Highlights:
Motorcycle retail sales increased high-single digits percent,
and as expected, ORV retail sales were down high-single digits
during the quarter. Total Company North American retail sales were
down nine percent for the quarter, in-line with expectations.
ORV dealer inventory was down 16%, year-over-year. Total dealer
inventory was down 10%.
Third quarter results included expenses totaling approximately
$65 million for increased warranty, legal and other costs
associated with product recall activity.
Announced acquisition of Transamerican Auto Parts (“TAP”) to
bolster leadership position in a growing off-road aftermarket
space.
Narrowing full year 2016 guidance of $3.40 to $3.60 per diluted
share, on total Company sales declines of mid- to high-single
digits.
Polaris Industries Inc. (NYSE:PII) today reported third quarter
net income of $32.3 million, or $0.50 per diluted share, for the
quarter ended September 30, 2016 compared to $155.2 million, or
$2.30 per diluted share reported in the third quarter of 2015.
Sales for the third quarter of 2016 totaled $1,185.1 million, down
19 percent from last year’s third quarter sales of $1,456.0
million.
“Our third quarter results, while discouraging, were in line
with our revised guidance and reflect our ongoing execution of the
RZR® recalls and significant quality and safety improvement
initiatives. During the past three months, we have accelerated our
efforts to get our loyal owners back to riding safely, and are now
over 50 percent complete with the RZR® 900/1000 recalls and
slightly below 50 percent on the more recent RZR® Turbo recall
notice. In addition to these recall challenges, we continued to
face a weak overall Powersports industry, but were encouraged by
continued retail strength for Indian and our overall motorcycle
business, and the return to growth for side-by-sides in September,”
commented Scott Wine, Polaris’ Chairman and Chief Executive
Officer.
“We remain committed to improving our fundamentals and executing
our long-term strategy to be the ‘Best in Powersports, Plus’. Our
recent announcement to acquire Transamerican Auto Parts, a $740
million, vertically integrated multi-channel leader in the $10+
billion Jeep and truck aftermarket accessory space, is consistent
with our strategy and exciting due to its growth potential. This
transaction provides us an immediate leadership position in a
growing market, while allowing us to accelerate growth and
profitability for Polaris,” continued Mr. Wine. “We are making the
necessary investments, both internally and externally, to realize
the true potential of our organization. Along with improvements in
product safety and quality, we are using Huntsville and our go to
market Retail Flow Management (“RFM”) process to establish Lean as
a competitive advantage, we are bringing technology to the
forefront of our industry with Ride Command™, and we are working to
transform the customer experience, from purchase to service, to
enhance profitability. This commitment to improving our execution
and our overall performance will drive a steadier cadence of growth
and profitability in the future.”
Third Quarter
Segment Results (in thousands)
Includes respective parts, garments and accessories ("PG&A")
related sales
Three months ended September 30,
Nine months ended September 30, 2016
2015 Change 2016 2015
Change
Sales
Off-Road Vehicles/Snowmobiles $ 923,389 $ 1,193,514 (23 )% $
2,452,525 $ 2,846,901 (14 )% Motorcycles 183,193 188,679 (3 )%
602,762 535,699 13 % Global Adjacent Markets 78,485
73,807 6 % 243,553 231,072
5 %
Total Sales $ 1,185,067
$ 1,456,000 (19 )% $
3,298,840 $ 3,613,672 (9
)%
Gross
profit
Off-Road Vehicles/Snowmobiles $ 231,323 $ 388,542 (40 )% $ 670,982
$ 927,803 (28 )% % of sales 25.1 % 32.6 % -750 bps 27.4 % 32.6 %
-523 bps Motorcycles 21,164 28,424 (26 )% 89,841 73,236 23 % % of
sales 11.6 % 15.1 % -351 bps 14.9 % 13.7 % +123 bps Global Adjacent
Markets 21,828 21,200 3 % 66,163 61,987 7 % % of sales 27.8 % 28.7
% -91 bps 27.2 % 26.8 % +34 bps Corporate (13,545 )
(22,543 ) (34,135 ) (34,258 )
Total
gross profit $ 260,770 $
415,623 (37 )% $ 792,851
$ 1,028,768 (23 )% % of
sales 22.0 % 28.5 % -655 bps 24.0 % 28.5 % -444 bps
Off-Road Vehicle (“ORV”) and
Snowmobile segment sales, including its respective
PG&A sales, decreased 23 percent from the third quarter of 2015
to $923.4 million. Gross profit decreased 40 percent to $231.3
million, or 25.1 percent of sales, in the third quarter of 2016,
compared to $388.5 million, or 32.6 percent of sales, in the third
quarter of 2015 due to higher warranty costs related to recent
recall activity primarily for the Company’s RZR® vehicles.
