Polaris Industries released its Third Quarter Results for 2009 which shows that sales of Victory Motorcycles are down 56% in comparison to a year ago.
Polaris Industries Inc. (NYSE: PII) released its 2009 Third Quarter Results, showing that sales of its American V-Twin motorcycles has taken a huge hit. Polaris reported net income of $31.2 million, or $0.94 per diluted share, a decrease of 17 percent for the quarter ended September 30, 2009, compared to the third quarter 2008 net income of $37.7 million, or $1.13 per diluted share. Sales for the third quarter 2009 totaled $436.2 million, a decrease of 25 percent from last year’s third quarter sales of $580.3 million.
Sales of the On-road division, which today primarily consists of Victory motorcycles, decreased 56 percent during the third quarter of 2009 when compared to the same period in 2008. The decrease reflects the continuing planned reduction in shipments of Victory motorcycles to dealers in North America and increased promotional activities during the third quarter to assist dealers’ efforts in further reducing their inventory levels. The overall motorcycle industry retail sales environment continued to be weak during the third quarter 2009, with industry wide North American retail sales of heavyweight cruiser and touring motorcycles over 1400cc decreasing in the high 20 percent range compared to the same period last year. Victory retail sales to consumers declined more than the industry wide sales during the 2009 third quarter. Although dealer inventory levels of Victory motorcycles are 22 percent lower at the end of the 2009 third quarter compared to the third quarter last year, further reductions are needed. The Company has taken a number of proactive measures to reinvigorate retail sales including, adding personnel and resources, streamlining the product line-up, increasing promotions and expanding its international market presence. To remain competitive in the market and further expand its product offerings, the Company introduced two new touring motorcycles for model year 2010, the Cross Country and Cross Roads models, both targeted at the large touring motorcycle market segment. Additionally, several value oriented models were added to the Victory line for model year 2010. During the 2009 third quarter the on-road division began shipping the Polaris Breeze, the Company’s first electric powered low emission vehicle, to a select number of neighborhood vehicle dealerships. The initial response to the product by dealers and consumers has been positive.
“Our third quarter 2009 results exceeded our expectations and clearly reflect the strength of our business model and our Polaris team,” commented Scott Wine, Chief Executive Officer of Polaris. “While the economic environment remains challenging, we continue to take the long view and invest in the business for future growth and profitability. During the third quarter, we launched and obtained orders for a broad and exciting array of new products, and also continued to drive our focus on cost and productivity to generate 160 basis points of gross margin expansion. Our operational excellence initiatives drove reductions in both total North American dealer inventory levels and total factory inventory levels compared to last year’s third quarter. In short, we are effectively executing our operating plan.”
Wine continued, “We continued to gain market share in our off-road vehicle business during the quarter and parts, garments and accessories sales were better than anticipated. While Victory motorcycle sales were down significantly and Victory dealer inventories remain elevated, we have added both personnel and resources to help drive strategic initiatives to improve the Victory business over time.”
“In July, we took the recession head-on and introduced more than 25 new products for model year 2010, which appeal to both the value-oriented consumer as well as the consumer looking for fully featured vehicles. Our new product line-up reflects our focus on innovation as well as our commitment to improving financial results as model year 2010 products are, on average, more profitable on a gross margin percentage basis than the previous year models. Additionally, during the third quarter we expanded our Max Velocity Program, or MVP, to more dealers who can now place orders every two weeks rather than on the previous six-month cycle. This retail acceleration program is now being utilized by approximately 50 percent of our North American dealers and is a program we consider to be a competitive advantage for the Company.”
Wine concluded, “Consistent with our strategic objectives to drive growth, we recently hired Todd Balan as Vice President of Corporate Development. Todd brings more than a decade of experience in strategic planning, business development and acquisitions and has a solid track record of successfully analyzing potential acquisition targets. Todd provides new skills and experience to our already strong Polaris team that will enable us to augment our strong history of organic growth with intelligent investments that will accelerate profitable growth and add value for shareholders.”
