BRP Inc. Steers Through Stormy Waters: How Divestitures and Focus on Powersports Position It for Post-Tariff Growth

In a market rattled by trade wars and economic uncertainty, BRP Inc. (TSX: DDU) (NASDAQ: DOO) has emerged as a rare example of strategic discipline. By shedding non-core assets and doubling down on its high-margin Powersports business, BRP is positioning itself to outperform peers in a slowing recreational vehicle market. Its Q1 2026 earnings, while marked by revenue declines, underscore a leaner, more agile company primed for recovery once tariff clouds lift.

The Divestiture Play: Cutting Fat to Fuel Growth

BRP's decision to divest its Marine division—including Telwater and Alumacraft—was not merely cost-cutting. By exiting unprofitable segments, the company has redirected resources to its crown jewels: ATVs, side-by-side vehicles, and snowmobiles. The results are clear:

• Net loss from discontinued operations dropped 78% YoY to $10.9 million in Q1 2026, signaling progress in winding down non-core liabilities.
• Inventory reductions accelerated, with North American network inventory down 13% (excluding snowmobiles) in FY2025, easing overstock pressures.

This strategic shift has freed up capital and managerial bandwidth. As CEO Jose Bourgallis noted, the focus is now on “innovation in core markets and operational excellence,” a formula that could pay dividends as demand rebounds.

Navigating Margins in a Slump

Despite a 7.7% revenue decline to $1.85 billion, BRP's financial discipline shone through:
- Net income soared 279% to $161 million, driven by a $45 million foreign exchange gain on U.S. debt and a 9% reduction in operating expenses.
- Operating cash flow jumped 52% to $214.5 million, reflecting improved working capital management.

While gross margins dipped to 21.4% (down from 26.1% in Q1 2025), the dividend remained intact at $0.215 per share—a rare feat in an industry where peers are cutting payouts. This resilience underscores BRP's balance sheet strength, with free cash flow exceeding $450 million in FY2025.

Why Now Is the Time to Buy

The market has punished BRP's stock—down ~20% year-to-date—as fears over tariffs and soft demand linger. Yet this presents a compelling entry point:

1. Tariff clarity is coming: The U.S.-Canada-Mexico trade tensions that dragged margins could resolve in 2026. BRP's $60–70 million annual tariff exposure makes it a leveraged play on resolution.
2. Inventory is lean: Reduced stock levels mean BRP can pivot quickly to meet demand without overproducing.
3. Dividend resilience signals confidence: Maintaining payouts through a revenue slump speaks to management's confidence in the core business's cash flow.

Analysts estimate a low double-digit EPS rebound in 2026 if trade policies stabilize, making BRP's current P/E of ~12x forward earnings a steal versus its five-year average of 18x.

Risks? Yes—but Mitigated

While macro risks persist (e.g., prolonged trade disputes, consumer spending cuts), BRP's moves have minimized exposure:
- Cost discipline: Operating expenses are now tightly controlled, with SG&A down 9% YoY.
- High-margin segments: Powersports products like Rotax engines and Sea-Doo watercraft command premium pricing, insulating margins.

Conclusion: A Lean Champion in a Chaotic Market

BRP isn't just surviving—it's repositioning for dominance. By exiting low-margin distractions and sharpening its focus on Powersports, the company has built a fortress balance sheet and a product pipeline ready to capitalize on pent-up demand. Investors who buy now get a high-margin, dividend-resilient stock at a 20% discount to peers, with upside once tariffs settle. This is a buy for the next 12–18 months, as BRP steers through the storm and into clearer skies.

Action Item: Consider a position in BRP at current levels, with a stop below $35. Monitor for tariff updates and inventory trends in Q2 2026.