Polaris Industries Inc. (NYSE: PII) today reported record third quarter net income of $67.6 million, or $0.95 per diluted share, for the quarter ended September 30, 2011, up 43 percent and 38 percent, respectively, from the prior year’s third quarter net income of $47.2 million, or $0.69 per diluted share. Sales for the third quarter 2011 totaled a record $729.9 million, an increase of 26 percent from last year’s third quarter sales of $580.1 million.
Scott Wine, Polaris’ Chief Executive Officer, stated that “Despite challenging economic conditions, we are pleased to report another record quarter of sales, net income and earnings per share. I am exceptionally proud of how the Polaris team continued to drive growth and productivity in the third quarter. Each of our businesses experienced strong sales growth in the period, primarily driven by sustained market share gains. North American consumer retail demand for Polaris products remains vital, increasing 16 percent. We also once again improved our profitability, with healthy gross profit margin and net income margin increases when compared to last year.”
“I am also pleased to report that our Monterrey, Mexico manufacturing facility shipped their 10,000th side-by-side product in the quarter, marking an important milestone while demonstrating the schedule fidelity and focus on quality that is a cornerstone of Polaris operations. Additionally, integration of Global Electric Motorcars (GEM) and Indian Motorcycle Company is progressing according to plan, providing us with exciting new growth platforms.”
2011 Business Outlook The Company is increasing its previously issued sales and earnings guidance and now expects full year 2011 earnings in the range of $3.10 to $3.16 per diluted share, an increase of 45 to 48 percent over full year 2010 earnings of $2.14 per diluted share. Full year 2011 sales are now expected to grow in the range of 30 to 32 percent from 2010.
Wine noted, “Given our year-to-date results, the positive momentum exhibited by our businesses, and the strong performance of our 2012 model year products introduced earlier this year, we are raising our full year 2011 sales and earnings expectations. We expect 2011 will be a record year for Polaris, demonstrating our commitment to making growth happen in spite of adverse economic conditions.
“Looking ahead to 2012, we expect the overall economic climate to remain challenging. However, we believe our business is well positioned to offset these headwinds, as we continue to execute our successful long-term strategy, invest in product innovation, and seize additional opportunities to sustain our momentum. While our current success means the sales and earnings comparisons will be much tougher in 2012, at this early stage we expect to have another year of increasing sales, net income and earnings per share.”
Third Quarter Performance Summary (in thousands except per share data)
Three Months ended September 30, Nine Months ended September 30,
Product line sales 2011 2010 Change 2011 2010 Change
Off-Road Vehicles $486,243 $389,349 25% $1,356,566 $981,823 38%
Snowmobiles 95,102 77,285 23% 110,865 84,804 31%
On-Road Vehicles 35,655 20,137 77% 111,449 60,984 83%
Parts, Garments, Access. 112,861 93,311 21% 296,100 245,086 21%
Total Sales $729,861 $580,082 +26% $1,874,980 $1,372,697 +37%
Gross profit $206,836 $150,699 +37% $536,275 $358,697 +50%
Gross profit as % of sales 28.3% 26.0% +230 bpts 28.6% 26.1% +250 bpts
Operating expenses $102,873 $87,139 +18% $296,620 $228,759 +30%
Operating expenses as 14.1% 15.0% -90 bpts 15.8% 16.7% -90 bpts
% of sales
Operating Income $110,290 $67,696 +63% $256,794 $142,575 +80%
Operating Income as 15.1% 11.7% +340 bpts 13.7% 10.4% +330 bpts
% of sales
Net Income $67,637 $47,221 +43% $163,676 $92,616 +77%
Net income as % of sales 9.3% 8.1% +120 bpts 8.7% 6.7% +200 bpts
Diluted Net Income $0.95 $0.69 +38% $2.30 $1.36 +69%
Summary of Operations
Off-Road Vehicle (“ORV”) sales, comprised of all-terrain vehicles (“ATVs”) and RANGER? side-by-side vehicles, increased 25 percent year-over-year, to $486.2 million, during the third quarter 2011. This increase reflects significant North American market share gains for both ATVs and side-by-side vehicles. North American ORV unit retail sales from dealers to consumers for the 2011 third quarter were up low-teens percent year-over-year, with side-by-side vehicle consumer retail sales climbing significantly and ATV consumer retail sales down mid-single digits percent. As a result of consistently strong demand for Polaris products, North American ORV dealer inventories were up modestly compared to the third quarter of 2010, as higher side-by-side vehicle dealer inventory was largely offset by lower ATV dealer inventory. Polaris sales of ORVs outside of North America increased 59 percent compared to the third quarter 2010.
