Polaris Industries CEO Discusses Q3 2011 Results - Conference Call Transcript

Polaris Industries, Inc. ( PII)

Q3 2011 Earnings Conference Call

October 18, 2011, 11:00 a.m. ET


Richard Edwards - Director, IR

Scott Wine - CEO

Bennett Morgan - President and COO

Mike Malone - VP, Finance and CFO


Tim Conder - Wells Fargo Securities

Greg Badishkanian - Citigroup

Ed Aaron - RBC Capital Markets

Scott Stember - Sidoti & Company

James Hardiman - Longbow Research

Rommel Dionisio - Wedbush Securities

Shawn Bitzan - Feltl and Company

Gerrick Johnson - BMO Capital Markets

Craig Kennison - Robert W. Baird

Jimmy Baker - B. Riley & Company

Scott Hamann - KeyBanc Capital Markets


Good morning. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Third Quarter Earnings Results 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. Mr. Richard Edwards, Director of Investor Relations, you may begin your conference.

Richard Edwards

Thank you, Alicia, and good morning, and thank you for joining us for our Third Quarter 2011 Earnings Conference Call. As before 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 2011 and 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. Additional information concerning these factors can be found in Polaris’ 2010 Annual Report and Form 10-K, which are on file with the SEC.

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

Scott Wine

Good morning. Thank you for joining us and for your interest in Polaris. We recently completed third quarter it was quite busy for our Polaris team. Since we last spoke in July we hosted a great dealer show in Nashville, completed a major reorganization of our leadership team, launched an exciting new model year ’12 lineup, split the stock, continued the integration of our Indian and GEM acquisition and shipped our 10,000 side-by-side from our Monterrey facility.

This team has been very effective in executing our priorities and growth plans and while we do not pretend to be immune to the impact of market volatility, our commitment to staying nimble, winning the competitive battle and making growth happen remain strong.

Results for the third quarter were robust and reflected broad strength in our portfolio as we delivered record sales, net income and earnings per share. Sales for the third quarter increased 26% to $729.9 million, marking the first time in our history where quarterly sales surpassed 700 million. Year-to-date, overall Polaris revenue was up 37% including a remarkable 58% third quarter sales increase from our team in Europe where they are proving that innovation and value can trump adverse market condition. Not to be out done, our Asia Pacific, Latin America team increased revenues by 64% in the quarter and they are up 54% year-to-date.

Net income for the third quarter increased 43% to $67.6 million yielding record earnings per share of $0.95, 38% improvement over the prior year period. Gross margins expanded 230 basis points to 28.3% as our operations team efficiently met heavy shipment demand and continued successful ramp up and leverage of our Monterrey facility. Our margin improvement initiatives went well beyond the gross margin line with operating income up 340 basis points to 15.1%, and net income expansion of 120 basis points to 9.3%. Like most quarters in the past year these positive earnings results include significant investments in our business which we expect to contribute to profitable growth in 2012 and beyond.

Our third quarter results also included larger than normal movements in commodities, currencies and share based incentive compensation plan expenses which Mike will discuss more fully during his comments.

We finished the third quarter with positive momentum and that is how we expect to finish the year. For the first time in our history we will deliver annual sales in excess of $2 billion, and in true Polaris fashion anticipate crushing that record with sales in the range of 2.59 to $2.63 billion up 30 to 32% over 2010. We are also raising our full-year 2011 earnings per share guidance to $3.10 to $3.16 resulting from net income growth of 51 to 53% over 2010. This team has worked diligently to drive net income margin expansion and these anticipated results will yield net income as a percent of sales of at least 8.5%, a 250 basis point improvement in the last three years.

During the third quarter we completed our annual strategic plan review with the Board of Directors and conducted a deep dive into our five year product plans. While there was prudent acknowledgement of potential pitfalls in the global economy and our end markets, I left these meetings excited about the future of Polaris and confident in our ability to drive sustainable profitable growth.

One of the key reasons for my bullishness is the talent on our team and the simplicity of our plan. Like a good football team we work hard at blocking and tackling and have products and initiatives that can deliver the big play when needed. That is what you have seen and will continue to see from us in our effort to be the Best in Powersports PLUS. Bennett will cover the highlights, but from our expanding lead in ORV market share to our strong start to the Snow-Go season, we are on top of our game in Powersports and expect to stay there. With impressive year-to-date growth in our military and Bobcat businesses and productive activity supporting our GEM and Indian acquisition, it is clear that growth through adjacencies objective is real at Polaris. These investments will make Polaris a stronger, more diversified company.

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