction Point 3

Promotional Environment and Pricing Strategy

It involves the company's stance on promotional activities and pricing strategy, which directly impacts revenue and profitability.

How does the promotional environment impact your strategy, and what are your expectations for FY2027? - Joe Altobello(Raymond James)

2026Q3: We are about 70-80 basis points lower in retail promotion than last year. - José Boisjoli(CEO)

Can you discuss retail trends and tariff impacts this quarter? - James Hardiman(Citi)

2026Q1: We are protecting our pricing strategy and our profitability amidst this challenging environment. - José Boisjoli(CEO)

Contradiction Point 4

Tariff Impact and Mitigation Efforts

It pertains to the company's assessment of tariff impacts and the measures taken to mitigate their effects, which are crucial for financial planning and investor expectations.

What are your production levels based on current visibility and your tariff outlook? - Sabahat Khan(RBC Capital Markets)

2026Q3: Tariff headwinds are expected to remain stable due to improved customs processes. - Sébastien Martel(CFO)

Can you detail the $60M–$70M gross tariff impact and mitigation strategies? - Craig Kennison(Baird)

2026Q1: The impact is primarily due to our P&A business and China tariffs. Mitigation includes working with suppliers to change component origins, relocating assembly, and adjusting pricing. - Sebastien Martel(CFO)

Contradiction Point 5

Impact of Promotional Environment

It involves differing interpretations of the promotional environment's impact on the company's strategy and profitability.

Why are other OEMs still dominated by promotional and non-current units? - Robin Farley(UBS)

2026Q3: OEMs continue to have non-current inventory, influencing the promotional activity. This environment is expected to last a few quarters, impacting profitability. - José Boisjoli(CEO)

Have recent sales trends altered long-term growth plans, and is there any discounting in current promotions? - Derek Dley(Canaccord Genuity)

2021Q3: Promotional activities have been reduced, and sales incentives are significantly lower than in previous years. - José Boisjoli(CEO)