Executive Summary / Key Takeaways

• Strategic Powersports Focus: BRP Inc. is executing a clear strategy to "double down on Powersports" by divesting its Marine businesses, aiming to concentrate investments and efforts on its core, higher-return segments. This pivot is expected to enhance normalized EBITDA by approximately $130 million, improve normalized EBITDA margin by 200 basis points, and raise normalized EPS by $1.50 compared to previous guidance that included Marine.
• Innovation-Driven Growth: The company continues to drive growth through significant product innovation, exemplified by the recent launch of the new generation Can-Am Defender, the Outlander electric ATV, and enhanced Sea-Doo and Switch models. These introductions, particularly in the utility side-by-side segment, are expected to fuel market share gains and a stronger second half of fiscal year 2026.
• Disciplined Inventory Management: BRP has proactively reduced network inventory by 20% year-over-year by Q2 FY26, achieving healthy levels across most product lines, with snowmobiles being the primary exception. This disciplined approach, though causing short-term market share losses in non-current units, positions the company for better alignment of wholesale with retail and improved dealer financial health.
• Positive Outlook Amidst Headwinds: Despite macroeconomic uncertainties, volatile tariff situations, and a slowdown in global EV adoption, BRP has issued a confident FY26 guidance. The company projects revenues of $8.15 billion to $8.3 billion, normalized EBITDA of $1.04 billion to $1.09 billion, and normalized EPS of $4.25 to $4.75, with significant growth anticipated in the second half.
• Competitive Resilience: BRP faces intense competition, particularly from OEMs with high levels of discounted non-current inventory. However, its focus on premium products, technological differentiation, and strong dealer relationships is expected to drive market share gains in current units and position it favorably as industry inventory normalizes.

Setting the Scene: BRP's Powersports Dominance and Strategic Evolution

BRP Inc., founded in 1937 in Valcourt, Canada, has evolved into a global leader in the powersports industry, designing, developing, manufacturing, and selling a diverse range of recreational vehicles and propulsion systems. The company's portfolio includes iconic brands such as Ski-Doo and Lynx snowmobiles, Sea-Doo personal watercraft and pontoons, and Can-Am all-terrain, side-by-side, and three-wheeled vehicles. BRP's overarching strategy is to "double down on Powersports," a deliberate pivot to focus its efforts and investments on its core, higher-return activities, following the divestiture of its Marine businesses. This strategic realignment aims to capitalize on attractive long-term growth opportunities and solidify its leadership position.

The powersports market, valued at CAD$48.24 billion in 2022, is projected to grow to CAD$72.51 billion by 2030 at a compound annual growth rate of 5.31%. BRP holds a strong position within this dynamic market, consistently ranking among the top manufacturers in several key categories. The company's global presence extends to over 130 countries, supported by an extensive network of close to 3,000 dealers. This widespread footprint allows BRP to serve a diverse customer base, from recreational enthusiasts to utility users in emerging markets.

Technological Edge: Driving Innovation and Performance

Innovation is deeply embedded in BRP's DNA, a commitment recognized by its Design and Innovation team being crowned Red Dot Design Team of the Year 2025. This prestigious international title, previously awarded to brands like Ferrari (RACE) and Apple (AAPL), underscores BRP's ability to develop market-shaping products. The company's technological differentiation is evident across its product lines, leveraging a modular design approach and continuous R&D investment.

A prime example of BRP's core technology is its e-POWER unit, a modular electric powerpack that propels its electric monocycle, snowmobiles, and the newly launched 2026 Can-Am Outlander Electric. This modularity optimizes development across multiple product lines, enhancing capital efficiency. The Outlander Electric itself offers "industry-leading towing capacity impressive off-road performance in a very quiet riding experience". It delivers 47 horsepower and 53 lb-ft of torque, with up to 80 km (50 miles) of range in optimal conditions, and can charge from 20% to 80% in just 50 minutes using a Level 2 charger. This quiet operation and robust performance provide a distinct advantage for utility and adventure users, differentiating it from traditional combustion engines.

BRP's commitment to innovation extends beyond electrification. The new generation of the Can-Am Defender, a highlight of the Club BRP 2026 event, received a "ground-up overhaul". This vehicle solidifies its position as the "most capable, versatile and reliable utility side-by-side on the market," offering the "largest cab in its category" and "setting an entirely new standard in the industry". This technological leap in a segment representing over two-thirds of the side-by-side industry is a significant competitive advantage.