2009 Business Outlook
While the economic environment is expected to remain challenging, Polaris has made solid progress towards its value engineering and supply chain cost reduction targets and has received positive feedback on the model year 2010 product offerings introduced in July. Based on the orders received from dealers for the model year 2010 products, year-to-date operating results and the current outlook on the macro economic environment near-term, the Company is raising and narrowing the guidance range for full year 2009 earnings per diluted share.
The Company now expects full year 2009 earnings to be in the range of $2.92 to $2.98 per diluted share, compared to previously issued guidance of $2.70 to $2.90 per diluted share for 2009 and reported earnings of $3.50 per diluted share for the full year 2008. Sales for the full year 2009 are expected to decline in the range of 20 to 22 percent compared to the full year 2008, narrowed from previously issued guidance.
The Company expects fourth quarter 2009 sales to be down 12 to 17 percent from the fourth quarter of 2008, with earnings in the range of $1.19 to $1.25 per diluted share compared to $1.11 per diluted share in the fourth quarter 2008. The increase in anticipated earnings per share is primarily a result of the various cost reduction initiatives the Company has been implementing during 2009, in addition to an expected benefit from currency movements when compared to the fourth quarter of 2008.
Product line information Third Quarter ended September 30 Nine Months ended September 30
(in thousands) 2009 2008 Change 2009 2008 Change
Off-Road Vehicles $261,108 $371,194 -30% $738,312 $986,000 -25%
Snowmobiles 82,218 94,624 -13% 97,797 110,065 -11%
On-Road/Victory Motorcycles 9,344 20,998 -56% 33,672 71,753 -53%
Parts,Garments & Accessories 83,527 93,465 -11% 224,336 256,833 -13%
Total Sales $436,197 $580,281 -25% $1,094,117 $1,424,651 -23%
ORV (off-road vehicle) sales during the third quarter 2009, which included sales of both core ATVs (all-terrain vehicles) and RANGER side-by-side vehicles, decreased 30 percent from the strong comparables in the third quarter 2008. This decrease reflects the ongoing weakness in the consumer retail environment and Polaris’ continued commitment to helping our dealers reduce their core ATV inventory levels. ATV dealer inventory levels in North America finished the third quarter 2009 32 percent lower than the end of the third quarter 2008. This represents the 12th consecutive year-over-year quarter decline in core ATV dealer inventory levels. Side-by-side retail sales were lower during the third quarter 2009 compared to the third quarter 2008, but improved sequentially over the first six months of 2009 to down mid-single digit percentage for the 2009 third quarter. As a result, Polaris shipped fewer side-byside vehicles in the third quarter to help dealers maintain inventories at acceptable levels. Although the ORV markets remain weak, the Company continued to be aggressive in new product development with the introduction of several new innovative model year 2010 products including:
• Several RANGER models with increased horsepower
• A mid-sized value priced RANGER
• An electric version of the new midsized RANGER, the RANGER EV, a quieter machine for operating inside barns or stealthy trips to the deer stand, which has many of the same features of the gasoline powered model
• Two new Sportsman Touring ATV models built on the same award winning chassis as the Sportsman XP
• Several other ATV models with enhancements including more horsepower, redesigned chassis and suspensions for better handling, and updated styling
International ORV sales declined 25% in the third quarter 2009, when compared to the third quarter 2008, as weak economic conditions in Europe and Russia reduced demand for Polaris products. However, the Company continued to gain ORV market share internationally during the 2009 third quarter.
Parts, Garments, and Accessories (“PG&A”) sales decreased 11 percent during the third quarter 2009 compared to the same period of last year. The decrease was driven primarily by the lower retail sales of Polaris vehicles during the third quarter 2009; however, the decline in sales was less than the overall Company sales decline as the large installed base of Polaris owners remain loyal to the Polaris brand and continue to purchase PG&A for their products. The gross margin percentage continued to expand in the Company’s highest margin product line during the third quarter and the Company added over 200 new accessories to its PG&A product portfolio for model year 2010.
