FINANCIAL AND OPERATIONAL
HIGHLIGHTS
- Second quarter sales were $2,063 million, up eight
percent compared to last year
- Second quarter reported diluted earnings per share from
continuing operations was $2.34, down five percent versus last
year; adjusted diluted earnings per share from continuing
operations was $2.42, down seven percent versus last year
- Primary drivers in the quarter were improved operational
performance, strong pricing and stable demand supported by a
healthy consumer while still seeing supply chain challenges
constraining dealer inventory, as well as continued inflationary
pressures
- Retail Sales for the quarter were down 23 percent versus
last year, primarily driven by supply chain challenges; North
America ORV retail was up 13 percent sequentially
Polaris Inc. (NYSE: PII):
KEY FINANCIAL
DATA
(in millions, except per share data)
Quarter ending June 30, 2022
Reported
YOY % Chg.
Adjusted*
YOY % Chg.
Sales
$
2,062.8
8
%
$
2,062.8
8
%
Gross profit margin
23.0
%
- 303 bps
23.0
%
- 312 bps
Total operating expenses
$
291.5
(3
)%
Net income from continuing operations
attributable to Polaris
$
141.8
(9
)%
$
146.6
(11
)%
Adjusted EBITDA Margin
12.4
%
- 182 bps
Diluted EPS from continuing operations
attributable to Polaris
$
2.34
(5
)%
$
2.42
(7
)%
*Note: the results and guidance in this
release, including the highlights above, include references to
non-GAAP operating measures, which are identified by the word
“adjusted” preceding the measure. A reconciliation of GAAP /
non-GAAP measures can be found at the end of this release.
CEO COMMENTARY
Our results during the second quarter reflect our team’s
commitment to our customers through industry-leading innovation and
exceptional execution, despite the ongoing supply chain constraints
impacting the global economy. While we are closely watching a
number of demand indicators to understand the resilience of the
consumer in this environment, we continue to see a healthy consumer
and stable demand. In the quarter, some easing of logistics
complexities, commodity costs, and certain supply chain bottlenecks
helped to support sequential margin improvement and increased
shipment volume. While this trend is expected to continue in the
back half of the year, we remain diligent and prepared to respond
if headwinds materialize. Our focused strategy of being the leading
player in powersports, coupled with the significant opportunity to
get back to optimal dealer inventory levels, gives us confidence in
our ability to drive continued performance for Polaris and value
creation for our shareholders.
-- Mike Speetzen, Chief Executive Officer of
Polaris Inc.
PERFORMANCE SUMMARY
(Reported)
Polaris Inc. (NYSE: PII) (the "Company") today released second
quarter 2022 results, which ended June 30, 2022. The Company
reported worldwide sales of $2,063 million, up eight percent versus
the second quarter of 2021. North America sales of $1,748 million
represented 85 percent of total company sales and increased nine
percent from $1,600 million in 2021. International sales of $315
million represented 15 percent of total company sales and increased
one percent. Sales in the second quarter of 2022 were largely
impacted by strong mix and pricing offset by volume declines
related to continued supply chain challenges reducing shipments and
low dealer inventory levels.
As reported, second quarter net income from continuing
operations attributable to Polaris of $142 million decreased nine
percent and diluted earnings per share from continuing operations
(EPS) of $2.34 decreased five percent compared to the second
quarter in 2021. Adjusted net income from continuing operations
attributable to Polaris for the quarter was $147 million, down 11
percent and adjusted EPS of $2.42 was down seven percent, in each
case as compared to the second quarter of 2021.
Gross profit margin contracted 303 basis points to 23.0
percent. Adjusted gross profit margin of 23.0 percent contracted
312 basis points driven primarily by increased costs including raw
materials, freight and inefficiencies associated with supply chain
challenges, partially offset by strong pricing.
Operating expenses were $292 million in the second
quarter of 2022 compared to $300 million in the second quarter of
2021 due to lower sales and marketing as we prudently navigate
through supply chain challenges. Operating expenses, as a
percentage of sales, of 14.1 percent were down in the second
quarter 2022 compared to the second quarter of 2021.
