“I am extremely pleased to report record sales and earnings for our 2014 first quarter, which represents the 18th consecutive quarter of record earnings performance,” said Polaris’ Chairman and
CEO, Scott Wine, in a press company press release announcing the Q1 financials. “Our broad and diversified product and brand portfolio has Polaris off to yet another strong start, with first quarter sales up 19% led by continued excellent performance from our Off-Road Vehicles business and rapid growth within our motorcycle, small vehicle and PG&A businesses in both North America and internationally.”
Gross profits for Q1 are $ 258.4 million, up 19% YOY, with the $ 80.9 million net income a 7% increase. The quarterly YOY net income was affected by tax changes, with the 2013 Q1 reaping a $ 8.2 million federal tax credit for research and development. The corporate R&D tax break has not yet been extended for 2014, with last year’s Q1 windfall a retroactive credit that included the 2013 and 2012 tax seasons. Polaris forecasts another banner year in 2014, with sales expected to increase 14 to 16%. Earnings per share projections are $ 6.30 to $ 6.45, a 17 to 19% increase compared to the $ 5.40 2013 per share total.
INDIAN RE-RELAUNCH POWERS MOTORCYCLE SEGMENT
Polaris’ motorcycle brands, Indian and Victory, contributed $ 78.9 million in sales to the Q1 tally. That 52% increase was powered by the Indian marque, which Polaris re-launched for the 2014 model year. These 2014 Indians, the first to source Polaris engineering, have generated favorable reviews from the press – including MotoUSA (Read the H-D Heritage Softail vs. Indian Chief Vintage Comparison Review). The interest from consumers and dealers has been strong as well, and Polaris expects to build up from the 70 current retailing dealers to reach 100 sometime in Q2.
While the reborn Indian has boomed, the Victory brand has marked a year-over-year decrease in sales. Polaris’ Q1 press release didn’t specify how much, but company officials did state in its Q1 conference call that: “Victory retail sales declined mid-single digits but essentially outperformed pretty much all heavyweight brands in the first quarter other than Indian and Harley.”
Downplaying the obvious question, ever since the company acquired the historic marque, Polaris reps went on to insist that Indian is not cannibalizing Victory sales. Instead, they claim the 2 brands attract different buyers – with Indian a true conquest brand appealing to Harley-Davidson customers, while Victory sources interest from the Metric ranks.
As the 2014 riding season rolls along, Polaris estimates its motorcycle sales will increase 65-75% for the year. While Indian will drive most of that revenue, Polaris projects expanded market share for its entire motorcycle division in the heavyweight motorcycle segment.
Those 2014 sales projections also factor in Polaris’ forthcoming Slingshot – a 3-wheeled vehicle sporting a reverse Trike configuration and tandem seats. The company confirmed in its conference call that the Slingshot will be included in the company’s motorcycle segment, rather than as a light vehicle. No official specs or photos of the designs have been released yet, except for illustrations included in a patent filing dated September 27, 2012.
ORV SALES REMAIN DOMINANT
Polaris’ continues to consolidate its already dominant position in the domestic UTV market, claiming an increase in market share. Off-road vehicles sales for the company are up 11% YOY – with this amount being total revenue, and not number of units sold. The company gives only vague estimates for annual unit sales in North America, claiming sales growth in the “upper single digits” for the quarter compared to “mid-single digits” for the industry as a whole.
Dealer ORV inventory is up for the quarter, owing to an expansion of Polaris’ off-road lineup for the 2014 model year. The most notable addition to dealer sales floors is the all-new Sportsman ACE – a unique UTV/ATV hybrid. Polaris touts demand for the new ACE has exceeded its already high expectations, necessitating an increase in production capacity at the company’s Milford, Iowa plant for the 2015 ACE models.
Polaris continues to benefit from its ORV sales in the Defense and Commercial markets, which have also grown. In a conference call announcing the Q1 results, Polaris representatives claimed a 50% Q1 increase in Defense sales, as the company delivers on a contract for RZRs to the military.
The company also cites 60% increase in its Commercial segment with sales of its BRUTUS models, a Ranger-powered UTV sourcing power tool accessories developed with Bobcat. However, the company acknowledged the distribution and retail growth of the BRUTUS line has been slower than expected. Polaris has previously announced that it will continue its Bobcat partnership as well as its new partner in the commercial ORV segment, Ariens.
Polaris has expanded its small vehicle segment in recent years with the acquisitions of GEM, Goupil and Aixam – the latter acquisition occurring in April 2013. All 3 brands have grown year-over-year, delivering a 248% YOY revenue increase for the quarter. In Q1 of 2013 the small vehicle segment accounted for $ 11.1 million in sales but brought in $ 38.5 million in 2014 revenue. The explosive YOY growth has positioned the small vehicle segment ahead of the company’s Snowmobile division.
The snow segment actually enjoyed a modest 6% increase in the first quarter, totaling $ 15.6 million. However, Polaris acknowledges its snowmobiles underperformed compared to the market at a whole, which is up 10% YOY. Polaris still claims second position in North American market share, and sited a 39% decrease in international markets outside blamed on unseasonably warm conditions in Scandinavia and Russia.