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TheStreet Open House

Polaris Reports Record Third Quarter 2012 Results; EPS Increased 40% To $1.33 With Sales Growth Of 21%

Stock quotes in this article: PII

2012 Business Outlook

The Company is increasing its previously issued sales and earnings guidance and now expects full year 2012 earnings in the range of $4.32 to $4.37 per diluted share, an increase of 35 to 37 percent over full year 2011 earnings of $3.20 per diluted share. Full year 2012 sales are now expected to grow in the range of 19 to 20 percent from 2011.

 

Third Quarter Performance Summary (in thousands except per share data)

  Three Months ended September 30,     Nine Months ended September 30,
Product line sales 2012   2011   Change 2012   2011   Change
Off-Road Vehicles $ 573,020 $ 486,243 18% $ 1,658,730 $ 1,356,566 22%
Snowmobiles 114,885 95,102 21% 128,405 110,865 16%
On-Road Vehicles 63,396 35,655 78% 192,789 111,449 73%
Parts, Garments & Accessories 128,638 112,861 14% 329,211 296,100 11%
Total Sales $ 879,939 $ 729,861 +21% $ 2,309,135 $ 1,874,980

+23%

 
Gross profit $ 259,785 $ 206,836

+26%

$ 671,497 $ 536,275

+25%

Gross profit as a % of sales 29.5% 28.3%

+120 bpts

29.1% 28.6%

+50 bpts

 
Operating expenses $ 126,445 $ 102,873

+23%

$ 351,574 $ 296,620

+19%

Operating expenses as a % of sales 14.4% 14.1%

+30 bpts

15.2% 15.8%

-60 bpts

 
Operating Income $ 141,567 $ 110,290

+28%

$ 343,548 $ 256,794

+34%

Operating Income as a % of sales 16.1% 15.1%

+100 bpts

14.9% 13.7%

+120 bpts

 
Net Income $ 94,345 $ 67,637 +39% $ 224,246 $ 163,676 +37%
Net income as a % of sales 10.7% 9.3%

+140 bpts

9.7% 8.7%

+100 bpts

 
Diluted Net Income per share $ 1.33 $ 0.95 +40% $ 3.16 $ 2.30

+37%

 

Off-Road Vehicle (“ORV”) sales increased 18 percent from the third quarter 2011 to $573.0 million. This increase reflects continued North American market share gains for both ATVs and side-by-side vehicles, including the completely redesigned RANGER XP ® 900 utility vehicle, which incorporates a new purpose built 900 EFI engine, enhanced ride, handling and comfort, and integrated PG&A solutions. Polaris North American ORV unit retail sales were up low double digits percent from the third quarter last year, with consumer purchases of side-by-side vehicles climbing more than 15 percent and ATV retail sales up mid-single digits percent. The Company estimates North American industry ORV retail sales in the third quarter 2012 rose mid-single digits percent from the third quarter of 2011. While our International businesses continued to gain market share, sales of ORVs outside of North America decreased 19 percent in the third quarter, primarily due to weak demand in Europe.

Snowmobile sales increased 21 percent to $114.9 million for the 2012 third quarter as compared to $95.1 million for the third quarter of 2011. This increase is due to the Company’s decision to escalate early season snowmobile shipments so as to better coincide with the start of the consumer retail snowmobile selling period. Sales of snowmobiles outside of North America, principally the Scandinavian region and Russia, increased 20 percent in the third quarter of 2012 compared to a year ago.

Sales of the On-Road Vehicles division, comprised primarily of Victory motorcycles, but also including Indian motorcycles and our GEM and Goupil electric vehicles, increased 78 percent over the same period last year to $63.4 million. Consumer demand for Victory motorcycles was strong in each of our global markets, as we continued to gain market share and expand distribution. Third quarter North American industry heavyweight cruiser and touring motorcycle retail sales were down single digits percent from 2011, while over the same period, Victory North American consumer unit retail sales increased over 25 percent. Sales of On-Road Vehicles to customers outside of North America increased over 150 percent during the 2012 third quarter.

Parts, Garments, and Accessories (“PG&A”) sales increased 14 percent during the third quarter 2012 compared to the same period last year. All product lines and product categories experienced increased sales, driven by the addition of over 250 new model year 2013 accessories and higher PG&A related sales to owners of the Company’s large installed base of vehicles. Sales of PG&A to customers outside of North America increased 21 percent during the 2012 third quarter compared to the same period last year.

International sales totaled $100.9 million for the 2012 third quarter, up three percent over the same period in 2011. The increase in third quarter sales resulted from a 13 percent combined increase in sales to customers in the Asia/Pacific and Latin American regions, along with higher sales of Victory motorcycles and the incremental sales from the Goupil acquisition. This was largely offset by lower ORV sales, primarily in Europe, due to sluggish economic conditions and a three percent unfavorable currency impact.

Gross profit was 29.5 percent of sales for the third quarter of 2012, a 120 basis point increase over the third quarter 2011. Gross profit dollars increased 26 percent to $259.8 million for the third quarter of 2012, compared to $206.8 million for the third quarter of 2011. The increase in both the gross profit percentage and gross profit dollars is primarily due to cost savings from product cost reduction efforts, production efficiencies on increased volumes, higher selling prices and ongoing cost saving from the manufacturing realignment project, partially offset by higher sales promotions and negative product mix.

Operating expenses for the third quarter of 2012 increased 23 percent to $126.4 million, or 14.4 percent of sales, versus $102.9 million or 14.1 percent of sales during the third quarter of 2011. Operating expenses in absolute dollars and as a percentage of sales for the third quarter of 2012 increased primarily due to higher research and development expenses, ongoing infrastructure investment for growth initiatives, and higher incentive compensation plan expenses due to stock price changes during the third quarter of 2012 compared to the same period in 2011.

Income from financial services increased 30 percent to $8.2 million during third quarter 2012 compared to $6.3 million in the third quarter of 2011. These results were primarily a consequence of increased profitability generated from retail credit portfolios with GE, Capital One and Sheffield and higher income from dealer inventory financing through Polaris Acceptance.

Non-operating other (income) was $4.0 million in the third quarter of 2012, compared to $5.5 million expense in the third quarter of 2011. The increase in profitability was derived from foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries.

Financial Position and Cash Flow

Net cash provided by operating activities increased 28 percent to $254.5 million for the year-to-date period ended September 30, 2012 compared to $198.1 million for the same period in 2011. The increase in net cash provided by operating activities for the 2012 period was due primarily to the increase in net income. Total debt at the end of the third quarter was $107.3 million, and the Company’s debt-to-total capital ratio was 14 percent at September 30, 2012, compared to 17 percent at the same period in 2011. Cash and cash equivalents were $412.9 million at September 30, 2012, an increase of 23 percent compared to $335.7 million for the same period in 2011.

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