BRP’s marine engines segment sees gains

VALCOURT, Québec — While Bombardier Recreational Products Inc.’s consolidated revenues for the three-month period ended October 31 were down, compared to the same period of 2004, an increase in marine engine revenues helped offset it, the company reported in a statement yesterday.

“I am particularly pleased with our gains in the Marine Engines segment, resulting from our decision to concentrate on E-TEC products,” said José Boisjoli, BRP’s president and CEO.

During an earnings conference call yesterday, Boisjoli added that he expects the marine engine segment to be up again in the fourth quarter.

BRP operates in two segments: the Powersports segment includes snowmobiles, watercraft, all-terrain vehicles, sport boats and Rotax engines; the Marine Engines segment includes outboard engines.

E-TEC sales continue to climb

Marine Engines segmented revenues increased to $139.0 million for the three-month period ended October 31 compared to $127.6 million for the three-month period ended October 31, 2004. The increase results primarily from an improved product mix of $34.3 million due to an increase in the number of Evinrude E-TEC engines sold, which was partially offset by a lower number of units sold in the 4-stroke and 2-stroke carbureted engine categories and the strengthening of the Canadian dollar, according to the company.

Segmented revenues decreased to $430.5 million for the nine-month period ended October 31 compared to $443.2 million for the nine-month period ended October 31, 2004. The company said the decrease results primarily from lower number of units sold due to the rationalization of the product offering and the strengthening of the Canadian dollar, which was offset in part by an improved product and price mix due to the decision to focus on the Evinrude E-TEC outboard engines.

Marine Engines segmented operating income amounted to $14.8 million for the third quarter of fiscal 2006 as compared to $7.2 million for the third quarter of fiscal 2005. The increase results from improved margins due to the rationalization of the product offering and the decision to focus on the Evinrude E-TEC outboard engines, partially offset by reduced number of units sold and unfavorable foreign exchange rates, the company reported.

Segmented operating income amounted to $24.3 million for the nine months of fiscal 2006 as compared to $4.1 million for the nine months of fiscal 2005. The increase results from improved margins due to the rationalization of the product offering and the decision to focus on the Evinrude E-TEC outboard engines and favorable foreign exchange rate movements, partially offset by higher operating expenses and reduced number of units sold. The favorable impacts from the improved operating income were partially offset by increased marketing expenses for the promotion of the Evinrude E-TEC brand.

Powersports revenues down

Powersports segmented revenues were $501.2 million for the three-month period ended October 31, 2005 as compared to $513.5 million for the three-month period ended October 31, 2004.

Segmented revenues reached $1,294.9 million for the nine-month period ended October 31, 2005 as compared to $1,416.7 million for the nine-month period ended October 31, 2004.

Powersports segmented operating income amounted to $58.4 million for the third quarter of fiscal 2006 as compared to $42.6 million for the third quarter of fiscal 2005.

Segmented operating income amounted to $77.7 million for the nine months of fiscal 2006 as compared to $73.7 million for the nine months of fiscal 2005.

Boisjoli suggested during the earnings conference call that he is optimistic about the performance of the personal watercraft industry during the 2006 season, forecasting that it will show signs of growth, from which BRP will benefit.

Overall results mixed

The company’s consolidated revenues reached $624.6 million during the quarter, compared to consolidated revenues of $631.2 million for the three-month period ended October 31, 2004. Consolidated revenues for the nine-month period ended October 31, 2005 reached $1,685.9 million compared to consolidated revenues of $1,828.9 million for the nine-month period ended October 31, 2004.

Consolidated gross profit reached $161.5 million for the third quarter of fiscal 2006 compared to $128.9 million for the corresponding three-month period of fiscal 2005. Consolidated gross profit reached $356.9 million for the nine months of fiscal 2006, compared to $316.3 million for the corresponding nine-month period of fiscal 2005.

Operating expenses, comprised of selling and marketing, research and development and general and administrative expenses, amounted to $102.2 million for the three-month period ended October 31, 2005; a $12.4 million increase when compared to $89.8 million for the third quarter ended October 31, 2004.

Operating expenses amounted to $300.0 million for the nine-month period ended October 31, 2005; an increase of $23.7 million when compared to $276.3 million for the nine-month period ended October 31, 2004. The increased selling and marketing expenses for the three- and nine-month periods ended October 31, 2005 are attributable to the advertising campaigns to promote the Evinrude E-TEC outboard engines and the introduction of the 2006 ATV line-up and the promotion of sales incentives relating to watercraft and ATVs, according to the company.

Consolidated Adjusted EBITDA amounted to $94.5 million and $79.7 million, respectively, for the three-month periods ended October 31, 2005 and 2004 and $157.4 million and $167.2 million, respectively, for the nine-month periods ended October 31, 2005 and 2004.

Net income for the three-month period ended October 31, 2005 amounted to $48.9 million compared to $72.1 million for the three-month period ended October 31, 2004. Net income for the nine-month period ended October 31, 2005 amounted to $44.4 million compared to $52.4 million for the nine-month period ended October 31, 2004. Foreign exchange gain amounted to $14.8 million for the three-month period of fiscal 2006 compared to $79.7 million for the corresponding period of fiscal 2005. A significant portion of the foreign exchange gain resulted from the translation of the company’s U.S. dollar denominated debt into Canadian dollar and also from certain forward contracts not eligible for hedge accounting, the company reported.

“I am satisfied with our progress because gross profit margins and income from operations have increased as a result of our cost reduction efforts and our rationalization of the product offering in both segments,” said Boisjoli.

“The global business environment in which we operate is changing rapidly and we believe that we are well equipped to take on the challenges facing us,” commented Boisjoli. “BRP remains focused on designing and developing innovative products. Over the years this strategy has contributed to our success and going forward it should continue to do so.”

BRP’s portfolio of brands and products includes: Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft and sport boats, Johnson and Evinrude outboard engines, direct injection technologies such as Evinrude E-TEC, Bombardier ATV all-terrain vehicles, Rotax engines and karts.

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