The relatively mild winter we just experienced seems to have helped Polaris Industries
(NYSE:PII) outperform expectations, even if ever so slightly, but the economic outlook
remains so uncertain that the leading powersports vehicle maker has no intention of raising
its outlook based on the first quarter’s better outcomes.
Polaris said although sales fell 5% and profits were nearly halved, results were still better
than what it expected, and they handily beat Wall Street’s forecasts, too. However, because
the market for its main moneymaker, off-road vehicles, is still dicey, it’s leaving in place
the guidance it provided at the end of the fourth quarter, which called for earnings of
$6.20 and $6.80 per share, and revenues either falling 2% or rising 3%, which would give
it a broad target to hit of $4.6 billion to almost $4.9 billion.
Staying ahead of the market
The better weather did seem to have an impact on sales, as its the declines were generally
lower than the overall markets for its vehicles. For example, Polaris gained a bit of ATV
share as it slightly outperformed the North American ATV industry; it did better in snowmobiles
as the industry was up 30%, but its retail sales rose in the upper 30% range. And where the
heavyweight motorcycle market was largely flat year over, its Indian brand saw retail sales
surge 50%, marking the fifth straight quarter it has stolen market share from industry
leader Harley-Davidson (NYSE:HOG).
Part of the benefit Polaris gained in the motorcycle business is thanks to Harley doing the
heavy lifting when it comes to promoting ridership. In its earnings conference call last week,
Harley-Davidson noted that while it’s obviously trying to attract riders to the Harley-Davidson
brand, it is more broadly trying to increase the number of people riding motorcycles, too.
However, that effort is also leading customers to Polaris, which not only saw its Indian brand
post phenomenal growth numbers, but its Victory brand is starting to see losses stabilize, too.
Sales declines were in the low single digits, a marked improvement over prior periods, where
sales fell by double-digit rates.
As Polaris chairman and CEO Scott Wine said, “Nice when someone else pays for your advertising.”
Polaris’s innovative three-wheeled Slingshot did suffer a mid-teens decline at retail, but that’s not
necessarily surprising since it went up against a huge pre-deposit backlog last year. Perhaps equally
important is that it’s now shipping into foreign markets like Mexico and will be in Europe starting
in the fourth quarter.
It’s clear Polaris is firing on all cylinders now in motorcycles, particular with the Indian nameplate,
but off-road vehicles are still the powersport vehicle maker’s bread and butter, and it’s going to be
a bumpy ride for its leading RZR side-by-side.
A polarizing recall
Polaris just initiated a recall of some 160,000 vehicles because of fire and other “thermal hazards.”
It’s an inopportune time, because Arctic Cat‘s (NASDAQ:ACAT) surprisingly popular Wildcat Trail
side-by-side has been nibbling away at the RZR’s dominant position.
There’s so much uncertainty surrounding the impact of the recall, both on sales and at multiline
dealerships (which may just stock more Arctic Cat vehicles than RZRs since they’ve been selling better),
and all of it has led to Polaris slightly reducing production forecasts.