Polaris has reported that overall sales revenue for the first quarter of 2017 increased +17% to $1,153.8 million, with Polaris North America retail sales “exceeding” company expectations.
The company says that Indian Motorcycle continued to gain market share in a soft quarter for the industry’s 900cc+ sector and that its ORV (Off Road Vehicles) market share is “stabilizing.”
The company has reported a first quarter 2017 net loss of $2.9 million, a loss that included costs related to the wind-down of Victory Motorcycles.
North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, was down mid-single digits percent during the 2017 first quarter, while the overall motorcycle industry retail sales, 900cc and above, was down mid-single digits percent in the 2017 first quarter. However, Indian Motorcycle retail sales increased low double-digits percent.
“While we reported an expected net loss for the quarter, adjusted earnings were slightly ahead of our expectations,” said Polaris Industries CEO Scott Wine. “We saw continued strong performance from Indian Motorcycle, and our ORV business improved its performance in the face of heavy competitive activity and a sluggish powersports environment. Overall, our dealer channel remains healthy with inventories down eight percent, and we continue to diligently work to enhance our dealer engagement.”
With reference to some of the issues the company finds itself needing to address, not least the ORV and Slingshot recall problems it continues to encounter, Wine went on to say that the company is “aggressively investing in the development of innovative products that will further solidify Polaris’ position as the leader in powersports. Our first quarter results reflect our commitment to quickly and sustainably improve our strategic and tactical execution, continue enhancing overall safety and quality, and building superior products for our customers.”
Motorcycle segment sales revenue in the first quarter of 2017 (including PG&A related sales) was $120.3 million, a decrease of -35 percent compared to $185.3 million reported in the first quarter of 2016 (which included $46.3 million of Victory Motorcycles wholegood, accessory and apparel sales). Indian Motorcycle wholegood sales increased in the first quarter driven by strong retail sales, offset by lower Slingshot sales, which were negatively impacted by low availability of saleable product due to quality holds during the quarter.
Polaris announced in January its intention to wind down its Victory Motorcycles operations. The company says the decision is expected to improve the long-term profitability of Polaris and its global motorcycle business, while materially improving the company’s competitive position in the industry. Meantime though, Polaris will record costs associated with supporting Victory dealers in selling their remaining inventory, the disposal of factory inventory, tooling and other physical assets, and the cancellation of various supplier arrangements.
Gross profit for the first quarter of 2017 was a negative $19.9 million compared to positive $27.3 million in the first quarter of 2016. Adjusted for the Victory wind-down costs of $38.6 million, motorcycle gross profit was a positive $18.7 million, down from the first quarter last year due to product mix and lower Slingshot volume.
Overall gross profit decreased two percent to $242.5 million for the first quarter of 2017 from $247.6 million in the first quarter of 2016. As a percentage of sales, reported gross profit margin was 21.0 percent compared with 25.2 percent of sales for the first quarter of 2016.
International sales to customers outside of North America totaled $166.2 million for the first quarter of 2017, including PG&A, up two percent from the same period in 2016.
During the first quarter 2017, the company repurchased and retired 256,000 shares of its common stock for $21.8 million. As of March 31, 2017, the company has authorization from its Board of Directors to repurchase up to an additional 7.2 million shares of Polaris stock.
The company guidance range for the full year 2017 remains unchanged. Polaris says it expects adjusted net income to be in the range of $4.25 to $4.50 per diluted share, compared with adjusted net income of $3.48 per diluted share for 2016. Full year 2017 adjusted sales are anticipated to increase in the range of 10 percent to 13 percent over 2016 sales of $4,516.6 million, also unchanged from previously issued guidance.
Global Adjacent Markets segment sales, along with its PG&A related sales, increased 24 percent to $91.6 million in the 2017 first quarter compared to $74.1 million in the 2016 first quarter. Gross profit increased 38 percent to $28.1 million, or 30.7 percent of sales, in the first quarter of 2017, compared to $20.4 million, or 27.5 percent of sales, in the first quarter of 2016. Sales and gross profit were up primarily due to increased sales in the company’s Government and Defense business in the 2017 first quarter, which more than doubled from the previous year’s quarter sales. Work and Transportation group wholegood sales were up 12 percent during the first quarter of 2017, primarily due to increased Aixam sales and a full quarter of Taylor-Dunn sales compared to last year.
Aftermarket segment sales which includes Transamerican Auto Parts (“TAP”), along with the company’s other aftermarket brands of Klim, Kolpi, Pro Armor, Trail Tech and 509, increased significantly to $217.8 million in the 2017 first quarter compared to $15.5 million in the 2016 first quarter. TAP added $202.0 million of sales in the first quarter of 2017. Gross profit increased significantly to $41.6 million, or 19.1 percent of sales in the first quarter of 2017, compared to $4.7 million, or 30.3 percent of sales, in the first quarter of 2016. Adjusted for the TAP acquisition step-up adjustment, aftermarket gross profit was $54.5 million, or 25.0 percent of sales. Sales and gross profit dollars were up primarily due to the addition of TAP acquired in the fourth quarter of 2016.
Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including their respective PG&A related sales, were $724.1 million for the first quarter of 2017, compared with $708.1 million for the first quarter for the prior year, representing a two percent increase, year-over-year. PG&A sales for ORV and Snowmobiles combined increased 13 percent in the 2017 first quarter compared to last year. Gross profit increased three percent to $213.0 million, or 29.4 percent of sales in the first quarter of 2017, compared to $206.0 million, or 29.1 percent of sales, in the first quarter of 2016. Gross profit percentage increased primarily due to product mix.
ORV wholegood sales for the first quarter of 2017 were approximately flat as the company began shipping at more normalized rates. Polaris North American ORV unit retail sales for the first quarter of 2017 were down mid-single digits percent from the 2016 first quarter, which included consumer purchases for side-by-side vehicles down low-single digits percent and ATV retail sales down low-double digits percent. The North American ORV industry was down mid-single digits percent compared to the first quarter last year. ORV dealer inventory was down nine percent in the 2017 first quarter compared to the same period last year.
Snowmobile wholegood sales in the first quarter of 2017 decreased three percent due to timing of shipments during the quarter. “While the snow season did not meet our expectations, dealer inventory finished below last year and we received a strong reception to our all-new model year 2018 Polaris TITAN™, the industry’s most capable extreme crossover snowmobile.”
Overall Parts, Garments and Accessories (“PG&A”) sales, excluding aftermarket segment sales, increased 13 percent for the 2017 first quarter. The increase was primarily driven by higher ORV and Global Adjacent Markets related PG&A sales during the quarter.
First quarter 2017 reported net loss was $0.05 per diluted share; adjusted net income for the same period was $0.75 per diluted share, slightly ahead of expectations
Total dealer inventory was down 8% year-over-year; ORV dealer inventory was down 9%.
Polaris reiterated its full year 2017 outlook with adjusted net income expected to be in the range of $4.25 to $4.50 per diluted share, with adjusted sales for the full year 2017 expected to be in the range of up 10% to 13%.
