Polaris 2019 1Q Results With Sales +15%
Polaris has reported and adjusted sales for the first quarter of 2019 increased by +15% to $1,496 million, with net income at $0.78 per diluted share, down -8% over the prior year; adjusted net income for the same period was $1.08 per diluted share, down -4% over the prior year, but ahead of company expectations.
Overall North American retail sales decreased -3% for the quarter compared to last year; ORV N.A. retail sales were down mid-single digits percent and motorcycle sales were down high-single digits percent, both negatively impacted by weather.
The company gained market share in snowmobiles for the season ending March 2019 and maintained market share in Indian motorcycles "in a challenging industry environment."
Motorcycles segment sales, including PG&A, totaled $118 million, down -10% compared to the first quarter of 2018, driven largely by declines in Slingshot sales, and, to less of an extent, Indian Motorcycle sales, partly due to an ongoing challenging motorcycle market. Gross profit for the first quarter of 2019 was down at $7 million compared to $17 million in the first quarter of 2018. The decrease in gross profit was primarily the result of lower volume and tariff costs.
North American consumer retail sales for the Polaris motorcycle segment, including both Indian Motorcycle and Slingshot, decreased high-single digits percent during the first quarter of 2019. Indian Motorcycle retail sales decreased mid-single digits percent. Slingshot's retail sales were down low-double digits percent during the quarter. Motorcycle industry retail sales, 900 cc and above, were down mid-single digits percent in the first quarter of 2019.
Polaris increased its full year 2019 earnings guidance and now expects earnings to be between $6.05 to $6.30 per diluted share, which includes the absorption of $80 to $90 million of additional tariff costs anticipated in 2019 over 2018. Full year 2019 adjusted sales growth guidance remains unchanged at up 11% to 13% over the prior year. Dealer inventory was down 1% year-over-year for the first quarter 2019, in line with expectations.
Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc., is quoted as saying: "Polaris’ 65th anniversary year is off to a solid start, as we delivered sound results and finished the quarter with strong momentum. The team executed well, providing quality products to our customers while navigating a dynamic trade environment. Retail sales results were somewhat mixed, with greater than 20 percent snowmobile growth helping to offset modest weather-related declines in ORV, motorcycles and boats, although all three of these segments came on strong at the end of March.
"Our product line-up has never been stronger, our boat brands fared well during the recent boat shows, dealer inventory levels are well positioned to support the peak spring retail selling season, and our strategic sourcing program is accelerating savings and value enhancement. We remain steadfastly committed to enhancing our customer-centric culture, which amplifies our investments in innovation and operational prowess, and as we look to the balance of 2019, we are confident about gaining market share as we continue bringing innovative products to our customers and solidifying our position as the leader in Powersports."
65th anniversary year off to a solid start
The company reported first quarter 2019 net income of $48 million, compared with $56 million for the 2018 first quarter. Adjusted net income for the quarter ended March 31, 2019 was $67 million compared to $74 million.
Gross profit increased +9 percent to $352 million for the first quarter of 2019 from $323 million in the first quarter of 2018. Reported gross profit margin was 23.6 percent of sales for the first quarter of 2019 compared to 24.9 percent of sales for the first quarter of 2018. Gross profit for the first quarter of 2019 includes the negative impact of $7 million of restructuring and realignment costs. Excluding these costs, first quarter 2019 adjusted gross profit was $359 million, or 24.0 percent of adjusted sales.
For the first quarter of 2018 adjusted gross profit of $329 million, or 25.4 percent of adjusted sales, excludes the negative impact of $6 million of restructuring and realignment costs. Gross profit margins on an adjusted basis were down 140 basis points. Higher average selling prices were more than offset by tariff costs and the addition of boats, which has lower gross profit margins.
Off-Road Vehicles (“ORV”) and snowmobiles segment sales, including PG&A, totaled $867 million for the first quarter of 2019, up four percent over $833 million for the first quarter of 2018, driven by growth in side-by-side sales. PG&A sales for ORV and snowmobiles combined increased 12 percent in the first quarter of 2019 compared to the first quarter last year. Gross profit increased four percent to $252 million in the first quarter of 2019, compared to $244 million in the first quarter of 2018. Gross profit percentage declined 20 basis points during the quarter as higher average selling prices and favorable product mix were more than offset by higher tariff costs.
ORV wholegood sales for the first quarter of 2019 increased 4 percent, primarily driven by increased average selling prices. Polaris North American ORV retail sales decreased mid-single digits percent for the quarter, with side-by-side vehicles down low-single digits percent and ATV vehicles down low-double digits percent. The North American ORV industry was down low-single digits percent compared to the first quarter last year.
Snowmobile wholegood sales in the first quarter of 2019 were $13 million, down 28 percent compared to $18 million in the first quarter of last year. Polaris snowmobile retail sales were up high-single digits percent during the first quarter of 2019 and up about 20 percent for the twelve- month season ending March 2019. North American industry retail was up low-double digits percent for the first quarter and up low-single digits percent for the season ending March 2019. Polaris gained significant market share for the season.
Global Adjacent Markets segment sales, including PG&A, decreased seven percent to $105 million in the 2019 first quarter compared to $113 million in the 2018 first quarter. Reported gross profit decreased five percent to $30 million in the first quarter of 2019, compared to $31 million in the first quarter of 2018. Adjusted gross profit decreased 6 percent to $30 million in the first quarter of 2019, compared to $32 million in the first quarter of 2018 due to negative product mix.
Aftermarket segment sales of $221 million in the 2019 first quarter increased slightly compared to $220 million in the 2018 first quarter. TAP sales in the first quarter of 2019 were $197 million, which was down two percent from $201 million in the first quarter of 2018. TAP sales declined two percent due to ongoing soft wholesale sales along with lower e-commerce demand, while the company's other aftermarket brands increased sales over 20 percent. Gross profit decreased to $56 million in the first quarter of 2019, compared to $58 million in the first quarter of 2018 due to negative product mix.
Boats segment sales, which consist of the Boat Holdings acquisition which closed July 2, 2018, were $185 million in the 2019 first quarter. Gross profit was $36 million or 19.6 percent of sales in the first quarter of 2019.
Parts, Garments and Accessories (“PG&A”) sales increased eight percent for the 2019 first quarter, primarily driven by growth in ORV and snowmobiles.
International sales to customers outside of North America, including PG&A, totaled $203 million for the first quarter of 2019, down four percent, from the same period in 2018. Increased Indian Motorcycle and PG&A sales were more than offset by negative foreign exchange movements, which reduced sales by seven percent for the quarter.
Given the 2019 first quarter results, the company is increasing its full year earnings guidance and now expects adjusted net income to be in the range of $6.05 to $6.30 per diluted share, compared with adjusted net income of $6.56 per diluted share for 2018. Full year 2019 sales expectation remains unchanged at up 11 to 13 percent. The full year earnings guidance is inclusive of the company's expectations related to the negative impact of external factors such as the annualized impact of tariffs, adverse foreign exchange impacts and higher interest rates, totaling approximately $1.50 per diluted share, on a combined basis. Absent these items, the company is expected to generate positive earnings growth on a year-over-year basis.