SEGMENT HIGHLIGHTS
(Reported)
Sales (in millions)
Gross Profit Margin
Q2 2022
Q2 2021
Change
Q2 2022
Q2 2021
Change
Off-Road
$
1,490.4
$
1,397.5
7
%
23.8
%
27.3
%
-359 bps
On-Road
$
299.4
$
298.3
—
%
17.8
%
18.5
%
-71 bps
Marine
$
273.0
$
197.6
38
%
24.4
%
24.0
%
+39 bps
Off-Road segment results
were primarily driven by these factors:
- Sales were driven by increased pricing on new and pre-sold
orders, partially offset by volume despite modest sequential
improvement in component availability.
- Parts, Garments and Accessories (PG&A) sales, which now
includes relevant powersports aftermarket sales, decreased three
percent.
- Gross profit margin performance was primarily driven by
negative mix and higher input costs, partially offset by increased
pricing and continued low promotional costs.
- Polaris North America ORV unit retail sales were down
mid-twenties percent. Estimated North America industry ORV unit
retail sales were down mid-teens percent.
On-Road segment results were
primarily driven by these factors:
- Sales were impacted by lower shipments driven by supply chain
challenges, despite modest sequential improvement in component
availability and shipments, strong demand, and pricing.
- PG&A sales, which now includes relevant powersports
aftermarket sales, increased 24 percent.
- Gross profit margin performance was driven primarily by higher
input costs and supply chain constraints, partially offset by
favorable product mix and lower promotions costs.
- North America unit retail sales for Indian Motorcycle were down
low-forties percent. North America unit retail sales for the
comparable motorcycle industry were down mid-twenties percent.
Marine segment results were
primarily driven by these factors:
- Sales results were driven by favorable mix, positive pricing
and unit volume.
- Gross profit margin performance was driven by better product
mix offsetting higher input costs and supply chain
constraints.
2022 BUSINESS OUTLOOK
The Company has updated its 2022 guidance expectations to
reflect the divestiture of TAP early in the third quarter. The
Company now expects 2022 sales to increase 13 percent to 16 percent
versus prior guidance of 12 percent to 15 percent. The Company now
expects adjusted diluted EPS from continuing operations attributed
to Polaris Inc. common shareholders to be in the range of $10.10 to
$10.30 for the full year 2022, an increase of 11 percent to 14
percent from 2021.
NON-GAAP FINANCIAL
MEASURES
This press release and our related earnings call contain certain
non-GAAP financial measures, consisting of “adjusted" sales, gross
profit, income before taxes, net income from continuing operations
attributed to Polaris Inc. common shareholders, EBITDA, net income
per diluted share from continuing operations attributed to Polaris
Inc. common shareholders and free cash flow as measures of our
operating performance. Management believes these measures may be
useful in performing meaningful comparisons of past and present
operating results, to understand the performance of its ongoing
operations and how management views the business. Reconciliations
of reported GAAP measures to adjusted non-GAAP measures are
included in the financial schedules contained in this press
release. These measures, however, should not be construed as an
alternative to any other measure of performance determined in
accordance with GAAP.
EARNINGS CONFERENCE CALL AND
WEBCAST
Today at 9:00 AM (CT) Polaris Inc. will host a conference call
and webcast to discuss the 2022 second quarter results released
this morning. The call will be hosted by Mike Speetzen, Chief
Executive Officer; and Bob Mack, Chief Financial Officer. The
earnings 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 1-877-883-0383 in the U.S., or
1-412-902-6506 internationally. The Conference ID is 1766849. A
replay of the conference call will be available by accessing the
same link on our website.
