Polaris Industries Inc. reported record fourth quarter 2017 sales of $1,431 million, up +18 percent from $1,218 million for the fourth quarter of 2016.
Polaris CEO Scott Wine said: “I am proud of the Polaris team and excited to see their dedication and hard work pay off as we returned the company to sustainable profitable growth in 2017. Indian Motorcycles massively outperformed the motorcycle industry, building on its existing momentum with a flood of product news and a very successful year on the race track.
“We accelerated North American demand for side-by-sides throughout the year, led by strong retail sales of RANGER and Polaris GENERAL, along with increased international sales growth in all regions outside North America. Additionally, we made significant investments and improvements in our people, processes, product innovation and quality, which led to notable execution improvements in our Off-Road Vehicle business, marked progress on the TAP integration, and a substantial upgrade of our quality control systems and infrastructure.
“Looking forward, I could not be more excited about the momentum we have built. Dealer inventory is approaching optimal levels, our delivery issues are being addressed, and our product innovation, which continues to resonate well with consumers, will receive an added boost from increased engineering spend.”
Motorcycle segment sales, including PG&A, totaled $103 million, a decrease of two percent compared to $104 million reported in the fourth quarter of 2016, which included $25 million of Victory Motorcycle wholegood, accessory and apparel sales. Indian Motorcycles’ wholegood sales increased in the high-single digit percent range in the fourth quarter, while Slingshot sales more than doubled.
Gross profit from the sector for the fourth quarter of 2017 was $5 million compared to $1 million in the fourth quarter of 2016. Adjusted for the Victory Motorcycles wind-down costs of $3 million, motorcycle gross profit was $8 million, up from the fourth quarter last year due to higher sales volume for both Indian Motorcycles and Slingshot and lower warranty costs.
North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, increased about +30 percent during the 2017 fourth quarter. Indian Motorcycle retail sales increased about +17 percent, with both heavyweight and mid-sized motorcycles increasing at similar mid-teens percent levels.
Indian Motorcycle continued to gain “significant market share for the 2017 fourth quarter and full year on a year-over-year basis. Slingshot’s retail sales were up significantly due to improved product availability compared to the fourth quarter last year. Motorcycle industry retail sales, 900cc and above, were down high-single digits percent in the 2017 fourth quarter.”
Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including their respective PG&A related sales, were $994 million for the fourth quarter of 2017, up 13 percent over $881 million for the fourth quarter of 2016, driven primarily by improved side-by-side shipments. PG&A sales for ORV and Snowmobiles combined increased nine percent in the 2017 fourth quarter compared to the fourth quarter last year. Gross profit increased 11 percent to $279 million, or 28.0 percent of sales, in the fourth quarter of 2017, compared to $252 million, or 28.6 percent of sales, in the fourth quarter of 2016. Gross profit percentage decreased primarily due to higher warranty and negative product mix, offset somewhat by lower promotional costs.
ORV wholegood sales for the fourth quarter of 2017 increased 14 percent primarily driven by strong RZR and RANGER shipments. Polaris North American ORV unit retail sales for the fourth quarter of 2017 were down low-single digits percent from the 2016 fourth quarter, with side-by-side vehicles down low-single digits percent and ATVs flat. The North American ORV industry was up low-single digits percent compared to the fourth quarter last year. ORV dealer inventory was down 6 percent in the 2017 fourth quarter compared to the same period last year.
Snowmobile wholegood sales in the fourth quarter of 2017 increased 11 percent to $131 million, due to the timing of shipments. Polaris snowmobile retail sales were down low double digits percent during the fourth quarter due to low snowfall levels across the snowbelt regions in North America.
Global Adjacent Markets segment sales, along with its PG&A related sales, increased 19 percent to $117 million in the 2017 fourth quarter compared to $98 million in the 2016 fourth quarter. Reported gross profit increased two percent to $30 million, or 25.4 percent of sales, in the fourth quarter of 2017, compared to $29 million, or 29.5 percent of sales, in the fourth quarter of 2016. Adjusted gross profit, excluding the manufacturing realignment costs, increased four percent to $30 million, or 25.8 percent of sales for the fourth quarter 2017. Commercial/Government/Defense group wholegood sales were up 24 percent during the fourth quarter of 2017, primarily due to an increase in sales in the Company’s Goupil light-utility business and military sales.
Aftermarket segment sales, which include Transamerican Auto Parts (“TAP”), along with the Company’s other aftermarket brands of Klim, Kolpin, Pro Armor, Trail Tech and 509, increased 62 percent to $218 million in the 2017 fourth quarter compared to $134 million in the 2016 fourth quarter. TAP sales increased $83 million to $192 million in the fourth quarter of 2017.
Parts, Garments and Accessories (“PG&A”) sales, excluding Aftermarket segment sales, increased eight percent for the 2017 fourth quarter. Excluding Victory Motorcycles, all segments and categories increased sales during the quarter.
International sales to customers outside of North America, including PG&A, totaled $211 million for the fourth quarter of 2017, up 18 percent, from the same period in 2016. In the fourth quarter, sales in EMEA grew low-twenties percent, Asia Pacific increased high-single digits percent, and Latin America sales rose mid-teens percent.
At a corporate level gross profit increased 18 percent to $368 million for the fourth quarter of 2017 from $313 million in the fourth quarter of 2016. As a percentage of sales, reported gross profit margin was 25.7 percent of sales for the fourth quarter of both 2017 and 2016. Gross profit for the fourth quarter of 2017 includes the negative impact of $3 million of Victory Motorcycles wind-down costs and $2 million of realignment costs.
Operating expenses increased +13 percent for the fourth quarter of 2017 to $264 million from $233 million in the same period in 2016, which included $1 million in Victory Motorcycles wind-down costs, $3 million of TAP integration expenses and $9 million of corporate restructuring charges. Excluding these costs, operating expenses increased primarily due to the addition of operating expenses from TAP, higher variable compensation expenses, as well as increased research and development expenses and increased selling and marketing costs related to new products, offset somewhat by lower legal related expenses.
Income from financial services was $19 million for the fourth quarter of 2017, down four percent compared with $19 million for the fourth quarter of 2016. The decrease is attributable to lower income generated from the wholesale portfolio due to the lower dealer inventory levels.
Net cash provided by operating activities was $580 million for the year ended December 31, 2017, compared to $572 million for the same period in 2016. Total debt at December 31, 2017, including capital lease obligations and notes payable, was $913 million. The Company’s debt-to-total capital ratio was 49 percent at December 31, 2017, compared to 57 percent a year ago due primarily to repayments on the revolving and term loan facilities. Cash and cash equivalents were $138 million at December 31, 2017, up from $127 million for the same period in 2016.
During the fourth quarter of 2017, the Company repurchased and retired 13,000 shares of its common stock for $2 million. For the full year ending December 31, 2017, the Company has repurchased and retired 1,028,000 shares of its common stock for $90 million. As of December 31, 2017, the Company has authorization from its Board of Directors to repurchase up to an additional 6.4 million shares of Polaris common stock.
