Polaris Industries has reported motorcycle segment sales, including PG&A, of $155 million for the third quarter of 2018, which is flat compared to the third quarter of 2017, but with gross profit up at $20 million compared to $10 million in the third quarter of 2017.
Adjusted for the Victory wind-down costs recorded in both the 2018 and 2017 third quarters, motorcycle gross profit was $21 million in the 2018 third quarter compared to $18 million for the 2017 third quarter.
North American consumer retail sales for the Polaris motorcycle segment, including both Indian Motorcycle and Slingshot, decreased high-single digits during the 2018 third quarter. Indian Motorcycle retail sales increased low-single digits, in spite of an overall weak North American motorcycle market.
Slingshot's retail sales were down during the quarter. Motorcycle industry retail sales, 900 cc and above, were down low-teens percent in the 2018 third quarter, meaning that Indian Motorcycle gained market share for the 2018 third quarter on a year-over-year basis.
Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc., said that “the dedication and strong execution of our Polaris team continued to drive broad based growth across the business in the third quarter.
“Our model year '19 product news was well received, and our improving manufacturing and logistics performance accelerated the successful roll-out of RFM (Retail Flow Management) for side-by-sides.
“International growth again outpaced North America, with Indian market share gains continuing in every market we serve.
“We were also pleased with the early performance of Boat Holdings, the largest manufacturer of pontoon boats in the U.S., that we welcomed to our growing Powersports portfolio earlier in the quarter.
“Our commitment to customers and investments in the U.S. remain strong as we broke ground on a new multi-product PG&A and aftermarket distribution center in Nevada. We are strategically and tactically committed to being a customer-centric, highly efficient growth company, and our investments demonstrate that commitment.
“Our goals do not eliminate or even diminish the serious challenges we face from tariffs, but they certainly increase our resolve to find acceptable solutions or offsets. We are making too much progress with our supply chain, safety and quality and innovation initiatives to have the benefits wiped out by protracted trade negotiations.
“The challenge is real, and so are our efforts to overcome them. We remain well positioned with a world-class team and product line-up and are confident in our ability to deliver strong financial and operational performance in the quarter and years ahead.”
Corporately, third quarter 2018 sales were reported at $1,651 million, up +12 percent from $1,479 million for the third quarter of 2017. The Boat Holdings, LLC acquisition added $134 million of sales in the third quarter.
Gross profit increased +10 percent to $401 million for the third quarter of 2018 from $364 million in the third quarter of 2017. Reported gross profit margin was 24.3 percent of sales for the third quarter of 2018 compared to 24.6 percent of sales for the third quarter of 2017. Gross profit for the third quarter of 2018 includes the negative impact of $8 million of Victory Motorcycles wind-down costs, acquisition-related costs for the acquisition of Boat Holdings and realignment and restructuring costs. Gross profit margins on an adjusted basis were down slightly primarily due to mix and the impact of tariff, commodity and freight cost pressures during the quarter, partially offset by lower warranty and promotional costs.
The company reported third quarter 2018 net income of $96 million, or $1.50 per diluted share, compared with net income of $82 million, or $1.28 per diluted share, for the 2017 third quarter.
Operating expenses increased seven percent for the third quarter of 2018 to $284 million, or 17.2 percent of sales, from $265 million, or 17.9 percent of sales, in the same period in 2017. Operating expenses in dollars increased primarily due to the Boat Holdings acquisition completed during the quarter and investments in strategic projects. Operating expenses as a percentage of sales improved as the company realized efficiencies through its selling, marketing and general and administrative spend along with the addition of Boat Holdings, which inherently has a lower operating expense to sales ratio.
Income from financial services was $21 million for the third quarter of 2018, up +18 percent compared with $18 million for the third quarter of 2017. The increase is attributable to higher retail demand and penetration rates along with increased income from Polaris Acceptance as dealer inventories were at more appropriate levels to meet demand.
Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $1,036 million for the third quarter of 2018, up three percent over $1,007 million for the third quarter of 2017, driven by growth across most categories. PG&A sales for ORV and Snowmobiles combined increased +12 percent in the 2018 third quarter compared to the third quarter last year. Gross profit decreased two percent to $291 million in the third quarter of 2018, compared to $297 million in the third quarter of 2017.
ORV wholegood sales for the third quarter of 2018 increased +12 percent, primarily driven by strong RANGER and ATV shipments. Polaris North American ORV retail sales increased low-single digits percent for the quarter, with side-by-side vehicles up low-single digits percent and ATV vehicles down low-single digits percent. ATVs again gained market share during the quarter. The company experienced a modest amount of market share loss for side-by-sides due to a very difficult comparable in the third quarter of 2017. The North American ORV industry was up low-single digits percent compared to the third quarter last year.
Snowmobile wholegood sales in the third quarter of 2018 were $69 million compared to $144 million in the third quarter last year. Snowmobile sales are expected to be more heavily weighted towards the fourth quarter of 2018 due to the timing of shipments for the company's pre-season snowmobile orders.
Global Adjacent Markets segment sales, including PG&A, increased five percent to $96 million in the 2018 third quarter compared to $92 million in the 2017 third quarter. Reported gross profit increased +51 percent to $24 million in the third quarter of 2018, compared to $16 million in the third quarter of 2017.
Aftermarket segment sales increased two percent to $230 million in the 2018 third quarter compared to $225 million in the 2017 third quarter, driven by the company's powersports aftermarket brands. Gross profit increased to $66 million in the third quarter of 2018, compared to $63 million in the third quarter of 2017.
Boats segment sales, which consist of the Boat Holdings acquisition that closed July 2, 2018, were $134 million in the 2018 third quarter, slightly better than expectations. Reported gross profit was $20 million or 15.1 percent of sales in the third quarter of 2018.
Parts, Garments and Accessories (“PG&A”) sales increased eight percent for the 2018 third quarter, primarily driven by growth in ORV.
International sales to customers outside of North America, including PG&A, totaled $172 million for the third quarter of 2018, up +10 percent from the same period in 2017. Foreign exchange movements reduced sales by three percent for the quarter. The increase was driven by strong sales in snowmobiles and motorcycles.
Total debt at September 30, 2018, including capital lease obligations and notes payable, was $1,864 million. The company’s debt-to-total capital ratio was 67 percent at September 30, 2018 compared to 51 percent at September 30, 2017. Cash and cash equivalents were $183 million at September 30, 2018, up from $132 million at September 30, 2017.
During the third quarter of 2018, the company repurchased 507,000 shares of its common stock for $55 million. Year-to-date through September 30, 2018, the company has repurchased 2,069,000 shares of its common stock for $247 million.
The company is maintaining its adjusted sales and earnings guidance for the full year 2018 and its current sales and earnings per share guidance ranges, given the fluid nature of tariffs and the potential impact of trade negotiations and a more difficult motorcycle environment, which is impacting growth and profitability for that segment. The full year earnings guidance includes approximately $40 million of tariff cost increases before counter-measures, as the company understands them today.