ORV wholegood
sales decreased 25 percent to $619.0 million reflecting the
Company’s decision to delay model year 2017 shipments, including
the high margin RZR® Turbo vehicles, in order to revalidate its new
model line-up and protect dealer inventory levels. Compared to the
2015 third quarter, Polaris North American ORV unit retail sales
were down high-single digits percent, consisting of consumer
purchases for side-by-side vehicles down high-single digits percent
and ATV retail sales down low-double digits percent. The North
American ORV industry was down low-single digits percent compared
to the third quarter last year. ORV dealer inventory was down 16
percent in the 2016 third quarter compared to the same period last
year.
Snowmobile
wholegood sales decreased 35 percent to $119.9 million due to
timing of shipments, year-over-year, as the Company manufactured
and shipped its snowmobiles earlier in 2015.
Motorcycle segment sales,
including its respective PG&A sales, decreased three percent in
the 2016 third quarter to $183.2 million. Victory® and Indian®
motorcycles reported increased vehicle sales growth, while
Slingshot® sales were down during the quarter due to shipment
timing. Gross profit decreased 26 percent to $21.2 million, or 11.6
percent of sales in the third quarter of 2016, compared to $28.4
million, or 15.1 percent of sales, in the third quarter of 2015 due
to higher warranty expense related to recent safety and service
bulletins, primarily for Slingshot®.
North American consumer retail demand for the Polaris motorcycle
segment, including Victory®, Indian Motorcycle® and Slingshot®,
increased high-single digits percent during the 2016 third quarter
with Indian Motorcycle® and Victory® increasing low-teens percent
combined, while overall motorcycle industry retail sales 900cc and
above was down high-single digits percent in the 2016 third
quarter. Product availability for all three motorcycle brands
remained adequate throughout the quarter as both the Company’s
Spirit Lake, Iowa motorcycle plant and the new Slingshot®
production line in Huntsville, Alabama are producing at retail
demand levels.
Global Adjacent Markets
segment sales along with its respective PG&A sales, increased
six percent to $78.5 million in the 2016 third quarter compared to
the 2015 third quarter. Gross profit increased three percent to
$21.8 million, or 27.8 percent of sales, in the third quarter of
2016, compared to $21.2 million, or 28.7 percent of sales, in the
third quarter of 2015.
Supplemental
Data:
Parts, Garments, and Accessories
(“PG&A”) sales, which are included in each of the
three respective reporting segments, declined one percent during
the 2016 third quarter to $224.4 million driven by lower retail
sales.
International sales to customers
outside of North America totaled $141.0 million for the third
quarter of 2016, including PG&A, a decrease of eight percent
from the same period in 2015. International sales on a constant
currency basis were down seven percent in the 2016 third
quarter.
Gross profit for the total Company decreased 37 percent
to $260.8 million in the third quarter of 2016, compared to $415.6
million in the third quarter of 2015. As a percentage of sales,
gross profit declined 655 basis points to 22.0 percent of sales for
the third quarter of 2016, compared to 28.5 percent of sales for
the same period last year. Increased warranty and promotional costs
and negative product mix, partially offset by lower commodity costs
and product cost reduction efforts, were the primary reasons for
the gross margin erosion.
Operating expenses increased 16 percent to $222.6
million, or 18.8 percent of sales, for the third quarter of 2016,
compared to $192.0 million, or 13.2 percent of sales, for the third
quarter of 2015. The change was primarily driven by higher general
and administrative expenses due to higher product liability and
recall related legal costs and increased research and development
expenses for product revalidation and ongoing innovation.
Income from financial services was $19.2 million during
the third quarter 2016, a one percent increase compared to $19.1
million in the third quarter of 2015 directly related to lower
retail sales during the quarter.
Non-operating other expense (income), net, which
primarily relates to foreign currency exchange-rate movements and
the corresponding effects on foreign currency transactions related
to the Company’s foreign subsidiaries, was $5.7 million of expense
in the third quarter of 2016 compared to $1.3 million of income in
the third quarter of 2015.
The provision for income taxes for the third quarter of
2016 was $13.5 million or 29.5 percent of pretax income compared to
$84.5 million or 35.3 percent of pretax income for the third
quarter of 2015. The lower income tax provision rate in the third
quarter 2016 is primarily due to the extension of the research and
development credit by the U.S. Congress in the 2015 fourth quarter,
in addition to certain favorable tax adjustments in the 2016 third
quarter that had a more significant impact on the income tax rate
due to the lower pretax income generated during the quarter.
Financial Position and Cash Flow
Net cash provided by operating activities was $426.2 million for
the nine months ended September 30, 2016, compared to $464.0
million for the same period in 2015. The decrease in net cash
provided by operating activities for the 2016 period was due to
lower net income in the quarter offset somewhat by lower factory
inventory and increased accrued expenses. Total debt for the
quarter, including capital lease obligations and notes payable, was
$436.7 million. The Company’s debt-to-total capital ratio was 32
percent at September 30, 2016, compared to 25 percent a year ago.