ABOUT POLARIS
As the global leader in powersports, Polaris Inc. (NYSE: PII)
pioneers product breakthroughs and enriching experiences and
services that have invited people to discover the joy of being
outdoors since our founding in 1954. Polaris’ high-quality product
line-up includes the Polaris RANGER®, RZR® and Polaris GENERAL™
side-by-side off-road vehicles; Sportsman® all-terrain off-road
vehicles; military and commercial off-road vehicles; snowmobiles;
Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot®
moto-roadsters; Aixam quadricycles; Goupil electric vehicles; and
pontoon and deck boats, including industry-leading Bennington
pontoons. Polaris enhances the riding experience with a robust
portfolio of parts, garments, and accessories. Proudly
headquartered in Minnesota, Polaris serves more than 100 countries
across the globe. www.polaris.com
FORWARD-LOOKING
STATEMENTS
Except for historical information contained herein, the matters
set forth in this press release 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 source necessary parts and
materials on a timely basis; the ability of the Company to
manufacture and deliver products to dealers to meet demand; the
Company’s ability to identify and meet optimal dealer inventory
levels; the Company’s ability to accurately forecast and sustain
consumer demand; the Company’s ability to mitigate increasing input
costs through pricing or other measures; the Company’s ability to
successfully implement its manufacturing operations strategy and
supply chain initiatives; product offerings, promotional activities
and pricing strategies by competitors that make our products less
attractive to consumers; economic conditions that impact consumer
spending, including recessionary conditions; the severity and
duration of the COVID-19 pandemic and the resulting impact on the
Company’s business, supply chain, and the global economy;
disruptions in manufacturing facilities; product recalls and/or
warranty expenses; product rework costs; 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;
freight and tariff costs (tariff relief or ability to mitigate
tariffs); changes to international trade policies and agreements;
uninsured product liability claims; uncertainty in the consumer
retail and wholesale credit markets; performance of affiliate
partners; changes in tax policy; relationships with dealers and
suppliers; and the general overall global economic, social and
political environment. 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.
The data source for retail sales figures included in this
release is registration information provided by Polaris dealers in
North America and Europe compiled by the Company or Company
estimates and other industry data sources. The Company relies on
information that its dealers or other third parties supply
concerning retail sales, and other retail sales data sources
related to Polaris and the powersports industry, and this
information is subject to revision. Retail sales references to
total Company retail sales includes only ORV, snowmobiles and
motorcycles in North America unless otherwise noted.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Millions, Except Per Share
Data) (Unaudited)
Three months ended June
30,
Six months ended June
30,
2022
2021
2022
2021
Sales
$
2,062.8
$
1,911.1
$
3,844.3
$
3,668.9
Cost of sales
1,588.4
1,413.7
3,017.0
2,739.7
Gross profit
474.4
497.4
827.3
929.2
Operating expenses:
Selling and marketing
115.5
121.2
227.1
236.4
Research and development
86.8
86.7
167.6
164.3
General and administrative
89.2
92.5
160.9
164.5
Total operating expenses
291.5
300.4
555.6
565.2
Income from financial services
10.2
13.7
21.6
29.9
Operating income
193.1
210.7
293.3
393.9
Non-operating expense:
Interest expense
14.9
10.7
26.7
22.3
Other (income) expense, net
(3.2
)
(3.0
)
(6.5
)
(5.3
)
Income from continuing operations before
income taxes
181.4
203.0
273.1
376.9
Provision for income taxes
39.4
47.8
57.0
88.6
Net income from continuing operations
142.0
155.2
216.1
288.3
Income (loss) from discontinued
operations, net of tax
(4.2
)
3.3
(8.4
)
4.4
Impairment of discontinued operations, net
of tax
(142.2
)
—
(142.2
)
—
Net income (loss)
(4.4
)
158.5
65.5
292.7
Net income attributable to noncontrolling
interest
(0.2
)
(0.1
)
(0.2
)
(0.2
)
Net income (loss) attributable to Polaris
Inc.
$
(4.6
)
$
158.4
$
65.3
$
292.5
Amounts attributable to Polaris Inc.
common shareholders:
Net income from continuing operations
$
142.0
$
155.2
$
216.1
$
288.3
Less net income attributable to
noncontrolling interest
(0.2
)
(0.1
)
(0.2
)
(0.2
)
Net income from continuing operations
attributable to Polaris Inc. common shareholders
141.8
155.1
215.9
288.1
Net income (loss) from discontinued
operations attributable to Polaris Inc. common shareholders
(146.4
)
3.3
(150.6
)
4.4
Net income (loss) attributable to Polaris
Inc.
