Polaris’ 2Q profits fall 22% – July 24, 2006

Significantly reduced snowmobile orders and weak ATV sales led to a substantial decrease in second-quarter net income for Polaris Industries Inc. (NYSE: PII). The Minnesota-based manufacturer reported a net income of $22.7 million, or $0.53 per diluted share, nearly a 22 percent drop from the same period last year.
Sales of $384.3 million in the second quarter also dropped, falling 13 percent from last year and causing the company to revise its expected year-end sales decline to 3 to 5 percent from the previously reported 1 to 3 percent.
The second-quarter report follows a rough first quarter in which Polaris reported a 34 percent decrease in net income. For the first six months of 2006, the company’s net income is $33.9 million, or $0.79 per diluted share, a nearly 33 percent drop from 2005.
“Our second-quarter results met our expectations in a continuing challenging environment,” Polaris CEO Tom Tiller said in a prepared statement. “The efforts of both Polaris and our dealers to reduce ATV and snowmobile inventory levels are only a part of the important, proactive steps that are being taken to effectively manage the business through a challenging economic period in which rising interest rates and high gasoline prices have negatively impacted consumer sentiment and discretionary spending.”
The second-quarter report did have some positive news as Victory motorcycles continue to outperform their 2005 numbers. Victory sales increased 26 percent during the second quarter compared to the previous year. For the first six months of the year, Polaris motorcycle sales have increased 17 percent to $53.1 million.
Polaris also reported growth in sales in the UTV Ranger and its new entry-level Hawkeye ATV and the new Sportsman X2. Dealer inventory levels in North America also have improved from the first quarter.
However, sales of ATVs have decreased in North America (by 5 percent) and internationally, particularly in Spain and France.
Snowmobile orders for the 2007 model year are down significantly. That, plus a change in the timing of quarterly shipments in 2006, have caused Polaris’ second-quarter snowmobile sales to fall to $5.3 million from the $51.9 million that was reported in last year’s second quarter.