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Employees work on the Sea-Doo assembly line at the BRP plant on June 12, 2014 in Valcourt, Que.

Ryan Remiorz/The Canadian Press

Sea-Doo maker BRP Inc. says production shutdowns depleted its inventory and dragged down revenues in its second quarter, but rising demand buoyed profits as fun-seekers turned to power sports for pandemic recreation.

Net income rose 35 per cent, fuelled by a 40 per cent boost in North American sales of power-sports vehicles — personal watercraft, Ski-Doos, all-terrain vehicles and others. Earnings per share of $1.14 were seven times higher than analysts predicted.

The earnings increase came despite a revenue decline of 16 per cent, due mainly to lower shipment volumes caused by the suspension of operations at most BRP plants in April and May, the company said.

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“We’re down almost $1 billion in terms of inventory in the network ... It’s quite sizable,” chief financial officer Sebastien Martel said on a conference call with investors.

The shutdowns could lead to some loss of market share, he said, which the company plans to claw back in part through record capital expenditures of more than $400 million in 2021.

A new side-by-side vehicle factory in Mexico is expected to be operational by fall 2021, increasing production capacity of the off-road vehicles by half.

CEO Jose Boisjoli views the drastic decline in business for competing industries — cruises, airlines and amusement parks — as a boon to BRP.

“There is still a lot of disposable income there,” he said in an interview.

“A lot of people realized in May and June that they had not many options for going on vacation anywhere, and a lot of people turned around and decided to try power sports.”

More than three-quarters of power-sport vehicle purchases came from first-time BRP buyers, more than half of whom were new to the products, regardless of brand, the company said.

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Cruising on ATVs or Sea-Doos respects physical distancing and allows friends and family to share a social activity, making it “perfect” for the COVID-19 era, Boisjoli said.

Despite surging demand across the board in June and July, BRP has laid off about 1,000 employees and slashed others’ hours as factories ground to a halt.

It plans to return to its pre-pandemic headcount of 13,500 by year’s end, Boisjoli said — minus the 650 workers on its outboard motor production line, which stopped permanently earlier this year, bringing down total revenue.

“BRP’s profitability has been permanently enhanced by the exit from the outboard engine segment,” National Bank analyst Cameron Doerksen said in a research note.

“We expect BRP’s market share gains to continue as it aggressively rolls out new, innovative products.”

Three-wheeled vehicles posed another problem in spring and summer, as driving schools and licence bureaus closed and BRP suspended its demo tours.

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“It took longer to restart than anything else,” Boisjoli said. At three and a half months, trike production took nearly twice as long to ramp up as other facilities.

“It won’t be a great year in the three-wheeled-vehicle business because we’ve lost three months,” he said, adding that he expects sales to resume their steep ascent next year.

BRP expects revenue to be down between five and nine per cent for the year, with normalized earnings per share down by between $3.65 and $3.95.

The company earned $126.1 million or $1.43 per share in net income for the quarter ended July 31, up from $93.3 million or 96 cents per diluted share a year earlier.

Revenue totalled $1.23 billion, down from $1.46 billion in the same quarter a year ago, the company said.

On a normalized basis, BRP said it earned $1.14 per diluted share for the quarter, up from a normalized profit of 71 cents per diluted share in the same quarter last year.

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The surprise figure far surpassed analyst predictions of a loss of 19 cents per diluted share, according to financial markets data firm Refinitiv.

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