$
(4.6
)
$
158.4
$
65.3
$
292.5
Net income (loss) per share attributable
to Polaris Inc. common shareholders:
Continuing operations
$
2.37
$
2.53
$
3.59
$
4.67
Discontinued operations
$
(2.45
)
$
0.05
$
(2.50
)
$
0.08
Basic
$
(0.08
)
$
2.58
$
1.09
$
4.75
Continuing operations
$
2.34
$
2.47
$
3.55
$
4.56
Discontinued operations
$
(2.42
)
$
0.05
$
(2.48
)
$
0.07
Diluted
$
(0.08
)
$
2.52
$
1.07
$
4.63
Weighted average shares outstanding:
Basic
59.9
61.3
60.1
61.6
Diluted
60.5
62.8
60.9
63.1
CONSOLIDATED BALANCE SHEETS
(In Millions), (Unaudited)
June 30, 2022
June 30, 2021
Assets
Current assets:
Cash and cash equivalents
$
314.2
$
278.0
Trade receivables, net
297.2
209.4
Inventories, net
1,908.0
1,400.2
Prepaid expenses and other
174.4
100.7
Income taxes receivable
3.8
0.1
Current assets held for sale
168.2
145.0
Total current assets
2,865.8
2,133.4
Property and equipment, net
939.6
858.1
Investment in finance affiliate
37.1
29.3
Deferred tax assets
241.1
158.5
Goodwill and other intangible assets,
net
918.7
956.4
Operating lease assets
113.1
61.4
Other long-term assets
86.2
114.5
Long-term assets held for sale
37.3
213.6
Total assets
$
5,238.9
$
4,525.2
Liabilities and Equity
Current liabilities:
Current portion of debt, finance lease
obligations and notes payable
$
553.3
$
53.1
Accounts payable
978.8
873.9
Accrued expenses
678.4
724.2
Current operating lease liabilities
24.2
16.9
Income taxes payable
11.2
35.2
Current liabilities held for sale
94.3
118.8
Total current liabilities
2,340.2
1,822.1
Long-term income taxes payable
14.0
16.1
Finance lease obligations
10.5
13.4
Long-term debt
1,453.0
1,264.8
Deferred tax liabilities
5.2
4.3
Long-term operating lease liabilities
89.1
44.7
Other long-term liabilities
173.7
170.5
Long-term liabilities held for sale
68.2
55.1
Total liabilities
$
4,153.9
$
3,391.0
Deferred compensation
11.4
11.9
Equity:
Total shareholders’ equity
1,071.4
1,120.6
Noncontrolling interest
2.2
1.7
Total equity
1,073.6
1,122.3
Total liabilities and equity
$
5,238.9
$
4,525.2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions), (Unaudited)
Six months ended June
30,
2022
2021
Operating Activities:
Net income
$
65.5
$
292.7
(Income) loss from discontinued
operations, net of tax
8.4
(4.4
)
Impairment of discontinued operations, net
of tax
142.2
—
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization
113.7
107.6
Noncash compensation
28.8
25.2
Noncash income from financial services
(4.5
)
(4.3
)
Deferred income taxes
(33.0
)
18.4
Other, net
(0.4
)
—
Changes in operating assets and
liabilities:
Trade receivables
(79.0
)
34.0
Inventories
(409.2
)
(347.8
)
Accounts payable
208.0
119.7
Accrued expenses
(77.8
)
(108.2
)
Income taxes payable/receivable
(1.5
)
18.1
Prepaid expenses and other, net
(1.1
)
3.8
Net cash provided by (used for) operating
activities of continuing operations
(39.9
)
154.8
Net cash provided by (used for) operating
activities of discontinued operations
(17.1
)
40.8
Net cash provided by (used for) operating
activities
(57.0
)
195.6
Investing Activities:
Purchase of property and equipment
(119.4
)
(109.1
)
Investment in finance affiliate, net
16.7
34.3
Net cash used for investing activities of
continuing operations
(102.7
)
(74.8
)
Net cash used for investing activities of
discontinued operations
(5.2
)
(5.3
)
Net cash used for investing activities
(107.9
)
(80.1
)
Financing Activities:
Borrowings under debt arrangements
1,116.0
499.9
Repayments under debt arrangements
