Polaris - Q3 North American Retail Sales Down by -24% Driven by the Lack of Product Availability, Supply Chain Constraints
If the stock market is any real guide to market sentiment about a corporation's results, then Polaris has had a stinker!
Polaris Industries' third quarter results were greeted by an immediate 7% drop in its share price (PII), though there was some modest recovery in late trading.
While third quarter reported and adjusted sales increased slightly to $1,960m (up by $5m), and market shares for ORV and Snowmobiles improved over the year-ago quarter with 15 new vehicles introduced, the headline news was of a soft quarter with sales constrained by the now familiar refrain of supply chain issues impacting product availability and logistics and materials price increases hitting margins.
Reported and adjusted gross profit margin for the third quarter was 23.8% and 23.9%, down 359 and 362 basis points over the prior year respectively. The decrease was primarily due to increased input costs including logistics, labor and commodity prices, as well as supply chain constraints, partially offset by increased pricing and lower promotional costs.
In strategic terms, Polaris is moving to unload (by year end) the GEM electric vehicle business (Global Electric Motorcars) it acquired from Chrysler Group in 2011, and the Taylor-Dunn industrial vehicle manufacturer it added in 2016. Time will tell if this is a limited, tactical reversal of just two of the less promising of the Scott Wine era acquisitions or a broader unwind of prior ambitions.
Motorcycles segment sales, including PG&A, totaled $194m, up +16% compared to the third quarter of 2020, driven by increased sales of Slingshot, Indian Motorcycles and related PG&A. Gross segment profit for the third quarter of 2021 was $18m, or 9.2% of sales, compared to $16m, or 9.3% of sales, in the third quarter of 2020. The slight decrease in gross profit margin was driven by increased input costs from supply chain constraints partially offset by favorable product mix, increased pricing and lower promotions costs.
North American consumer retail sales for Indian Motorcycles decreased 12% during the third quarter of 2021 in a mid to heavyweight two-wheel motorcycle industry that was down mid-single digits percent. North American consumer retail sales for Polaris' motorcycles segment, including both Indian Motorcycle and Slingshot, decreased mid-teens percent during the third quarter of 2021.
North American consumer retail sales for the motorcycle industry, including both two-wheel and three-wheel, decreased mid-single digits percent during the third quarter of 2021. Indian and Slingshot market share losses were driven by a lack of product availability during the quarter, driven by supply chain challenges.
CEO Mike Speetzen was quoted as saying: "Retail sales were impacted by the substantial deterioration of the supply chain permeating the global economy, but continued interest and demand from existing riders and new customers advanced our market position, further illustrating Polaris' role as the global leader in powersports.
"Despite total company sales being flat for the quarter due to component shortages, we gained ORV share for the 4th straight quarter against the backdrop of a very difficult supply chain environment. We expect the supply chain will remain volatile into 2022."
Off-Road Vehicles ("ORV") and Snowmobiles segment sales, including PG&A, totaled $1,208m for the third quarter of 2021, down 6% compared to $1,289m for the third quarter of 2020; gross profit decreased 31% to $260m in the third quarter of 2021, compared to $378m in the third quarter of 2020.
ORV wholegood sales for the third quarter of 2021 decreased 6%. Polaris North American ORV retail sales decreased mid-twenties percent for the quarter, with side-by-side vehicles down mid-twenties percent and ATV vehicles down about 20%. The North American ORV industry was down high-twenties percent compared to the third quarter last year.
Snowmobile wholegood sales in the third quarter of 2021 were $28m compared to $70m in the third quarter last year. Snowmobile sales were impacted by the timing of shipments for the company's pre-season snowmobile orders year-over-year and supply chain disruptions.
Global Adjacent Markets segment sales, including PG&A, increased 37% to $147m in the 2021 third quarter compared to $107m in the 2020 third quarter, driven by increases in demand in North America and EMEA.
Aftermarket segment sales of $227m in the 2021 third quarter decreased 4% compared to $237m in the 2020 third quarter. Transamerican Auto Parts (TAP) sales of $182m in the third quarter of 2021 decreased 6% compared to $194m in the third quarter of 2020.
The company's other aftermarket brands' sales were up 4% compared to the third quarter of 2020. Gross profit decreased 6% to $60m, or 26.5% of sales in the third quarter of 2021, compared to $64m, or 26.9% of sales in the third quarter of 2020.
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| Polaris CEO Mike Speetzen: "Retail sales were impacted by the substantial deterioration of the supply chain permeating the global economy, but continued interest and demand from existing riders and new customers advanced our market position." |
Boats segment sales increased 18% to $184m in the 2021 third quarter compared to $155m in the 2020 third quarter, driven by sales growth in the Bennington and Godfrey brands.
Parts, Garments and Accessories ("PG&A") sales increased 8% for the 2021 third quarter, with all categories and business segments growing sales during the quarter.
International sales to customers outside of North America, including PG&A, totaled $246m for the third quarter of 2021, up 21% from the same period in 2020. All regions and categories realized strong sales increases year over year.
Overall gross profit decreased 13% to $466m for the third quarter of 2021 from $535m in the third quarter of 2020. Reported gross profit margin was 23.8% of sales for the third quarter of 2021, down 359 basis points compared to 27.3% of sales for the third quarter of 2020.
Operating expenses increased 3% for the third quarter of 2021 to $322m from $313m in the same period in 2020. Operating expenses increased slightly primarily due to an increase in research and development.
Polaris lowered its full year 2021 adjusted earnings and sales guidance given the supply chain constraints and now expects to earn approximately $9.00 per diluted share, with adjusted sales now expected to be up approximately 16% over the prior year.
Given the impact of supply chain constraints on production and shipments through the first nine months of the year, and the expectations that those disruptions will not subside by year end, the company is lowering its expected full year 2021 earnings guidance.