Polaris Industries, Inc (



Q4 2011 Earnings Call

January 25, 2012 10:00 a.m. ET


Scott W. Wine - CEO

Bennett J. Morgan - President and COO

Michael W. Malone - VP - Finance and CFO

Richard Edwards - Director of IR


James Hardiman – Longbow Research

Scott Stember - Sidoti & Company, LLC

Tim Conder - Wells Fargo Securities

Jaime Katz - Morningstar, Inc.

Ed Aaron - RBC Capital Markets

Greg Badishkanian - Citigroup Investment Research

Jimmy Baker - B. Riley & Co.

Mark Smith - Feltl and Company

Gerrick Johnson - BMO Capital Markets

Joe Hovorka - Raymond James Company

Craig Kennison - Robert W. Baird & Co.



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Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Fourth Quarter and Full Year 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I'll now turn the call over to Richard Edwards, please go ahead.

Richard Edwards

Thank you, Steve, and good morning, and thank you for joining us for our 2011 Fourth Quarter and Full Year Earnings Conference Call. A slide presentation is accessible at our website at www.polarisindustries.com/irhome, which has additional information for this morning’s call. The speakers today are Scott Wine, our Chief Executive Officer; Bennett Morgan, our President and Chief Operating Officer; and Mike Malone, our Chief Financial Officer.

During the call today, we will be discussing certain topics including product demand and shipments, sales and margin trends, income and profitability levels, and other matters, including more specific guidance on our expectations for 2012, which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements.

Now, I'll turn it over to Scott Wine. Scott?

Scott Wine

Good morning and thank you for joining us. Following a longstanding Polaris tradition we began each year with a two-day meeting of our extended leadership team. We review our results and progress from the past year, discuss our goals and align our plans for the year ahead.

With football as the backdrop for this year's meeting, we chose to stay on off and so as our team. Coming off two straight years of exceptional performance this team remains, humble and determined to continue our winning streak and keep advancing the ball. In both football and business momentum is vital and it is clear that our strong fourth quarter finish coupled with heavy investment in our future positioned us to once again prove in 2012 that we have the best team in Powersports and increasingly other businesses as well.

With much discussion of increased competitive pressure and presence of a sturdy 31% sales growth comparable from the fourth quarter of 2010, no one at Polaris expected to close through the end of the year. Across the business the team maintained their growth focus driving at 26% increase in sales to a record $782 million dollars. We projected margin pressure in the quarter and commodities, currencies and dismal snow conditions did combine to reduce fourth quarter gross profit margins by 160 basis points.

Despite this decrease earnings growth was solid and net income increased 17% to $63.9 million supporting earnings per share of $0.90 up 15%. These sales in earnings result demonstrate the fundamental strength of the business as we enter into 2012.

Our fourth quarter results contributed a full year 2011 sales and earnings growth rate that rapidly accelerated past this 40 results Polaris delivered in 2010. While the global economy and the Powersports industry each fell in line with our predictions, big market share gains coupled with strong international adjacency growth enable us to once again outperform the competition.

Full year North American retail sales were up 14%, driving total company sales to a record $2.66 billion up 33% from 2010. This is the first year that Polaris revenue has exceeded $2 billion and with that significant milestone behind us, we now have our sight clearly set on to passing the $3 billion market.

Organic growth remains broad based as sales grew in every product and in every part of the world. Thanks to industry leading, innovative new products, our side-by-side business extended their market share leadership while contributing significantly to our sales growth.

With Victory hitting its stride in most every respect and the Indian brand now part of the Polaris, our motorcycle business is once again a key contributor to our revenue growth. Despite this is lack of snow, last seen success in our great line of new sledge contribute to a very strong 2011 for a snow business. And in a true testament to the caliber of our international team they drove 37% growth in Europe in 2011 supporting 39% overall growth.

And as we expanded our international business, we also benefitted from the late year contributions from our small electric vehicle business. Full year earning clearly reflect the success of our ongoing margin expansion efforts as the team exceeded expectations by delivering 120 basis point increase in net income margin to a record 8.6%. The combination of rapid sales growth and expanding margins drove net income up 55% to $227.6 million with earnings per share increasing 50% to a record $3.20. During the fourth quarter we increased our rate of share repurchases which will support our efforts to reduce or eliminate earnings per share dilution in 2012.

As you will hear throughout the call today, Polaris accomplished much more than posting record top line numbers in 2011. Across the business and around the globe each of our 4,400 employees help deliver solid improvements in our operating and financial metrics. From sales through cash flow, our financial metrics illustrate the consistency and quality of our earnings which we will feel is a key component of our ability to increase shareholder value.

While the 46% shareholder return in 2011 ranks among the top 4% of all companies listed on the New York Stock Exchange it is the 330% return to Polaris shareholders over the three years that more accurately summarizes the market's reaction to our performance.

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