BRP Inc. (NASDAQ: DOO) posted a normalized diluted loss of $0.18 a share in its second quarter, reported September 3, against a $0.92 profit in the same period a year earlier. Revenue still climbed 18.5% year over year to $2.24 billion, and management raised full-year guidance anyway. The mechanism behind that contradiction is what deserves attention.
The case for BRP's confidence sits entirely in the off-road vehicle business. Can-Am side-by-side retail share rose more than three percentage points in current model year units, with the brand capturing nearly a third of everything sold in North America, an all-time high. ATV retail rose mid-single digits against a broader industry decline, lifting Can-Am to the number two position in that category. Utility cab units have quadrupled over six years and now account for nearly half the utility side-by-side industry; BRP is responding by expanding manufacturing capacity by roughly 33%. Asia Pacific retail grew 8%, well ahead of a low-single-digit industry pace. On the strength of that, management raised full-year revenue guidance to a range of $9.23 billion to $9.475 billion and lifted normalized EPS guidance by $1, to $4 to $4.5. Free cash flow came in at $193 million for the quarter and $560 million year to date.
The tariff damage is visible and still accumulating. Gross margin fell 940 basis points to 11.7%, with Section 232 tariffs responsible for a large portion of that move. A one-time $74.8 million payment to support a struggling supplier added another 330 basis points of drag. Normalized EBITDA dropped 34.9% to $138.8 million. Management now expects $200 million in net tariff exposure for the fiscal year, or roughly $225 million annualized, and BRP projects that a new 50% Section 338 tariff on Spyder units imported from Canada will add a $60 million to $65 million headwind next year. Q3 guidance calls for normalized EPS to fall 50% to 60% year over year, a decline management attributes almost entirely to incremental tariff timing.
The counterargument has institutional weight behind it. Hedge fund ownership slipped from 24 funds in the prior quarter to 19 in the most recent one. Personal watercraft retail fell in the low single digits in North America, prompting BRP to cut planned shipments for the rest of the year. Latin America retail dropped 4% on softer Mexican demand. Elevated commodity and freight costs tied to oil and energy prices are adding pressure on top of the tariff burden.
On balance, BRP is showing that off-road share gains can absorb a real earnings hit while the bottom line takes the punch. At a forward P/E of 15.24 as of September 11, the valuation is not demanding for a business growing revenue near 20%. The line to watch is whether Section 232 and 338 costs stop expanding. The read-through from Q3, a 50% to 60% EPS decline that management telegraphed before it arrived, is the first real measure of how much control the company actually has over the tariff timeline.