Industry News

Polaris Industries Reports First Quarter 2010 Results

Performance Driven by Retail Sales Growth and Market Share Gains in Off-Road Vehicles, Victory and International and Improved Gross Margins
First Quarter Highlights:

  • Sales grew 16% to $361.7 million from last year’s first quarter
  • Net income increased 127% to $0.59 per diluted share, representing a first quarter record for Polaris
  • Gross margin percentage for the first quarter 2010 increased 170 basis points to 26.2% due to lower product cost, higher selling prices and favorable currency movements
  • Raising guidance for full year 2010 earnings to a range of $3.48 to $3.60 per diluted share, a 14% to 18% increase over full year 2009 on expected full year 2010 sales growth of 8 % to 11%
  • The Polaris Board of Directors has approved the regular quarterly cash dividend of $0.40 per share payable May 17, 2010 to shareholders of record as of May 3, 2010

MINNEAPOLIS– Polaris Industries Inc. (NYSE: PII) today reported record first quarter net income of $19.8 million, or $0.59 per diluted share for the quarter ended March 31, 2010. By comparison, 2009 first quarter net income was $8.5 million, or $0.26 per diluted share, which included an $0.18 per diluted share non-cash impairment charge on the Company’s investment in KTM. Sales for the first quarter 2010 totaled $361.7 million, an increase of 16 percent from last year’s first quarter sales of $312.0 million.
“Our first quarter results demonstrate that the investments we made throughout the economic downturn have prepared us well to accelerate growth in 2010. Our first quarter sales and earnings growth exceeded our expectations driven by solid execution of our long-term strategy, which includes successfully developing and marketing innovative new products and improving operational efficiencies across our business,” commented Scott Wine, Polaris’ Chief Executive Officer. “Total Company retail sales to consumers in North America grew nine percent during the first quarter, as we saw strong demand for our Off-Road vehicles and Victory motorcycles. Our international sales to customers outside of North America grew 41 percent in the quarter, with surprising strength in Europe and several developing markets. Polaris achieved strong market share improvements in ORV and Victory Motorcycles as our retail sales performance was notably stronger than overall industry retail sales, which remained weak through most of the first quarter.”
Wine continued, “Profitable growth is an important objective for Polaris, and we leveraged operational excellence to ensure that margin expansion accompanied our strong 16 percent organic growth in the quarter. The gross margin expansion realized during the quarter was the result of a number of operational initiatives including the utilization of our world-class engineering team to reduce product costs and our Max Velocity Program, which is enabling us to work with our dealers to drive retail sales and market share growth more efficiently.”
Wine concluded, “While we still have concerns about the strength of the economic recovery and our core powersports industry, I am confident in the ability of this Polaris team to capitalize on our investments in the development of innovative, high quality products, our international expansion efforts and the many exciting new market adjacencies that we are pursuing. We fully expect to deliver consistent long-term, sustainable growth and profitability for all stakeholders.”
2010 Business Outlook
Based on Polaris’ performance during the 2010 first quarter and expectations for the remainder of the year, the Company is increasing its full year sales and earnings guidance for 2010. The Company now expects full year 2010 earnings to be in the range of $3.48 to $3.60 per diluted share, an increase of between 14 and 18 percent when compared to earnings of $3.05 per diluted share for the full year 2009. Sales for the full year 2010 are now expected to grow in the range of 8 to 11 percent. For the second quarter of 2010, the Company expects total sales to increase in the range of 14 to 17 percent primarily due to continued strength in ORV, Victory motorcycles and international retail sales to consumers. Second quarter 2010 earnings are expected to be in the range of $0.63 to $0.67 per diluted share, an increase of 19 to 26 percent, compared to earnings of $0.53 per diluted share for the second quarter of 2009.

