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Polaris Reports First Quarter Sales Increased 17%; ORV Dealer Inventory Down 9%

Polaris Industries Inc. recently reported its first quarter 2017 sales were $1,153.8 million, up 17 percent, from $983 million for the first quarter of 2016. Adjusted sales (which excludes the impact from Victory Motorcycles net sales for the first quarter of 2017) were $1,158.9 million compared to $983 million in the prior year period.

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Polaris Industries Inc. recently reported its first quarter 2017 sales were $1,153.8 million, up 17 percent, from $983 million for the first quarter of 2016. Adjusted sales (which excludes the impact from Victory Motorcycles net sales for the first quarter of 2017) were $1,158.9 million compared to $983 million in the prior year period.

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Polaris reported a first quarter 2017 net loss of $2.9 million compared with net income of $46.9 million for the 2016 first quarter. The reported net loss included costs related to the wind down of Victory Motorcycles and certain TAP integration and inventory step up costs taken in the first quarter. Adjusted net income for the quarter ended March 31, 2017, excluding these costs, was $48.3 million.

“While we reported an expected net loss for the quarter, adjusted earnings were slightly ahead of our expectations. We saw continued strong performance from Indian Motorcycle and our ORV business improved its performance in the face of heavy competitive activity and a sluggish powersports environment. Overall, our dealer channel remains healthy with inventories down eight percent, and we continue to diligently work to enhance our dealer engagement,” commented Scott Wine, chairman and chief executive officer of Polaris Industries.

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Wine continued, “We have made significant investments in people, processes and technology to support prevention, identification and remediation of safety and quality issues and we are identifying them earlier and reacting more quickly. The safety of our riders and vehicles is our number one priority, and we will continue to develop the processes required to deliver best-in-class performance in this area. Further, we are aggressively investing in the development of innovative products that will further solidify Polaris’ position as the leader in powersports. Our first quarter results reflect our commitment to quickly and sustainably improve our strategic and tactical execution, continue enhancing overall safety and quality, and building superior products for our customers.”

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Off-Road Vehicle (ORV) and Snowmobile segment sales, including their respective PG&A related sales, were $724.1 million for the first quarter of 2017, compared with $708.1 million for the first quarter for the prior year representing a two percent increase, year-over-year. PG&A sales for ORV and Snowmobiles combined, increased 13 percent in the 2017 first quarter compared to last year. Gross profit increased three percent to $213.0 million in the first quarter of 2017, compared to $206.0 million in the first quarter of 2016. Gross profit percentage increased primarily due to product mix.

ORV wholegood sales for the first quarter of 2017 were approximately flat as the company began shipping at more normalized rates. Polaris North American ORV unit retail sales for the first quarter of 2017 were down mid-single digits percent from the 2016 first quarter, which included consumer purchases for side-by-side vehicles down low-single digits percent and ATV retail sales down low-double digits percent. The North American ORV industry was down mid-single digits percent compared to the first quarter last year. ORV dealer inventory was down nine percent in the 2017 first quarter compared to the same period last year.

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Snowmobile wholegood sales in the first quarter of 2017 decreased three percent due to timing of shipments during the quarter. While the snow season did not meet Polaris’ expectations as dealer inventory finished below last year. However, they received a strong reception to its all-new 2018 Polaris TITAN, an extreme crossover snowmobile.

Motorcycle segment sales, including its PG&A related sales in the first quarter of 2017, was $120.3 million, a decrease of 35 percent compared to $185.3 million reported in the first quarter of 2016 which included $46.3 million of Victory Motorcycles wholegood, accessory and apparel sales. Indian Motorcycle wholegood sales increased in the first quarter driven by strong retail sales, offset by lower Slingshot sales which were negatively impacted by low availability of salable product due to quality holds during the quarter.

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North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, was down mid-single digits percent during the 2017 first quarter, while the overall motorcycle industry retail sales, 900cc and above, was down mid-single digits percent in the 2017 first quarter.
Indian Motorcycle retail sales increased low double-digits percent and continued to gain market share, partly driven by sales of the company’s new highly customizable, split-screen Ride Command touchscreen infotainment system available on Indian Chieftain and Roadmaster models. Additionally, during the quarter, the company added its 10th model to the line-up with the introduction of the Roadmaster Classic with genuine leather saddlebags and trunk, giving it distinctive vintage styling.

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Global Adjacent Markets segment sales along with its PG&A related sales, increased 24 percent to $91.6 million in the 2017 first quarter compared to $74.1 million in the 2016 first quarter. Gross profit increased 38 percent to $28.1 million in the first quarter of 2017, compared to $20.4 million, or 27.5 percent of sales, in the first quarter of 2016. Sales and gross profit were up primarily due to increased sales in the Company’s Government and Defense business in the 2017 first quarter which more than doubled from the previous year’s quarter sales. Work and Transportation group wholegood sales were up 12 percent during the first quarter of 2017 primarily due to increased Aixam sales and a full quarter of Taylor-Dunn sales compared to last year.

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Aftermarket segment sales which includes Transamerican Auto Parts (TAP), along with the Polaris’ other aftermarket brands of Klim, Kolpin, Pro Armor, Trail Tech and 509, increased significantly to $217.8 million in the 2017 first quarter compared to $15.5 million in the 2016 first quarter. TAP added $202.0 million of sales in the first quarter of 2017. Gross profit increased significantly to $41.6 million in first quarter of 2017, compared to $4.7 million in the first quarter of 2016. Adjusted for the TAP acquisition step-up adjustment, Aftermarket gross profit was $54.5 million. Sales and gross profit dollars were up primarily due to the addition of TAP acquired in the fourth quarter of 2016.

PG&A sales, excluding Aftermarket segment sales, increased 13 percent for the 2017 first quarter. The increase was primarily driven by higher ORV and Global Adjacent Markets related PG&A sales during the quarter.

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International sales to customers outside of North America totaled $166.2 million for the first quarter of 2017, including PG&A, up two percent, from the same period in 2016.

The full year 2017 remains unchanged from previously issued guidance. Full year 2017 adjusted sales are anticipated to increase in the range of 10 percent to 13 percent over 2016 sales of $4,516.6 million, also unchanged from previously issued guidance.

Polaris announced on January 9, 2017 its intention to wind down its Victory Motorcycles operations. The decision is expected to improve the long-term profitability of Polaris and its global motorcycle business, while materially improving the company’s competitive position in the industry. Polaris will record costs associated with supporting Victory dealers in selling their remaining inventory, the disposal of factory inventory, tooling, and other physical assets, and the cancellation of various supplier arrangements. These costs are excluded from Polaris’ 2017 sales and earnings guidance on a non-GAAP basis.

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For more about Polaris Industries Inc., visit www.polaris.com.

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