Cash and cash equivalents were $122.7 million at September 30,
2016, down from $225.3 million for the same period in 2015.
Share Buyback Activity
During the third quarter 2016, the Company repurchased and
retired 111,000 shares of its common stock for $10.5 million. As of
September 30, 2016, the Company currently has authorization from
its Board of Directors to repurchase up to an additional 8.6
million shares of Polaris stock.
2016 Business Outlook
For the full year 2016, the Company is narrowing its earnings
guidance range to $3.40 to $3.60 per diluted share with sales
expected to be down in the mid- to high-single digit percent range.
The full year 2016 earnings guidance excludes the TAP acquisition.
Sales expectations by segment for the full year 2016 are as
follows: ORV/Snowmobile sales expected down in the high-single to
low-double digits percent range; Motorcycle sales up low-single
digits percent; and Global Adjacent Market sales up high-single
digits percent.
Non-GAAP Measure - Constant Currency Reporting
This release and our related earnings call include a discussion
of the Company’s 2016 third quarter results and 2016 expectations
on a constant currency basis, which is a non-GAAP measure, as well
as on a GAAP basis. For purpose of comparison, the results on a
constant currency basis uses the respective prior year exchange
rates for the comparative period to enhance the visibility of the
underlying business trends, excluding the impact of translation
arising from foreign currency exchange rate fluctuations.
Third Quarter Conference Call and Webcast
Presentation
Today at 9:00 AM (CT) Polaris Industries Inc. will host a
conference call and webcast to discuss the third quarter 2016
results released this morning. The call will be hosted by Scott
Wine, Chairman and CEO; Ken Pucel, Executive Vice President –
Operations, Engineering and Lean; and Mike Speetzen, Executive Vice
President – Finance and CFO. A slide presentation and link to
the webcast will be posted on the Polaris Investor Relations
website at ir.polaris.com.
To listen to the conference call by phone, dial 877-706-7543 in
the U.S. and Canada, or 973-200-3967 internationally. The
Conference ID is # 95425239.
A replay of the conference call will be available approximately
two hours after the call for a one-week period by accessing the
same link on our website, or by dialing 855-859-2056 in the U.S.
and Canada, or 404-537-3406 internationally.
About Polaris
Polaris Industries Inc. (NYSE: PII) is a global powersports
leader with annual 2015 sales of $4.7 billion. Polaris fuels the
passion of riders, workers and outdoor enthusiasts with our
RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles;
our Sportsman® and Polaris ACE® all-terrain off-road vehicles;
Victory® and Indian Motorcycle® midsize and heavyweight
motorcycles; Slingshot® moto-roadsters; and Polaris RMK®, INDY®,
Switchback® and RUSH® snowmobiles. Polaris enhances the riding
experience with parts, garments and accessories sold under multiple
recognizable brands, and has a growing presence in adjacent markets
globally with products including military and commercial off-road
vehicles, quadricycles, and electric
vehicles. www.polaris.com
Except for historical information contained herein, the matters
set forth in this news release, including management’s expectations
regarding 2016 and future sales, shipments, net income, and net
income per share and operational initiatives are forward-looking
statements that involve certain risks and uncertainties that could
cause actual results to differ materially from those
forward-looking statements. Potential risks and uncertainties
include such factors as the Company’s ability to successfully
implement its manufacturing operations expansion initiatives, cost
reduction initiatives, product offerings, promotional activities
and pricing strategies against competitors; economic conditions
that impact consumer spending; acquisition integration costs;
product recalls; warranty expenses; impact of changes in Polaris
stock price on incentive compensation plan costs; foreign currency
exchange rate fluctuations; environmental and product safety
regulatory activity; effects of weather; commodity costs; uninsured
product liability claims; uncertainty in the retail and wholesale
credit markets; performance of affiliate partners; changes in tax
policy and overall economic conditions, including inflation,
consumer confidence and spending and relationships with dealers and
suppliers. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the
Securities and Exchange Commission. The Company does not undertake
any duty to any person to provide updates to its forward-looking
statements.
