Victory Motorcycles parent company Polaris Industries more than doubled its earnings in the first quarter of 2011, raising its sales and earnings expectations for the full year.
Following yesterday’s announcements that Polaris Industries had acquired Indian Motorcycles and it would continue to produce engines at its manufacturing facility in Osceola, Wisconsin, the company released more positive news in the form of its record-setting financial report for the First Quarter 2011. Polaris more than doubled its earnings in the first quarter, reporting a net income of $47.3 million, or $1.34 per-diluted-share, compared to $19.8 million and $.59 per-diluted-share during the same quarter last year. Sales topped out at $537.2 million, up 49% in comparison to last year’s first quarter sales of $361.7 million.
“We are extremely pleased with our first quarter results, as the momentum we built throughout 2010 continued into 2011. Retail demand for Polaris products in North America remained strong throughout the first quarter and we continued to gain market share,” said Scott Wine, Polaris’ Chief Executive Officer.
As a result of its promising fiscal report, Polaris is raising its sales and earnings expectations for 2011. The company now expects full year 2011 earnings to be between $5.53-$5.68 per-diluted-share, around 30% higher than the 2010 earnings of $4.28 per-diluted-share. Overall sales for the full year 2011 are expected to grow by 17-20%.
Victory Motorcycles and Polaris’ On-Road Vehicles division enjoyed a 77% increase in sales to $44.9 million in comparison to 2010’s first quarter. This was spurred by a big increase in international sales, a whopping 59%. In North America, retail sales were down slightly. Dealer inventory for the North American market remained almost level in comparison to 2010.
Off-Road Vehicle sales during the first quarter 2011 increased 55% to $338.0 million in comparison to a year ago totals. Off-road sales were boosted by new product offerings like the RANGER RZR XP 900 and military contracts. In the U.S., side-by-side vehicle sales were up while ATV retail sales were slightly down.
Polaris’ financial report far exceeded Wall Street’s estimates which sent its shares up more than 16% in morning trading.
For more details, check out Polaris Industries press release below:
Polaris Industries Inc. (NYSE:PII – News) today reported record first quarter net income of $47.3 million, or $1.34 per diluted share, for the quarter ended March 31, 2011. By comparison, 2010 first quarter net income was $19.8 million, or $0.59 per diluted share. Sales for the first quarter 2011 totaled $537.2 million, an increase of 49 percent from last year’s first quarter sales of $361.7 million.
“We are extremely pleased with our first quarter results, as the momentum we built throughout 2010 continued into 2011. Retail demand for Polaris products in North America remained strong throughout the first quarter and we continued to gain market share. Our International business also remained strong with sales increasing 21 percent and we celebrated the grand opening of our European headquarters in Switzerland during the quarter. As a result of continuous improvement efforts directed at cost reduction and profitability enhancements, we generated significant margin expansion. In the first quarter, gross margin improved by 210 basis points and net income margin increased 330 basis points to 8.8 percent of sales,” commented Scott Wine, Polaris’ Chief Executive Officer. “In addition to our strong first quarter results, we are excited to announce the completion of the purchase of Indian Motorcycle Company, the maker of America’s first motorcycle. This transaction will complement and enhance our on-road product portfolio, and afford Polaris the opportunity to bring our world-class engineering, manufacturing, and distribution capabilities to an iconic American brand in the heavyweight motorcycle market.”
“Given our excellent start to the year we are significantly raising our expectations for sales and earnings for the full year 2011,” continued Wine. “We will continue to make prudent strategic investments and our strong balance sheet, with $346 million in cash on hand and only $200 million in debt at March 31, 2011, gives us the strength and flexibility to remain aggressive in identifying opportunities to accelerate growth. In addition, product innovation remains at the forefront of our strategy, as evidenced by our January launch of the all-new RANGER RZR XP 900 recreational vehicle and the Victory High-Ball custom cruiser, in addition to the March introduction of our model year 2012 snowmobiles.”