First Quarter Performance Summary (in thousands except per share data)
Three Months ended March 31,
Product line Sales 2010 2009 Change
Off-Road Vehicles $ 250,403 $ 215,461 16 %
Snowmobiles 5,554 8,166 -32 %
On-Road/Victory Motorcycles 25,353 13,836 83 %
Parts, Garments & Accessories 80,398 74,561 8 %
Total Sales $ 361,708 $ 312,024 16 %
Gross profit $ 94,914 $ 76,434 +24 %
Gross profit as a % of sales 26.2 % 24.5 % +170 bpts
Operating expenses $ 67,234 $ 58,047 +16 %
Operating expenses as a % of sales 18.6 % 18.6 %
Operating Income $ 31,936 $ 22,791 +40 %
Operating Income as a % of sales 8.8 % 7.3 % +150 bpts
Net income $ 19,771 $ 8,458 +134 %
Net income as a % of sales 5.5 % 2.7 % +280 bpts
Diluted net income per share $ 0.59 $ 0.26 +127 %

Off-Road vehicles (“ORV’) sales during the first quarter 2010, which includes sales of both core ATVs (all-terrain vehicles) and RANGER™ side-by-side vehicles, increased 16 percent from the first quarter 2009. This increase reflects significant market share gains for both ATVs and side-by-sides driven by new product offerings including the recently introduced RANGER RZR 4, the Company’s first 4-seat sport side-by-side. The Company’s increase in ORV retail sales and market share also benefited from the success of its go-to-market business model called Max Velocity Program (“MVP”), which is currently in place with approximately 50 percent of the North American ORV dealer volume. North American retail sales to consumers for ORVs increased nearly 20 percent for the 2010 first quarter from the first quarter last year, with side-by-side vehicle retail sales increasing significantly while core ATV retail sales were about flat. Retail sales trends improved sequentially each month during the first quarter of 2010. North American dealer inventories of ORVs were down significantly during the 2010 first quarter, declining 34 percent when compared to 2009 first quarter levels. Sales of ORV to customers outside of North America increased over 40 percent in the first quarter 2010 when compared to the first quarter 2009, due to market share gains in both ATVs and side-by-side vehicles, positive mix benefit as more higher priced side-by-side vehicles were sold, higher selling prices and positive currency benefit from the weaker US dollar.
Snowmobile sales totaled $5.6 million for the 2010 first quarter compared to $8.2 million for the first quarter of 2009. The first quarter is historically a seasonally low quarter for snowmobile shipments. The decrease in sales was primarily the result of timing of shipments in the 2010 first quarter compared to the first quarter last year. Season-end North American dealer inventories of snowmobiles at March 31, 2010 are at acceptable levels. During the quarter the Company introduced 11 new model year 2011 snowmobiles with industry-leading innovation and technology including additional models with the award winning PRO-RIDE™ progressive rear suspension, reduced vehicle weight, improved durability and increased horsepower.
Sales of the On-Road division, which primarily consists of Victory motorcycles, increased 83 percent during the first quarter of 2010 when compared to the same period in 2009. This marks the 2nd straight quarter of market share gains and retail sales growth for Victory and reflects the acceptance of the new model year 2010 motorcycles including the new Cross Country™ and Cross Roads™ touring models. The heavyweight cruiser and touring motorcycle industry remained weak during the quarter, but Victory continued to benefit from aggressive and innovative efforts to accelerate growth. Victory motorcycles had strong retail sales during the 2010 first quarter, increasing in the mid-teens percent range in North America compared to the first quarter last year, resulting in market share gains for the quarter. North American dealer inventory of Victory motorcycles declined 25 percent in the 2010 first quarter compared to 2009 comparable levels. During the 2010 first quarter, Polaris added additional dealers for its electric powered low emission vehicle, the Polaris Breeze™, to further penetrate the master planned community market segment.
Parts, Garments, and Accessories (“PG&A”) sales increased eight percent during the first quarter 2010 compared to the same period last year primarily due to increased RANGER™ side-by-side vehicle related PG&A sales.