(summarized financial data follows)
POLARIS INDUSTRIES
INC.CONSOLIDATED STATEMENTS OF INCOME(In Thousands,
Except Per Share Data)(Unaudited)
Three months ended September 30,
Nine months ended September 30, 2016 2015
2016 2015 Sales $ 1,185,067 $ 1,456,000 $ 3,298,840 $
3,613,672 Cost of sales 924,297 1,040,377 2,505,989
2,584,904 Gross profit 260,770 415,623 792,851 1,028,768
Operating expenses: Selling and marketing 89,751 91,169 244,812
240,510 Research and development 47,568 44,432 136,256 124,726
General and administrative 85,257 56,411 219,403
157,898 Total operating expenses 222,576 192,012 600,471
523,134 Income from financial services 19,195 19,065
59,155 51,345 Operating income 57,389 242,676 251,535
556,979 Non-operating expense: Interest expense 4,051 2,966 10,718
8,848 Equity in loss of other affiliates 1,798 1,345 5,439 4,716
Other expense (income), net 5,700 (1,345 ) 7,586
8,776 Income before income taxes 45,840 239,710 227,792 534,639
Provision for income taxes 13,528 84,537 77,425
189,960 Net income $ 32,312 $ 155,173 $
150,367 $ 344,679 Net income per share: Basic $ 0.50
$ 2.35 $ 2.33 $ 5.20 Diluted $ 0.50 $ 2.30 $ 2.30 $ 5.09 Weighted
average shares outstanding: Basic 64,151 65,912 64,535 66,222
Diluted 65,027 67,368 65,435 67,781
POLARIS INDUSTRIES
INC.CONSOLIDATED BALANCE SHEETS(In
Thousands)(Unaudited) September 30,
2016 September 30, 2015 Assets Current
Assets: Cash and cash equivalents $ 122,696 $ 225,264 Trade
receivables, net 152,342 176,221 Inventories, net 755,943 674,612
Prepaid expenses and other 63,594 72,241 Income taxes receivable
55,096 10,052 Deferred tax assets — 111,251 Total current
assets 1,149,671 1,269,641 Property and equipment, net 687,697
587,935 Investment in finance affiliate 92,203 88,690 Deferred tax
assets 173,741 46,271 Goodwill and other intangible assets, net
271,419 232,142 Other long-term assets 95,594 83,467
Total assets $ 2,470,325 $ 2,308,146
Liabilities
and Shareholders’ Equity Current Liabilities: Current portion
of debt, capital lease obligations and notes payable $ 4,746 $
4,839 Accounts payable 308,971 381,174 Accrued expenses:
Compensation 112,025 104,336 Warranties 130,054 55,097 Sales
promotions and incentives 162,853 145,091 Dealer holdback 116,386
101,261 Other 139,145 83,553 Income taxes payable 11,898
34,269 Total current liabilities 986,078 909,620 Long term income
taxes payable 25,241 15,201 Capital lease obligations 19,122 20,652
Long-term debt 412,844 289,197 Deferred tax liabilities 12,574
15,913 Other long-term liabilities 77,025 105,280
Total
liabilities $ 1,532,884 $ 1,355,863
Deferred
compensation 9,110 14,923
Shareholders’ equity: Total
shareholders’ equity 928,331 937,360
Total
liabilities and shareholders’ equity $ 2,470,325 $
2,308,146
POLARIS INDUSTRIES INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS(In Thousands)(Unaudited)
Nine months ended September 30, 2016
2015 Operating Activities: Net income $ 150,367 $ 344,679
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 121,903 112,902
Noncash compensation 43,137 53,642 Noncash income from financial
services (22,354 ) (21,810 ) Deferred income taxes (8,134 ) (5,280
) Excess tax benefits from share-based compensation (1,408 )
(34,301 ) Other, net 12,027 4,716 Changes in operating assets and
liabilities: Trade receivables 5,686 22,700 Inventories (33,804 )
(112,776 ) Accounts payable 5,702 35,002 Accrued expenses 145,207
13,621 Income taxes payable/receivable (278 ) 54,389 Prepaid
expenses and others, net 8,193 (3,482 ) Net cash provided by
operating activities 426,244 464,002 Investing Activities: Purchase
of property and equipment (155,360 ) (148,998 ) Investment in
finance affiliate, net 29,223 22,227 Investment in other affiliates
(6,861 ) (15,337 ) Acquisition of businesses, net of cash acquired
(54,830 ) (27,019 ) Net cash used for investing activities (187,828
) (169,127 ) Financing Activities: Borrowings under debt
arrangements / capital lease obligations 1,767,272 2,155,310
Repayments under debt arrangements / capital lease obligations
(1,795,316 ) (2,059,711 ) Repurchase and retirement of common
shares (154,381 ) (247,795 ) Cash dividends to shareholders
(105,732 ) (104,808 ) Proceeds from stock issuances under employee
plans 15,651 26,672 Excess tax benefits from share-based
compensation 1,408 34,301 Net cash used for financing
activities (271,098 ) (196,031 ) Impact of currency exchange rates
on cash balances 29 (11,180 ) Net increase (decrease) in
cash and cash equivalents (32,653 ) 87,664 Cash and cash
equivalents at beginning of period 155,349 137,600
Cash and cash equivalents at end of period $ 122,696 $
225,264
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025005535/en/
Polaris Industries Inc.Richard Edwards, 763-542-0500
Polaris (NYSE:PII)
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