2011 Business Outlook
Based on Polaris’ performance during the 2011 first quarter and projections for the remainder of the year, the Company is increasing its full year sales and earnings guidance for 2011. The Company now expects full year 2011 earnings to be in the range of $5.53 to $5.68 per diluted share, an increase of between 29 and 33 percent over earnings of $4.28 per diluted share for the full year 2010. 2011 full year sales are now expected to grow in the range of 17 to 20 percent. Revised full year 2011 expectations include the dilutive impact of integrating the Indian Motorcycle acquisition and transition costs related to ongoing manufacturing realignment.
First Quarter Performance Summary (in thousands except per share data)
Three Months ended March 31,
Product line Sales 2011 2010 Change
Off-Road Vehicles $388,019 $250,403 55%
Snowmobiles 8,935 5,554 61%
On-Road Vehicles/Victory Motorcycles 44,908 25,353 77%
Parts, Garments & Accessories 95,336 80,398 19%
Total Sales $537,198 $361,708 +49%
Gross profit $151,835 $94,914 +60%
Gross profit as a % of sales 28.3% 26.2% +210 bpts
Operating expenses $87,538 $67,234 +30%
Operating expenses as a % of sales 16.3% 18.6% -230 bpts
Operating Income $69,583 $31,936 +118%
Operating Income as a % of sales 13.0% 8.8% +420 bpts
Net income $47,310 $19,771 +139%
Net income as a % of sales 8.8% 5.5% +330 bpts
Diluted net income per share $1.34 $0.59 +127%
Off-Road Vehicle (“ORV”) sales during the first quarter 2011, comprised of sales of ATVs (all-terrain vehicles) and RANGER side-by-side vehicles, increased 55 percent from the first quarter 2010 to $388.0 million. This increase reflects significant market share gains for both ATVs and side-by-side vehicles driven by new product offerings including the recently introduced RANGER RZR XP 900 and increased sales in our adjacency businesses of military and Bobcat. North American consumer retail sales increased 12 percent for the 2011 first quarter from the first quarter last year, with side-by-side vehicle retail sales increasing significantly while ATV retail sales were down slightly. North American dealer inventories of ORVs for the 2011 first quarter were down slightly from the first quarter of 2010. Sales of ORVs outside of North America increased 20 percent in the first quarter 2011 when compared to the first quarter 2010, due to market share gains in both ATVs and side-by-side vehicles, positive mix benefit from increased sales of higher priced side-by-side vehicles, and positive currency benefit from the weaker US dollar.
Snowmobile sales totaled $8.9 million for the 2011 first quarter compared to $5.6 million for the first quarter of 2010. Historically, the first quarter is a slow quarter for snowmobile shipments. Sales increased primarily due to an increase in shipments to customers outside of North America in the 2011 first quarter compared to the first quarter last year. The North American snowmobile industry finished the season strong with industry retail sales up seven percent for the season ending March 31, 2011 due to the heavy snowfall during the past winter. Season-end North American dealer inventories for Polaris snowmobiles decreased over 40 percent from last year and are at their lowest levels in 16 years due to the positive industry trends and significant market share gains for the season. During the quarter the Company introduced nine new model year 2012 snowmobiles with industry-leading innovation and technology, including additional models with reduced vehicle weight and the award-winning PRO-RIDE progressive rear suspension. Additionally, the Company introduced the industry’s first Adventure snowmobile, the Switchback Adventure, combining wind protection, storage, high performance, and comfort in one purpose-built snowmobile.
Sales of the On-Road Vehicles division, comprised primarily of Victory motorcycles, increased 77 percent to $44.9 million during the first quarter of 2011 when compared to the same period in 2010. Polaris sales of On-Road Vehicles to customers outside of North America increased 59 percent during the 2011 first quarter compared to the prior year’s first quarter. In a positive sign for the industry, the North American heavyweight cruiser and touring motorcycle retail sales declined only slightly during the 2011 first quarter compared to the prior year’s first quarter. Worldwide, Victory unit retail sales were up modestly during the 2011 first quarter, with North American retail sales down slightly and retail sales outside of North America increasing. North American dealer inventory of Victory motorcycles for the 2011 first quarter remained approximately equal to comparable 2010 levels. Yesterday, the Company announced the acquisition of Indian Motorcycles, a legendary motorcycle brand which, over time, will help accelerate the growth of Polaris’ global motorcycle business.