Further technological advancements for model year 2026 include the Outlander MAX 6x6, designed for extreme conditions, rock crawling capabilities for the Maverick R lineup with the XRC package, and updated Maverick X3 models. In marine, Sea-Doo introduced new connectivity features, including a 10.25-inch touchscreen display now standard on high-performance models, offering marine navigation via the BRP GO! App and real-time rider tracking. Switch pontoons now boast a highly anticipated 300-horsepower engine option on some models, a 30% power boost over previous models, paired with a 60% larger fuel tank. These innovations justify premium pricing and enhance customer retention through an integrated digital ecosystem. For investors, BRP's sustained investment in R&D and its ability to translate this into market-shaping products with quantifiable performance benefits and enhanced user experiences directly contributes to its competitive moat, supports higher average selling prices, and underpins its long-term growth strategy.

A History of Market Leadership and Strategic Realignment

BRP's journey to its current market position is marked by consistent growth and strategic adaptation. Between pre-COVID levels (around fiscal year 2020) and fiscal year 2025, BRP became the number one OEM in Powersports in North America, gaining 6 points of overall market share. Its ambitious Off-Road Vehicle (ORV) strategy was particularly successful, leading to an 11-point gain in side-by-side vehicles and a 4-point gain in All-Terrain Vehicles (ATVs). The company also extended its leadership in Personal Watercraft (PWC) and Snowmobiles, gaining 2 and 9 points of market share, respectively.

Fiscal year 2025 (ending January 31, 2025) was a period of significant strategic realignment. BRP proactively reduced production and shipments in response to a challenging macroeconomic environment and softer industry trends. This disciplined inventory reduction plan, targeting a 15% to 20% decrease, resulted in short-term market share losses as competitors engaged in heavy promotions on non-current units. However, this action was crucial for protecting dealer value proposition and brand equity. During this period, BRP also initiated the process to divest its Marine businesses (Alumacraft, Manitou, and Telwater) to sharpen its focus on Powersports. The sale of Alumacraft's assets closed in May 2025, and a definitive agreement for Manitou was announced in July 2025. The company opted to retain its legacy outboard engine parts business, which generated over $70 million in revenue and nearly a 25% EBITDA margin in the prior year, as an acceptable sale price could not be achieved.

Financial Performance and Liquidity: Building a Stronger Foundation

BRP's financial performance in recent periods reflects its strategic adjustments and the challenging market dynamics. For fiscal year 2025, the company reported revenues of $7.8 billion, normalized EBITDA of $1 billion, and normalized EPS of $4.68, aligning with its revised guidance. The exit of the Marine business is expected to significantly improve BRP's financial profile, with continuing operations projected to generate approximately $130 million more in normalized EBITDA, improve normalized EBITDA margin by 200 basis points, and increase normalized EPS by $1.50 compared to previous guidance that included Marine.

In the second quarter of fiscal year 2026 (ending July 31, 2025), BRP delivered better-than-expected results. Revenue increased 4% year-over-year to $1.9 billion, primarily driven by stronger ORV shipments, partially offset by lower PWC deliveries. Gross profit margin for the quarter was 21.1%, a year-over-year decrease mainly due to lower capacity utilization, an unfavorable product mix, and the impact of tariffs. However, these headwinds were partially offset by cost efficiencies, favorable pricing, and reduced floor plan costs due to leaner network inventory. Normalized EBITDA for Q2 FY26 was $213 million, and normalized EPS was $0.92.

BRP's liquidity and capital resources remain robust. The company generated solid free cash flow of almost $100 million in Q2 FY26 and ended the quarter with over $270 million in cash. Dealer credit line usage stood at just above 60% in Q2 FY26, a healthy position that reduces financing costs for both BRP and its dealers and provides significant capacity for new product intake. For FY25, BRP generated over $450 million of free cash flow from continuing operations, supporting $62 million in dividend payments and $215 million in share repurchases. The company concluded FY25 with $180 million in cash and a comfortable net leverage ratio of 2.6 times.

Capital allocation priorities remain focused on investing in the business and growing the dividend. While BRP modestly increased its dividend in FY25, share buybacks are currently on the sideline due to ongoing macroeconomic and tariff uncertainties. Capital expenditures for FY26 are expected to be slightly higher than the previous year, primarily due to foreign exchange rates.