(898.5
)
(619.0
)
Repurchase and retirement of common
shares
(172.3
)
(410.5
)
Cash dividends to shareholders
(76.0
)
(77.0
)
Proceeds from stock issuances under
employee plans
17.8
146.1
Net cash used for financing activities
(13.0
)
(460.5
)
Impact of currency exchange rates on cash
balances
(11.6
)
(1.9
)
Net decrease in cash, cash equivalents
and restricted cash
(189.5
)
(346.9
)
Cash, cash equivalents and restricted cash
at beginning of period
529.1
657.5
Cash, cash equivalents and restricted
cash at end of period
$
339.6
$
310.6
The following presents the classification
of cash, cash equivalents and restricted cash within the
consolidated balance sheets:
Cash and cash equivalents
$
314.2
$
278.0
Current assets held for sale
9.5
10.8
Other long-term assets
15.9
21.8
Total
$
339.6
$
310.6
NON-GAAP
RECONCILIATION OF RESULTS
(In Millions, Except Per Share
Data), (Unaudited)
Three months ended June
30,
Six months ended June
30,
2022
2021
2022
2021
Sales
$
2,062.8
$
1,911.1
$
3,844.3
$
3,668.9
No adjustment
—
—
—
—
Adjusted sales
2,062.8
1,911.1
3,844.3
3,668.9
Gross profit
474.4
497.4
827.3
929.2
Restructuring & realignment (1)
—
1.7
0.2
3.9
Adjusted gross profit
474.4
499.1
827.5
933.1
Income from continuing operations
before income taxes
181.4
203.0
273.1
376.9
Restructuring & realignment (1)
0.5
1.9
4.3
3.9
Intangible amortization (2)
4.8
5.5
9.8
11.4
Class action litigation expenses (3)
1.0
4.2
1.1
8.4
Adjusted Income from continuing
operations before income taxes
187.7
214.6
288.3
400.6
Net income from continuing operations
attributable to Polaris Inc.
141.8
155.1
215.9
288.1
Restructuring & realignment (1)
0.4
1.4
3.3
2.9
Intangible amortization (2)
3.6
4.2
7.4
8.7
Class action litigation expenses (3)
0.8
3.2
0.9
6.4
Adjusted net income from continuing
operations attributable to Polaris Inc.(4)
146.6
163.9
227.5
306.1
Diluted EPS from continuing operations
attributable to Polaris Inc.
$
2.34
$
2.47
$
3.55
$
4.56
Restructuring & realignment (1)
0.01
0.02
0.06
0.05
Intangible amortization (2)
0.06
0.07
0.12
0.14
Class action litigation expenses (3)
0.01
0.05
0.01
0.10
Adjusted EPS from continuing operations
attributable to Polaris Inc. (4)
$
2.42
$
2.61
$
3.74
$
4.85
Adjusted Sales
$
2,062.8
$
1,911.1
$
3,844.3
$
3,668.9
Net Income from continuing
operations
$
142.0
$
155.2
$
216.1
$
288.3
Provision for income taxes
39.4
47.8
57.0
88.6
Interest expense
14.9
10.7
26.7
22.3
Depreciation
52.3
45.6
103.9
92.4
Amortization
4.8
5.5
9.8
11.4
Restructuring & realignment (1)
0.5
1.9
4.3
3.9
Class action litigation expenses (3)
1.0
4.2
1.1
8.4
Adjusted EBITDA
$
254.9
$
270.9
$
418.9
$
515.3
Adjusted EBITDA Margin
12.4
%
14.2
%
10.9
%
14.0
%
(1) Represents adjustments for corporate
restructuring, network realignment costs, and supply chain
transformation
(2) Represents amortization expense for
acquisition-related intangible assets
(3) Represents adjustments for class
action litigation-related expenses
(4) The Company used its estimated
statutory tax rate of 23.8% for the non-GAAP adjustments in 2022
and 2021, except for non-deductible items
RECONCILIATION OF GAAP OPERATING CASH FLOW TO NON-GAAP
FREE CASH FLOW
(In Millions), (Unaudited)
Six months ended June
30,
2022
2021
Net cash provided by (used for)
operating activities of continuing operations
$
(39.9
)
$
154.8
Purchase of property and equipment
(119.4
)
(109.1
)
Investment in finance affiliate, net
16.7
34.3
Free cash flow
$
(142.6
)
$
80.0
NON-GAAP