Gross profit as a percentage of sales was 26.2 percent for the first quarter of 2010, an increase of 170 basis points from 24.5 percent for the first quarter of 2009. Gross profit dollars increased 24 percent to $94.9 million for the first quarter of 2010 compared to $76.4 million for the first quarter of 2009. The increase in gross profit dollars and the 170 basis points increase in the gross profit margin percentage in the first quarter 2010 resulted primarily from continued product cost reduction efforts, higher selling prices and favorable currency movements compared to the first quarter of last year.
Operating expenses for the first quarter 2010 increased 16 percent to $67.2 million or 18.6 percent of sales compared to $58.0 million or 18.6 percent of sales for the first quarter of 2009. Operating expenses in absolute dollars for the first quarter 2010 increased primarily due to the increase in incentive compensation plan expenses that were temporarily reduced last year during the extremely uncertain economic environment and the current higher stock price and higher expected profitability for 2010.
Income from financial services was $4.3 million during first quarter 2010 compared to $4.4 million in the first quarter of 2009.
The non-cash Impairment charge on securities held for sale was $0.0 for the first quarter 2010. In the first quarter 2009 the Company recorded a $9.0 million, pretax, or $0.18 per diluted share impairment charge on securities held for sale. During the first quarter 2009, the Company determined that the decline in the market value of the KTM shares owned by the Company was other than temporary and therefore recorded the decrease in the fair value of the investment as a charge to the income statement as of March 31, 2009.
Financial position and cash flow
Net cash provided by operating activities totaled $3.8 million for the first quarter ended March 31, 2010, a significant improvement from cash used for operating activities totaling $33.1 million in the first quarter of 2009. Higher net income and lower working capital requirements for the 2010 first quarter compared to the first quarter last year are the primary reasons for the increased cash provided by operating activities. Borrowings under the credit agreement were $200.0 million at March 31, 2010 compared to $244.0 million at March 31, 2009. Cash and cash equivalents improved to $124.4 million at March 31, 2010 compared to $17.9 million for the same period last year. The Company’s debt-to-total capital ratio was 48 percent at March 31, 2010, compared to 64 percent at the same time last year.
Dividend declared
The Polaris Board of Directors has authorized the payment of a regular quarterly cash dividend of $0.40 per share payable May 17, 2010 to shareholders of record as of May 3, 2010.
Conference Call and Webcast Presentation
Today at 9:00 AM (CT) Polaris Industries Inc. will host a conference call and webcast to discuss Polaris’ 2010 first quarter earnings results released this morning. The call will be hosted by Scott Wine, CEO, Bennett Morgan, President and COO, and Mike Malone, Vice President Finance and CFO. A slide presentation and link to the audio webcast will be posted on the Investor Relations page of the Polaris web site at www.polarisindustries.com/irhome approximately 30 minutes before the conference call begins.
To listen to the conference call by phone, dial 800-374-6475 in the U.S. and Canada, or 973-200-3967 Internationally. The Conference ID is #50080804.
A replay of the conference call will be available approximately two hours after the call for a one-week period by accessing the same link on our website, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 Internationally.
About Polaris
With annual 2009 sales of $1.6 billion, Polaris designs, engineers, manufactures and markets off-road vehicles (ORVs), including all-terrain vehicles (ATVs) and the Polaris RANGER™, snowmobiles and Victory motorcycles for recreational and utility use and has recently introduced a new on-road electric powered neighborhood vehicle.
Polaris is a recognized leader in the snowmobile industry; and one of the largest manufacturers of ORVs in the world. Victory motorcycles, established in 1998 and representing the first all-new American-made motorcycle from a major company in nearly 60 years, are making in-roads into the cruiser and touring motorcycle marketplace. Polaris also enhances the riding experience with a complete line of Pure Polaris apparel, accessories and parts, available at Polaris dealerships.
Polaris Industries Inc. trades on the New York Stock Exchange under the symbol “PII”, and the Company is included in the S&P Small-Cap 600 stock price index.
Information about the complete line of Polaris products, apparel and vehicle accessories is available from authorized Polaris dealers or anytime from the Polaris homepage at www.polarisindustries.com.

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