Should Polaris Earnings Scare Harley-Davidson Investors?

Sales of Polaris motorcycles surged in the second quarter.
By Brian Sozzi ,

Did Polaris (PII) - Get Reportoutrun legendary bike makerHarley-Davidson (HOG) - Get Report in the second quarter?

Preliminary evidence suggests yes, as Polaris continues to find success with its Indian motorcycle brand and three-wheeled vehicle known as the Slingshot.

Polaris reported on Wednesday that North American retail sales for its motorcycles -- including brands such as Victory, Indian and Slingshot -- increased by a mid-teens percentage in the second quarter. According to Polaris, overall motorcycle industry retail sales of 900cc bikes and above were down by a mid-single digit percentage during the quarter.

Polaris' overall motorcycle sales surged 23% from the prior year to $231.3 million, spurred by gains in all three brands, Polaris said.

Strong consumer interest in Polaris' bikes helped offset soft demand for off-road vehicles such as ATVs, its largest business segment, in which sales dropped 6% to $808.5 million.

The company's total second-quarter sales rose 1% from the prior year to $1.13 billion, beating Wall Street forecasts for $1.10 billion. Net earnings came in at $1.09 a share, down about 27% from a year ago. Sluggish demand for off-road vehicles, though, will likely haunt Polaris for the remainder of the year. The company slashed its full-year earnings forecast to a range of $6.00 to $6.30 a share from a range of $6.20 to $6.80 a share previously. Wall Street expected $6.26 a share. 

Shares of Polaris were gaining by 0.5% to $87.50 in premarket trading on Wednesday. 

Polaris' hearty motorcycle sales growth number may add to recent concern on Wall Street as to how Harley-Davidson fared during the quarter.

Harley's second-quarter sales trended down by a low- to mid-single-digit percentage despite increased promotional offers, worse than the 0.5% drop in the first quarter, said KeyBank analyst Scott Hamann in a recent note to clients.

According to Hamann, Harley-Davidson's sales took a hit due to unfavorable weather and the continued popularity of Polaris' Indian brand. Hamann called Indian a "solid share gainer," and saw second-quarter retail sales at Indian increasing by a mid-single-digit percentage. Polaris appears to have eclipsed Hamann's sales estimate for the Indian brand.  

Hamann went onto trim his domestic shipment estimate for Harley-Davidson to a decline of 0.5% from a previous estimate of a 1% increase.

Even that otherwise conservative shipment estimate for Harley may be at risk if consumers navigate away from the iconic bike maker amid a potential recall. 

The National Highway Traffic Safety Administration just launched an investigation into Harley's motorcycles after landing 43 complaints that riders' brakes had failed without warning.

The inquiry spans 430,000 Harley motorcycles with an anti-lock braking system from model years 2008 to 2011. Such a braking system is designed to prevent riders from losing traction if conditions call for a sudden brake.

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