Snowmobile sales for third quarter 2011 were $95.1 million, an increase of 23 percent over third quarter 2010. These results reflect significantly reduced snowmobile dealer inventory levels entering the 2011 – 2012 selling season compared to the prior year, as well as the benefit of more higher priced snowmobiles shipping during the 2011 third quarter than in third quarter 2010.
On-Road Vehicle sales totaled $35.7 million, 77 percent higher than the same period in 2010, primarily due to Victory motorcycle sales increases. Sales of On-Road Vehicles to customers outside of North America increased 74 percent compared to the prior year’s third quarter. Third quarter North American heavyweight cruiser and touring motorcycle industry retail sales were up mid-single digits percent over the prior year’s third quarter, while Victory unit retail sales in North America increased upper-teens percent during the same period. In addition, a modest amount of On-Road vehicle sales related to the GEM and Indian Motorcycle Company acquisitions were recorded in the third quarter 2011.
Parts, Garments, and Accessories (“PG&A”) sales increased 21 percent during the third quarter 2011 to $112.9 million compared to the same period last year, with PG&A sales increasing across all businesses and geographies. During the 2011 third quarter the Company introduced over 200 new accessories and garments to the PG&A product line for the 2012 model year.
International sales totaled $97.9 million for the 2011 third quarter, a 59 percent increase over the same period in 2010. All regions and product lines experienced growth during the quarter driven by higher volume, and increased sales of higher priced side-by-side vehicles and motorcycles. Year-to-date, international sales totaled $293.2 million, an increase of 37 percent over the same period last year.
Gross profit was 28.3 percent of sales for the third quarter of 2011, up 230 basis points from 26.0 percent for the third quarter of 2010. Gross profit dollars increased 37 percent to $206.8 million for the third quarter of 2011, compared to $150.7 million for the third quarter of 2010. Continued product cost reduction efforts, production efficiencies on increased volumes, and higher selling prices were the most significant factors in this increase, partially offset by increasing commodity costs and unfavorable currency movements.
Operating expenses for third quarter 2011 decreased 90 basis points, as a percent of sales, to 14.1 percent of sales compared to 15.0 percent of sales for the same period last year as we gain leverage from the sales increases. Operating expenses in absolute dollars for the third quarter of 2011 increased 18 percent to $102.9 million compared to $87.1 million last year primarily due to continued investments in future growth opportunities and acquisition integration. This was offset somewhat by lower share-based incentive compensation plan expenses in the third quarter 2011, primarily as a result of the lower stock price at September 30, 2011 than a quarter ago.
Income from financial services increased to $6.3 million during third quarter 2011 from $4.1 million in the third quarter of 2010, primarily due to increased profitability generated from the retail credit portfolios with GE, HSBC, and Sheffield.
Non-operating other expense was $5.5 million in the third quarter of 2011, as compared to $1.5 million of income in the third quarter of 2010. The decrease in profitability was the result of foreign currency exchange rate movements and the resulting effects on foreign currency transactions related to the Company’s foreign subsidiaries.
Financial Position and Cash Flow
Net cash provided by operating activities increased 26 percent to $198.1 million for the year-to-date period ended September 30, 2011 compared to $156.9 million for the same period in 2010. The increase was driven by higher net income; partially offset by an increased investment in working capital, in particular factory inventory levels supporting business growth. Total long-term debt at September 30, 2011 was $100.0 million compared to $200.0 million a year ago. The Company’s debt-to-total capital ratio was 17 percent at September 30, 2011, compared to 40 percent for the same period in 2010. Cash and cash equivalents were $335.7 million at September 30, 2011 compared to $264.5 million for the same period in 2010.
2-for-1 stock split completed during the quarter
During the 2011 third quarter, the Board of Directors declared a two-for-one split of the Company’s outstanding shares of common stock. On September 12, 2011 Polaris shareholders received one additional share of common stock for each share they held of record at the close of business on September 2, 2011. All share and per share information for all periods presented have been adjusted to give effect to the stock split.