Polaris reports record Q2 results behind 24 percent sales growth

July 25, 2012
Filed under Features

Sales for the second quarter 2012 totaled a record $755.4 million, an increase of 24 percent over last year’s second quarter sales of $607.9 million.

“With the second quarter and first half of 2012 in the books, I am encouraged by the performance of the team and the results of the business,” Polaris CEO Scott Wine said during the call. “While weak U.S. GDP growth and a likely recession in Europe are concerning, we continue to enjoy surprising strength in our core North American powersports business. We are capturing healthy market share gains in both off-road vehicles and motorcycles in a climate of increasing competition, and the entire Polaris team is executing at a high level. I am more than comfortable betting on them to lead us through this economic uncertainty.”

Polaris’ North American retail sales to consumers climbed 17 percent during the quarter, compared to the year-ago quarter. Polaris’ Off-Road Vehicles business increased wholesale sales to dealers 20 percent during the quarter, while its On-Road Vehicles business was up 110 percent.

Based on Polaris’ performance in the first half of 2012 and projections for the remainder of the year, Polaris is increasing its 2012 full year sales and earnings guidance. Polaris now expects full year 2012 earnings to be in the range of $4.05 to $4.15 per diluted share, an increase of between 27 and 30 percent over full year 2011 earnings of $3.20 per diluted share. Full year 2012 sales are now expected to grow in the range of 14-17 percent from 2011.

“Buoyed by the strength of the Off-Road Vehicle category and with confidence in our new model year 2013 product offerings, we are again raising full-year sales and earnings guidance. Despite a soft and potentially slowing U.S. economy, we expect a positive reaction to the outstanding lineup we will introduce at next week’s dealer meeting [in Las Vegas],” Wine said.

Off-Road Vehicle sales increased 20 percent from the second quarter 2011 to $581.1 million. This increase reflects continued North American market share gains for both ATVs and side-by-side vehicles.

Polaris North American ORV unit retail sales were up more than 15 percent from the second quarter last year, with consumer purchases of side-by-side vehicles climbing over 20 percent and ATV retail sales up nearly 10 percent. Morgan said both the Ranger and RZR platforms gained share. Polaris estimates the North American industry ORV retail sales increased low double digits percent from the second quarter of 2011. North American ORV dealer inventories were up low double digits percent from the second quarter of 2011, in support of continued strong retail demand, the company said.

“Despite the increases, we still remain a bit too tight in certain key side-by-side … segments and improving delivery remains a key corporate priority,” president and COO Bennett Morgan said.

Morgan added that Polaris North American ATV retail sales outperformed the industry, “which again grew nicely, up mid-single digits.”

Sales of ORVs outside of North America decreased 8 percent compared to the second quarter 2011, due to weaker international economic conditions and an unfavorable currency impact resulting from the strong U.S. dollar.

Snowmobile sales totaled $8.9 million for the 2012 second quarter, compared to $6.8 million for the second quarter of 2011. The increase is partially due to a mix of higher priced products being shipped during the 2012 second quarter compared to the same period last year. Second quarter snowmobile sales are routinely low for Polaris as deliveries to dealers ramp up in the second half of the calendar year before the snowmobile retail selling season begins in earnest.

“Model year 2013 and snowcheck sales have been finalized, meeting our expectations,” Morgan said.

Sales of the On-Road Vehicles division, comprised primarily of Victory motorcycles but also including Indian motorcycles and GEM and Goupil electric vehicles, increased 110 percent over the same period last year to $64.7 million. North American industry heavyweight cruiser and touring motorcycle retail sales increased low single digits percent during the 2012 second quarter as compared to the prior year’s second quarter.

Over the same period, Victory North American consumer unit retail sales increased over 10 percent, once again gaining market share. North American Victory dealer inventory increased over 2011 levels to support the retail sales increases.

“Victory again gained market share, and YTD is up twice the industry growth rate, propelled by the performance of our Cross Country Tour, Hardball, High Ball and the new Judge model,” Morgan said.

Polaris sales of On-Road Vehicles to customers outside of North America, now including Goupil, increased over 130 percent during the 2012 second quarter compared to same period last year. The 2011 acquisitions of Indian, GEM and Goupil contributed more than a third of On-Road Vehicles’ second quarter sales growth.

PG&A sales increased 15 percent during the second quarter 2012 compared to the same period last year. The increase was primarily driven by higher ORV and Victory motorcycle-related PG&A sales.

International sales totaled $111.5 million for the 2012 second quarter, a 7 percent increase over the same period in 2011. Unfavorable currency fluctuations negatively impacted sales outside North America by 5 percent during the 2012 second quarter. The increase in the second quarter sales was driven by the additional sales from the Goupil acquisition as well as higher sales of Victory motorcycles and a 38 percent increase in Asia/Pacific region sales, offset by lower ORV sales, primarily in Europe, due to sluggish economic conditions and the weak currencies.

Following are outtakes from Wine’s commentary during the call:

“We remain steadfastly committed to becoming a more diversified, highly profitable global enterprise, further enhancing our position as the world leader in powersports. Our scenario planning includes the probability of another recession in the next five years and we will be prepared to again demonstrate how our experienced team, organizational speed and corporate agility can serve as a competitive advantage during any set of economic conditions.”

“In the first half of 2012, our Off-Road Vehicle team exemplified what it means to be the best in powersports plus. We delivered our best ATV retail growth in years, and despite competitors entering or upgrading existing vehicles in the side-by-side category, our industry-leading product lineup and unparalleled dealer network enabled significant sales and market share growth.”

“Our rapid sales and volume increases over the past couple of years offer a good case study on the importance of operational excellence. From generating savings and expanding capacity through Monterrey [Mexico] to reducing warranty costs and improving lead times, we are reaping the rewards of our lean initiatives and investments.”