Polaris Industries Inc. has reported record third quarter net income of $155.2 million for the quarter ended September 30, 2015, an increase of 10 percent from the prior year’s third quarter net income of $140.8 million. Sales for the third quarter 2015 totaled a record $1,456.0 million, an increase of 12 percent over last year’s third quarter sales of $1,302.3 million.
“Our record third quarter results continue to reflect the efficacy of our long-term strategy and the resiliency of the Polaris organization, as motorcycle growth accelerated, ORV share gains continued and our developing adjacencies built momentum. We accomplished this in a difficult environment, with the combination of weakening currencies and softening economies adding to the pressure we face from the sluggish oil and agriculture markets, all in the midst of the most competitive powersports landscape we have seen in nearly a decade. It is encouraging to see our Polaris team use these challenging times to get better and stronger, while displaying renewed determination to win across all our markets,” stated Scott Wine, Polaris’ Chairman and Chief Executive Officer. “After our people, arguably our strongest asset is our innovative culture, which spurred the delivery of 15 new vehicles to our unsurpassed ORV armada and drove the introduction of hundreds of new PG&A items. We remain committed to being the leading innovator in our space.”
Wine continued, “Successful innovation requires agility, in order to react quickly to ever-changing market conditions. This applies not only to product design but also to our internal organization, which we demonstrated in the third quarter by realigning our international business structure to become more efficient and effective in response to challenging markets outside North America. Quick reactions demand excellent execution, and Ken Pucel and his Global Operations and Engineering teams continue to build momentum and gain traction in our efforts to improve throughput, quality and cost. Throughout the third quarter we made consistent enhancements to our Spirit Lake paint system, which helped us stabilize our operations and, by improving production output each week of September, outpace shipment goals for the first time this year. We have a clear plan to further optimize and upgrade that system over the next six months, and with the recently acquired paint facility in Spearfish, South Dakota, we will further augment paint capacity in the latter part of the fourth quarter.”
“Polaris has delivered solid financial performance in the first nine months of 2015, and despite facing stiff headwinds that show little sign of abating in the near term, our financial position remains robust and our growth opportunities plentiful.”
2015 Business Outlook
Full year 2015 sales are now expected to grow in the range of 10 to 11 percent when compared to 2014.
Off-Road Vehicle (“ORV”) sales increased three percent to $822.9 million in the third quarter of 2015 compared to the third quarter of 2014. Polaris North American ORV unit retail sales increased low-single digits percent during the 2015 third quarter compared to strong prior year third quarter retail sales growth of high-single digits percent. Consumer purchases of both side-by-side vehicles and ATVs increased at similar rates during the 2015 third quarter. The company estimates North American industry ORV retail sales in the third quarter of 2015 increased low-single digits percent year-over-year, resulting in Polaris market share gains for both ATVs and side-by-side vehicles. During the 2015 third quarter, the company introduced new ORV models in the value and premium segments including the company’s first full-sized value RANGER priced below $10,000 and the clear leader in the high-performance segment, the RZR XP Turbo, delivering more horsepower and torque than any other high-performance side-by-side on the market today. Polaris North American ORV dealer inventories during the third quarter of 2015 increased about ten percent year-over-year, in line with Company expectations, as the company began shipping the new 2016 model-year products.
Snowmobile sales increased 14 percent to $185.5 million for the third quarter of 2015 compared to $162.7 million for the third quarter of 2014. The increase is due to an increased quantity and richer mix of snowmobiles being shipped in the 2015 third quarter compared to the same period a year ago. While the snowmobile retail selling season is just beginning, Polaris’ market share performance season-to-date through the 2015 third quarter is pacing with the Company’s expectations, led by the award-winning model year 2016 PRO-RMK, the lightest mountain sled on the market. As planned, Polaris North American snowmobile dealer inventories during the third quarter of 2015 increased significantly year-over-year in preparation for the upcoming snowmobile retail selling season.
Motorcycle sales increased 154 percent to $160.4 million for the third quarter of 2015 compared to same period last year due to continued strong demand for Indian motorcycles and the new Slingshot roadster. Victory, Indian Motorcycle and Slingshot North American retail sales, combined, increased over 60 percent during the third quarter of 2015 driven by Indian Motorcycle and Slingshot, while North American industry midsize and heavyweight motorcycle retail sales were up low single digits compared to the third quarter of 2014. Indian Motorcycles retail sales were up significantly in the third quarter with ongoing strong demand for all models. Product availability for Indian motorcycles improved during the 2015 third quarter as the company continued to increase throughput at its Spirit Lake, Iowa, motorcycle factory. Victory retail sales in the third quarter of 2015 were lower than the prior year partly due to low product availability. Retail sales for the new Slingshot three-wheeled roadster continued to outpace company expectations during the third quarter. Polaris North American motorcycle dealer inventories, including Slingshot, during the 2015 third quarter increased about 30 percent compared to the same period in the prior year but remain below levels needed to meet current and backlogged retail demand.
Parts, Garments, and Accessories (“PG&A”) sales increased three percent to $226.3 million during the third quarter of 2015 as compared to the same period last year. All product lines generated sales growth during the 2015 third quarter, with the exception of snowmobiles, which was down more than 20 percent due to the timing of snowmobile related PG&A dealer shipments year-over-year. The 2015 third quarter was also impacted by lower sales outside the United States. Canadian PG&A sales were down significantly and international PG&A-related sales were up one percent compared to last year, both regions were negatively impacted by currency translations and weak economies. PG&A-related sales in the United States were up nine percent during the 2015 third quarter. The company introduced more than 500 new model-year 2016 accessories during the third quarter, which have been well received in the marketplace to date.
International sales to customers outside of North America totaled $153.6 million for the third quarter of 2015, up one percent from the same period in 2014, though held back by weak currencies (up 18 percent on a constant currency basis). EMEA reported sales declined four percent in the 2015 third quarter and Asia Pacific reported sales were down one percent while Latin American reported sales were up 50 percent. International reported sales by component in the third quarter compared to last year were as follows: Motorcycles sales were up 115 percent; ORV sales were down two percent; Global Adjacent Markets declined seven percent; snowmobile sales were down 52 percent, primarily due to Russia; and PG&A related sales increased one percent.
Gross profit increased 7 percent to $415.6 million in the third quarter of 2015, compared to $388.3 million in the third quarter of 2014. As a percentage of sales, gross profit margin declined 126 basis points to 28.5 percent of sales for the third quarter of 2015, compared to 29.8 percent of sales for the same period last year. While currency movements from a year ago, primarily the Canadian dollar, were expected to negatively impact gross margins during the third quarter of 2015, the amount of impact was higher than originally anticipated as the Canadian dollar continued to weaken sequentially from the 2015 second quarter. The negative currency impact during the quarter along with higher promotional costs and negative product mix, were partially offset by lower commodity costs, cost savings from product cost reduction efforts and higher selling prices.
