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The United States’s decision to slap 25% tariffs on Canadian and Mexican imports could spell trouble for several Canadian stocks. While the tariffs on both countries have been delayed by a month, their eventual implementation could still shake up industries reliant on cross-border trade. One company in particular, BRP Inc. (TSX:DOO), could be hit hard.
BRP’s heavy dependence on the U.S. market
BRP, a leader in recreational vehicles, generates over 60% of its revenue from the U.S. market. The company’s well-known brands, including Ski-Doo, Sea-Doo, and Can-Am, are favourites among American consumers. However, the issue isn’t just where BRP sells its products—it’s where they are made.
Approximately 70% of BRP’s current production happens in Mexico. Some of it happens in Canada. That means most of the products sold in America could face the full force of Trump tariffs if applied to Mexico and Canada next month. With close competitors like Polaris, Honda, and Yamaha manufacturing within the U.S., BRP may struggle to maintain competitive pricing. The company could either absorb the tariffs—squeezing profit margins—or pass them to consumers, potentially reducing demand and losing market share.
What’s at stake for BRP?
The stock market reaction has already been harsh. BRP stock dropped as low as 9% before closing 7.8% down on Monday, reflecting investor concerns over how the company will navigate the Trump tariff storm. The company’s production footprint works against it: while it has four U.S. facilities, most of its bestselling vehicles are assembled in Mexico. The bulk of the company’s sales come from imports now facing tariffs.
Additionally, BRP’s competitors could gain an edge. Many rival manufacturers of recreational vehicles already operate extensive production facilities within the U.S., shielding them from these trade-related price increases. With tariffs looming, consumers may start favouring brands that can avoid price hikes.
Can BRP stock weather the United States tariff storm?
BRP has some options to mitigate the damage, but none are easy. It could shift production to U.S. facilities, but that requires significant investment and time. It could absorb the tariffs to maintain pricing, but that would hit profitability. Alternatively, it could raise prices, risking lower sales and market share.
The company is also in the middle of selling its marine business, a move that could free up resources but won’t change its core exposure to tariffs on powersports vehicles. Meanwhile, inflationary pressures and potential retaliatory measures from Canada and Mexico add another layer of uncertainty to BRP stock’s future financial performance.
A challenging road ahead for DOO stock
BRP stock has recently been under pressure from revenue and profit declines, and these Trump tariffs could make things worse. Revenue growth significantly slowed in recent quarters, with sales down 22% year over year over the past nine months due to weak consumer demand, intentional inventory reductions, and promotional pricing. New tariffs-induced cost burdens could further strain the company’s financials. While BRP has historically been a strong performer, the trade war puts it in a difficult operating position.
Meanwhile, BRP stock is on a respectable path to becoming a Canadian Dividend Aristocrat after raising dividends for four consecutive years. The company raised dividends by an average rate of 17% during the past three years. Its earnings payout rate below 35% has been relatively conservative, and there was some room for further dividend raises. However, Trump tariffs could pressure management into abandoning the noble agenda. The BRP stock dividend currently yields under 2%. Perhaps it’s not worth much for income investors, but a Dividend Aristocrat status could attract more attention from dividend exchange-traded funds (ETFs) passively tracking Dividend Aristocrat stock indices.
For stock investors, the key question is whether BRP can adapt quickly enough. With tariffs now a reality, DOO stock could remain volatile in the coming months. The one-month delay on Mexico’s tariffs offers a short-term reprieve, but unless policy changes, BRP stock faces a tough road ahead.