Competitive Positioning and Market Dynamics

BRP operates in a highly competitive landscape against major players like Polaris Industries Inc. (PII), Harley-Davidson Inc. (HOG), and Brunswick Corporation (BC). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, BRP's strong performance in its core segments suggests a robust standing.

BRP's competitive strategy centers on innovation, a diversified product portfolio, and a strong dealer network. The company has demonstrated its ability to gain market share in current units, even when overall retail is challenged by competitors' aggressive promotions on non-current inventory. For instance, in Q2 FY26, BRP gained further market share with its current Can-Am models, despite losing market share in non-current units due to its leaner inventory levels. This dynamic was particularly evident in the side-by-side market, where BRP underperformed due to "high level of discounting on noncurrent unit by other OEMs".

The company's strategic pricing adjustments, such as repricing some underperforming models, are aimed at regaining market share in key categories. BRP acknowledges that it "cannot gain any or every customer who shop for a price," instead focusing on the quality, innovation, and technology of its products to attract customers. The new Can-Am Defender, for example, is expected to significantly bolster BRP's position in the utility side-by-side segment, which accounts for over two-thirds of the industry's volume.

The industry is currently characterized by macroeconomic uncertainty, high inflation, and elevated interest rates, which disproportionately affect entry-level consumers who rely on financing. This has led to premium products selling well, while value products face pressure. BRP is well-positioned in this environment, as it tends to be stronger in high-end products. The company's proactive inventory management contrasts with some competitors who were slower to adjust production, leading to a more promotional environment in the first half of FY26. BRP expects market share challenges in the first half of the year due to competitors' non-current inventory but anticipates a stronger performance as industry inventory normalizes.

Outlook and Risks: A Path to Stronger Performance

BRP has issued guidance for fiscal year 2026, projecting revenues between $8.15 billion and $8.3 billion, normalized EBITDA between $1.04 billion and $1.09 billion, and normalized EPS between $4.25 and $4.75. This guidance anticipates solid growth in the second half of FY26, with revenue expected to increase by 8% to 12%, normalized EBITDA by 22% to 31%, and normalized EPS by 28% to 51%. The normalized EBITDA margin for H2 FY26 is expected to exceed 14%. This positive outlook is underpinned by the completion of network inventory rightsizing, strong snowmobile orders, and positive dealer reception for new products.

However, the outlook is not without risks. The operating environment remains challenging due to significant macroeconomic uncertainty and a volatile tariff situation, which continues to impact consumer confidence. BRP has factored in a "gross tariff impact" of approximately $90 million for FY26, an increase from previous estimates. This reflects higher steel and aluminum tariffs, new copper tariffs, and the expansion of tariffs to additional products. After mitigation efforts, the net negative impact on EPS is estimated to be $0.25 to $0.30. While BRP's vehicles produced in Canada and Mexico are USMCA compliant, and its sourcing from China is less than 10%, the uncertainty surrounding trade rules remains a significant concern. Jose Boisjoli, President and CEO, emphasized the need for "clear rule stability and lead time" to adapt effectively.

The ramp-up of retail sales for BRP's electric motorcycles is "not as expected in the context of a slowdown in global EV adoption," leading to price reductions to stimulate demand. This segment is anticipated to be an "incremental headwind of probably, let's say, $20 million to $30 million next year". Despite these headwinds, BRP expects a slight improvement in gross margin for the upcoming year.

Conclusion

BRP Inc. is strategically repositioning itself for sustained growth by sharpening its focus on the Powersports segment, a move that promises enhanced profitability and a more efficient allocation of capital. The company's history of market leadership, coupled with its relentless pursuit of technological innovation, particularly in electric vehicles and next-generation platforms like the Can-Am Defender, forms the bedrock of its investment thesis. While the macroeconomic environment and evolving tariff landscape present notable challenges, BRP's disciplined inventory management and strategic product launches are expected to drive a stronger financial performance in the latter half of fiscal year 2026.

The company's ability to consistently introduce market-shaping products and maintain strong dealer relationships provides a crucial competitive edge against rivals. As industry inventory levels normalize and consumer confidence potentially improves, BRP is well-positioned to capitalize on its technological leadership and diversified product portfolio to regain market share and deliver on its ambitious guidance. Investors looking for exposure to a company with a clear strategic vision, a proven track record of innovation, and a commitment to operational excellence in the dynamic powersports industry should find BRP Inc. a compelling consideration.