Parts, Garments, and Accessories (“PG&A”) sales increased 19 percent during the first quarter 2011 compared to the same period last year primarily due to increased RANGER side-by-side vehicle and snowmobile related PG&A sales.
Gross profit was 28.3 percent of sales for the first quarter of 2011, an increase of 210 basis points from 26.2 percent for the first quarter of 2010. Gross profit dollars increased 60 percent to $151.8 million for the first quarter of 2011 compared to $94.9 million for the first quarter of 2010. The increase in gross profit dollars and the 210 basis point increase in the gross profit margin percentage in first quarter 2011 resulted primarily from the benefit of continued product cost reduction efforts, lower warranty costs, higher selling prices, and favorable currency movements partially offset by the manufacturing realignment costs and negative product mix when compared to the first quarter of last year.
Operating expenses for first quarter 2011 increased 30 percent to $87.5 million or 16.3 percent of sales, compared to $67.2 million or 18.6 percent of sales for the first quarter of 2010. Operating expenses in absolute dollars for the first quarter of 2011 increased primarily due to planned strategic investments in the business and increased incentive compensation plan expenses due to the higher expected profitability and the current higher stock price in 2011.
Income from financial services was $5.3 million during first quarter 2011 compared to $4.3 million in the first quarter of 2010 primarily a result of the increased profitability generated from the retail credit portfolios with GE, HSBC and Sheffield.
Non-operating other income was $3.2 million in the first quarter of 2011, as compared to $0.2 million of expense in the first quarter of 2010. The increase in income is the result of foreign currency exchange rate movements and the resulting effects on foreign currency transactions related to the Company’s foreign subsidiaries.
The provision for Income taxes for the first quarter 2011 was recorded at a rate of 34.5 percent of pretax income compared to 36.3 percent of pretax income for the first quarter 2010. The lower income tax provision rate in the first quarter 2011 is primarily due to the extension of the research and development credit by the U.S. Congress in the 2010 fourth quarter.
Financial Position and Cash Flow
Net cash provided by operating activities increased to $4.8 million for the first quarter ended March 31, 2011 compared to $3.8 million for the first quarter of 2010. The increase in net cash provided by operating activities for the 2011 first quarter was due to increased net income, mostly offset by a higher investment in working capital, primarily resulting from higher accounts receivable compared to the same period in 2010. Total debt was $200.0 million, of which $100.0 million was classified as current and $100.0 million was classified as long term at March 31, 2011. During the 2011 first quarter, the Company paid $31.0 million to repurchase and retire 0.4 million shares of Polaris common stock. The Company’s debt-to-total capital ratio was 34 percent at March 31, 2011, compared to 48 percent at the same period in 2010. Cash and cash equivalents were $345.9 million at March 31, 2011 compared to $124.4 million for the same period in 2010.
The previously announced manufacturing realignment will consolidate manufacturing operations into existing operations in Roseau, Minnesota and Spirit Lake, Iowa, and a new facility in Monterrey, Mexico. Construction is essentially complete on the new facility in Monterrey and initial ORV production has begun. The Company expects shipments from the facility to begin in the second quarter. Manufacturing realignment costs charged to the statement of income are expected to total in the range of $24.0 million to $26.0 million, pretax, and capital expenditures for the project are expected to total approximately $35.0 million. The Company expects to realize annual pretax savings in excess of $30.0 million when the transition is completed. During the first quarter of 2011, $6.6 million of exit and startup costs were incurred from the realignment, which are primarily reflected in cost of sales on the statement of income. In addition, capital expenditures of $6.5 million were incurred in the first quarter 2011 related to the manufacturing realignment. Recently, Polaris also announced it will keep some of its engine manufacturing operations in Osceola, Wisconsin, due to the significant increase in the Company’s product volume. Previously the Company had planned to close or sell its entire Osceola operations.