Polaris Industries, Minnesota, has reported 2020 Q1 sales revenue down by -6% to $1,405m, but in a market where Q1 North American retail sales are reported as down in the high-single digit percent, Indian Motorcycle retail sales were up low-single digit percent.
Motorcycles segment sales at Polaris, including PG&A, totaled $127m, up +7% compared to the first quarter of 2019, driven by increased sales of both Indian Motorcycle and Slingshot models. Sector gross profit for the first quarter of 2020 was a loss of $1m compared to a profit of $4m in the first quarter of 2019.
North American consumer retail sales for Indian Motorcycle increased low-single digit percent during the first quarter of 2020 in a weak mid to heavyweight two-wheel motorcycle industry that was down high-teens percent. North American consumer retail sales for Polaris' Motorcycle segment, including both Indian Motorcycle and Slingshot, increased low-single digit percent during the first quarter of 2020, while the North American motorcycle industry retail sales for mid to heavyweight motorcycles, including three-wheel vehicles, was down mid-teens percent in the first quarter of 2020.
Polaris manufacturing plants have restarted production at select locations, based on orders in hand, anticipated future demand and supply chain parts availability - it would appear that at the time of reporting only the Polaris plant at Monterey, Mexico, was still waiting to be able to confirm re-opening.
Like many, given the unprecedented economic uncertainty as a result of the COVID-19 pandemic, the company had already withdrawn its full year 2020 guidance (on March 23); however, also like many, Polaris' performance differed markedly between the first eight to ten weeks of the quarter and what came in March, especially the second half of March.
CEO Scott Wine said: "We opened 2020 on an upswing, with retail demand significantly outpacing our expectations, but the abrupt impact of COVID-19 in mid-March drastically altered our momentum.
"Since then we have honed our focus to four goals which will guide us through this crisis: the safety of our employees; the viability of Polaris; the strength of our dealer network and stewardship for our shareholders and other stakeholders.
"Through fast action and bold decisions, we enhanced workplace safety and realigned our operations to match evolving demand trends. We also moved aggressively to optimize our cost structure, preserve liquidity, and augment our financial strength and flexibility; we are actively supporting our dealers as they find innovative ways to serve customers and reignite demand.
"We expect the COVID-19 pandemic, and its corresponding shock to the economy, to be a substantial challenge for the global economy and our business through the remainder of the year and possibly longer.
"Nevertheless, I am confident in our dedicated and hard-working Polaris team’s ability to navigate through this unprecedented environment and emerge a better, stronger and more agile business. Regardless of the headwinds we face, our commitment to be a customer-centric, highly efficient growth company remains unchanged - we believe this vision will propel our business forward and further solidify our position as the global leader in Powersports."
Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $824m for the first quarter of 2020, down -5%; PG&A sales for ORV and Snowmobiles combined increased +7% in Q1. Sector gross profit decreased -16 percent to $202m in the first quarter of 2020.
ORV wholegood sales for Q1 were -7%; Polaris North American ORV retail sales were down high-single digit percent for the quarter, with both side-by-side vehicles and ATV vehicles down high-single digit percent. The North American ORV industry was approximately flat compared to the first quarter last year.
Q1 snowmobile wholegood sales were $6m compared to $13m for Q1 2019; Polaris snowmobile retail sales were down mid-teens percent during the first quarter of 2020 and down low-single digit percent for the twelve-month season ending March 2020. Q1 North American industry retail was down nearly -30% and down high-single digit percent for the season ending March 2020.
The rapid decline in retail demand over the last two weeks of March 2020 "significantly impacted sales and gross profit for Q1; sales were adversely impacted by approximately $125m in the quarter, while gross profit was impacted by approximately $50m compared to previous company expectations."
The company reported a Q1 net loss of $5m, or $0.09 per diluted share, compared with net income of $48m, or $0.78 per diluted share, for Q1 2019. First quarter reported net loss was $0.09 per share; adjusted net income for the same period was $0.22 per share.
The company entered into an incremental $300m 364-day unsecured term-loan facility on April 9, 2020, further increasing its liquidity position. Cash on hand at April 23, 2020 was $475m along with $250m currently available under the company’s revolving line of credit.
Gross profit decreased -17% to $293m for Q1; reported gross profit margin was 20.8% percent of sales for Q1, down 272 basis points compared to 23.6% of sales for Q1 2019. Operating expenses increased +6% for Q1 to $307m, or 21.9% of sales. Operating expenses in dollars and as a percent of sales increased primarily due to incurred expenses for ongoing investment in research and development and strategic projects before the COVID-19 pandemic began to impact demand.
Income from Financial Services was $20m for Q1 (+5%) primarily due to a change in retail financing programs. Interest expense was $16m for Q1 due to lower average daily debt levels and lower interest rates.
Global Adjacent Markets segment sales, including PG&A, decreased -6% to $98m in Q1; Aftermarket segment sales decreased -8% to $202m; Boats segment sales decreased -16% to $155m. Overall Parts, Garments and Accessories (“PG&A”) sales were +7% for Q1; international sales to customers outside of North America, including PG&A, were -11% at $182m.
Net cash used for operating activities was $71m for the three months ended March 31, 2020, compared to $38m for the same period in 2019. Total debt at March 31, 2020, including finance lease obligations and notes payable, was $2,164m. The company’s debt-to-total capital ratio was 68 percent at March 31, 2020 compared to 71 percent at March 31, 2019. Cash and cash equivalents were $424m at March 31, 2020, up from $151m at March 31, 2019.