Tough First Quarter Leads to Evinrude's Departure
On the heels of the announcement on Wednesday that it would stop producing Evinrude outboard engines, BRP Inc released its 2021 first quarter results yesterday morning. A decline of nearly 26% in revenue and a drop of more than 40% in outboard sales led BRP to discontinue production of Evinrude outboards and pursue a new marine strategy including a supplier agreement with Mercury Marine for BRP’s boat brands.
A Difficult First Quarter
According to International Boating Industry, the Quebec, Canada-based BRP reported overall revenues of C$1,229.8m for the quarter ended April 30, 2020, a year-over-year decline of 7.8% from the $1,333.7m reported for previous first quarter directly attributed to lower sales of seasonal and marine products.
Gross profit of $235.1m for the period declined by 21.7% from the $300.6m reported in the prior Q1, and was attributed to the under-absorption of fixed costs resulting from plant closures. Operating expenses for the period increased by $150.8m, or 71.3%, to $362.4m for the period resulting from a $171.4m impairment charge for the company’s marine segment.
BRP’s marine business unit posted revenues for the period of $112.1m for the quarter, representing a 25.9% decline from the $151.3m in revenues reported for the previous Q1. The decline was attributed to lower sales associated with impacts of the Covid-19 pandemic, and partially offset by the acquisition of Telwater Pty Ltd during fiscal 2020.
The company further reported that North American outboard engine sales for the period declined “on a percentage basis in the mid-40s range” over the previous Q1.
“Over the past few years, despite its innovative technology, our outboard engine lineup has been losing share in a market that was already difficult,” said BRP CEO and president, José Boisjoli. “Our strength was in the repower segment, while the industry growth was driven by the package sector, which lead to continued share erosion. Given this trend, our outboard engine had fallen behind in terms of profitability and cash generation potential. As the current situation forced us to reduce our investment plan, and review downward our growth expectation for the business, the path to profitability improvement for outboard engines was too low, it became apparent we had to discontinue production.”
New Direction
Boisjoli noted that the decision will allow BRP to refocus its marine investment moving forward on other projects anticipated to deliver higher sustainable returns, such as enhancing its boat lines. “We remain committed to our marine strategy, with an evolution to our approach,” said Boisjoli.
That strategy will include a focus on boat production and “unique marine products,” he said, including the Project Ghost concealed engine initiative announced in October as part of BRP’s M25 five-year growth strategy. Also continuing is the company’s Project M initiative to create a value-priced pontoon boat to compete in the entry-level market similar to the way it launched the Sea-Doo Spark product in the personal watercraft sector. Further elements of BRP’s M25 strategy, such as plans to grow the dealer network for its Alumacraft and Manitou boat brands in North America and the company’s Quintrex line in Australia, will also continue.
Funding those initiatives could prove challenging, however, with outboard engines having represented approximately 45% of BRP’s marine segment revenues. “We have plans in place to reduce our expenses up to $450m, versus what we were planning initially for fiscal 2021,” noted BRP CFO, Sebastien Martel. “One thing I can tell you is with the discontinuation of the outboard engine business is that’s a reduction of over $80m in overhead, and that’s a recurring savings year-over-year. The good news is we have flexibility to adjust.”
In a call with financial analysts, Boisjoli spoke highly of the new global supply agreement with Mercury Marine, which BRP announced on Wednesday evening, that will see Mercury become the “supplier of choice” for BRP’s boat brands including Manitou, Alumacraft, Quintrex and Stacer. “Brunswick is a perfect partner for us,” he said. “They don’t compete in powersports, so it’s a very good complementary business. We are happy with the outboard supply agreement that with have with them, and we could in the future exchange technology but we’ll see how this will play in the future.”