RECONCILIATION OF SEGMENT RESULTS
(In Millions), (Unaudited)
Three months ended June
30,
Six months ended June
30,
SEGMENT GROSS
PROFIT
2022
2021
2022
2021
Off-Road segment gross profit
$
354.2
$
382.2
$
612.9
$
727.1
No adjustment
—
—
—
—
Adjusted Off-Road segment gross profit
354.2
382.2
612.9
727.1
On-Road segment gross profit
53.4
55.3
94.6
90.5
No adjustment
—
—
—
—
Adjusted On-Road segment gross profit
53.4
55.3
94.6
90.5
Marine segment gross profit
66.6
47.4
113.1
93.8
No adjustment
—
—
—
—
Adjusted Marine segment gross profit
66.6
47.4
113.1
93.8
Corporate segment gross profit
0.2
12.5
6.7
17.8
Restructuring & realignment (1)
—
1.7
0.2
3.9
Adjusted Corporate segment gross
profit
0.2
14.2
6.9
21.7
Total gross profit
474.4
497.4
827.3
929.2
Total adjustments
—
1.7
0.2
3.9
Adjusted total gross profit
$
474.4
$
499.1
$
827.5
$
933.1
(1) Represents adjustments for corporate
restructuring, network realignment costs, and supply chain
transformation
NON-GAAP
ADJUSTMENTS Second Quarter 2022 Results & 2022
Full Year Guidance
Restructuring and Realignment Costs
Polaris announced in 2017 that it was making changes to its
network to consolidate production and distribution of like products
and better leverage plant capacity and embarked on a multi-phase
supply chain transformation initiative to continue to leverage its
supply chain as a strategic asset. The Company is also executing
certain corporate restructuring across the organization to increase
efficiency and focus its business including divesting of the GEM
and Taylor-Dunn businesses. For the second quarter of 2022, the
Company has recorded combined costs totaling $0.5 million which was
included as a NON-GAAP adjustment.
Intangible amortization related to acquisitions
The Company uses an adjusted net income metric which excludes
intangible amortization from all historical business acquisitions.
The Company believes this NON-GAAP information is useful to
understanding its operating results and the ongoing performance of
its underlying businesses because the amount and timing of such
charges are significantly impacted by the timing, size, number and
nature of the acquisitions the Company completes. For the second
quarter of 2022, Polaris recorded $5 million of intangible
amortization related to acquisitions as a NON-GAAP adjustment.
2022 Adjusted Guidance
2022 guidance excludes the pre-tax effect of supply chain
transformation, restructuring and network realignment costs of
approximately $10 million, and approximately $5 to $10 million for
class action litigation-related expenses. Intangible amortization
of approximately $20 million related to all acquisitions has also
been excluded. The Company has not provided reconciliations of
guidance for adjusted diluted net income per share, in reliance on
the unreasonable efforts exception provided under Item
10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without
unreasonable efforts, to forecast certain items required to develop
meaningful comparable GAAP financial measures. These items include
restructuring and realignment costs and acquisition integration
costs that are difficult to predict in advance in order to include
in a GAAP estimate.
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version on businesswire.com: https://www.businesswire.com/news/home/20220726005324/en/
Investor Contact: J.C. Weigelt 763-542-0525
Media Contact: Jess Rogers 763-513-3445
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