Polaris has posted North American retail sales of +6% for the quarter, with ORV up mid-single digit % for both side-by-side and ATV vehicles and gaining market share for ORV vehicles and Indian motorcycles.
The company has increased its full year 2018 sales guidance to be +11% to +12% taking into account improved volume expectations and the acquisition of Boat Holdings, LLC (Boat Holdings) – representing Polaris’ first foray into the marine market; the company has also raised the lower end of its earnings per share range and now expects adjusted net income to be in the range of $6.48 to $6.58 per diluted share, which includes the absorption of an estimated additional $40 million of tariff and related commodity cost increases anticipated in 2018.
Motorcycle segment sales, including PG&A, totaled $171 million, a decrease of -13 percent compared to $198 million reported in the second quarter of 2017 due to a weak motorcycle industry and timing of shipments for Indian motorcycles year-over-year. Slingshot sales were also down due to the weak motorcycle industry.
Gross segment profit for the second quarter of 2018 was $25 million compared to $21 million in the second quarter of 2017. Adjusted for the Victory wind-down costs recorded in both the 2018 and 2017 second quarters, and restructuring and realignment costs, motorcycle gross profit was $25 million in the 2018 second quarter compared to $30 million for the 2017 second quarter.
‘acquisition of Boat Holdings, the largest manufacturer of pontoon boats in the U.S.’
North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, increased low-single digit percent during the 2018 second quarter. Indian Motorcycle retail sales increased mid-single digit percent. Slingshot's retail sales were down mid-single digit percent during the quarter. Motorcycle industry retail sales, 900 cc and above, were down mid-single digit percent in the 2018 second quarter. Indian Motorcycle gained market share for the 2018 second quarter on a year-over-year basis in spite of an overall weak north American motorcycle market in the second quarter.
Motorcycle dealer inventory was down low-single digit percent in the 2018 second quarter compared to the same period last year due to moderated shipments in an overall weak motorcycle market.
Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc., is quoted as saying: "I am very pleased with the Polaris team and the strong execution they delivered across the business during the 2nd Quarter. With solid retail growth and market share gains in both our Off-Road Vehicle business and Indian Motorcycle, we are clearly reaping the benefits of our safety and quality investments, new product innovations and improved delivery performance.
‘Indian Motorcycle retail sales increased mid-single digit percent’
“Consumer sentiment and dealer traffic improved throughout the Quarter, building momentum which will help offset the rising risk of tariffs in the 2nd half. During the Quarter we were excited to announce another expansion of the Polaris powersports portfolio with the acquisition of Boat Holdings, the largest manufacturer of pontoon boats in the U.S.
“Between organic growth and considered acquisitions, Polaris’ underlying performance has significantly improved, but much of our success is being masked by substantial cost escalation driven by tariffs and commodities. As we navigate through increasingly dynamic markets, our efforts to enhance product quality and innovation, boost productivity and become a more customer centric company are paying off, and Polaris is well-positioned for further success.”
 |
| Scott Wine, Chairman and Chief Executive Officer of Polaris: “Between organic growth and considered acquisitions, Polaris’ underlying performance has significantly improved, but much of our success is being masked by substantial cost escalation driven by tariffs and commodities” |
Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $991 million for the second quarter of 2018, up +17 percent over $846 million for the second quarter of 2017 driven by growth across most categories. PG&A sales for ORV and Snowmobiles combined increased +13 percent in the 2018 second quarter compared to the second quarter last year. Gross profit increased +12 percent to $297 million in the second quarter of 2018, compared to $266 million in the second quarter of 2017.
ORV wholegood sales for the second quarter of 2018 increased +18 percent primarily driven by strong RANGER, RZR and ATV shipments. Polaris North American ORV retail sales increased in the mid-single digit percent range, with side-by-side and ATV vehicles growing retail sales in the mid-single digit percent range. Side-by-Sides and ATVs again gained market share during the quarter in their respective categories. The North American ORV industry was flat compared to the second quarter last year. ORV dealer inventory was up high-single digit in the 2018 second quarter compared to the same period last year due to increased shipments of newly introduced products.
‘Motorcycle dealer inventory was down low-single digit percent’
Snowmobile wholegood sales in the second quarter of 2018 was $4 million compared to $7 million in the second quarter last year. Snowmobile sales in the company’s second quarter are routinely low as it is the off-season for snowmobile retail sales and shipments.
Global Adjacent Markets segment sales, including PG&A, increased +17 percent to $113 million in the 2018 second quarter compared to $97 million in the 2017 second quarter. Sales of Goupil and the Commercial, Government, Defense businesses drove most of the increase. Reported gross profit increased +32 percent to $28 million in the second quarter of 2018, compared to $21 million in the second quarter of 2017.
Aftermarket segment sales increased one percent to $227 million in the 2018 second quarter compared to $224 million in the 2017 second quarter. TAP sales in the second quarter of 2018 were $210 million, which was up slightly compared to the second quarter of 2017. Growth at TAP's retail stores and online platforms were largely offset by lower accessory sales for the new Jeep Wrangler, which was available for sale later than anticipated. Gross profit decreased to $58 million in the second quarter of 2018, compared to $60 million in the second quarter of 2017.
Parts, Garments and Accessories (“PG&A”) sales, excluding Aftermarket segment sales, increased +11 percent for the 2018 second quarter driven by growth across all segments, regions and product lines during the quarter.
International sales to customers outside of North America, including PG&A, totaled $204 million for the second quarter of 2018, up +7 percent from the same period in 2017. Foreign exchange movements represented four percent of the sales increase for the quarter. The remaining increase was driven by strong sales in the company's EMEA business for ORV and motorcycles.
‘Overall international sales +7 percent’
Second quarter 2018 net income was $93 million, or $1.43 per diluted share, compared with net income of $62 million, or $0.97 per diluted share, for the 2017 second quarter.
Gross profit increased +10 percent to $385 million for the second quarter of 2018 from $350 million in the second quarter of 2017. Reported gross profit margin was the same as Q2 2017 at 26 percent of sales; this included the negative impact of $5 million of Victory Motorcycles wind-down costs and realignment and restructuring costs. Gross profit margins on an adjusted basis were down slightly due to unfavorable product mix, the impact of tariff, commodity and freight cost pressure during the quarter, offset by improvements in warranty expense, VIP savings and favorable exchange rates.
Operating expenses increased +5 percent for the second quarter of 2018 to $284 million, or 19 percent of sales from $270 million, or 20 percent of sales – it improved as the company realized efficiencies through its selling, marketing and general and administrative spend. Income from financial services was $21 million for the second quarter of 2018, up +11 percent.
During the second quarter of 2018, the company repurchased and retired 1,429,000 shares of its common stock for $177 million. Year-to-date through June 30, 2018, the company has repurchased and retired 1,562,000 shares of its common stock for $192 million. As of June 30, 2018, the company has authorization from its Board of Directors to repurchase up to an additional 4.9 million shares of Polaris common stock.
‘The company is raising its full year sales guidance’
The company is raising its full year sales guidance and now expects sales to be in the range of 11 percent to 12 percent over 2017 adjusted sales of $5,428 million and narrowing and adjusting its earnings guidance range for the full year 2018 to account for Boat Holdings income and elimination of intangible amortization of previously acquired companies to better reflect the true underlying performance of Polaris' core businesses. Adjusted net income is now expected to be in the range of $6.48 to $6.58 per diluted share, compared with adjusted net income of $5.10 per diluted share for 2017. The revised guidance takes into account approximately $40 million of escalating tariff and related commodity cost increases as the company understands them today.