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Polaris Reports Record Third Quarter 2011 Results; 26% Sales Growth drove EPS Increase of 38%

Company Increases Full Year 2011 Guidance

Click here if you want to download this article: POLARIS REPORTS 2011 THIRD QUARTER RESULTS

 

 

Third Quarter Highlights:

 

  • Net income increased 43% to a record $67.6 million, or a record $0.95 per diluted share.
  • All product lines and geographic regions experienced sales growth during the third quarter.
  • Gross profit margin percentage increased 230 basis points to 28.3%.
  • During the third quarter, the Board of Directors declared a two-for-one split of the Company's outstanding shares of common stock.
  • Raising guidance for full year 2011 earnings to a range of $3.10 to $3.16 per diluted share, a 45% to 48% increase over full year 2010 based on expected full year 2011 sales growth of 30% to 32%.

 

Minneapolis, MN (October 18, 2011) – 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 & Accessories

     

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 a % 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 a % of sales

     

14.1%

     

15.0%

   

-90 bpts

     

15.8%

     

16.7%

   

-90 bpts

                                             

Operating Income

   

$

110,290

   

$

67,696

   

+63%

   

$

256,794

   

$

142,575

   

+80%

Operating Income as a % of sales

     

15.1%

     

11.7%

   

+340 bpts

     

13.7%

     

10.4%

   

+330 bpts

                                             

Net Income

   

$

67,637

   

$

47,221

   

+43%

   

$

163,676

   

$

92,616

   

+77%

Net income as a % of sales

     

9.3%

     

8.1%

   

+120 bpts

     

8.7%

     

6.7%

   

+200 bpts

                                             

Diluted Net Income per share

   

$

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.

 

 

Conference Call and Webcast Presentation

Today at 10:00 AM (CT) Polaris Industries Inc. will host a conference call and webcast to discuss its 2011 third quarter earnings results released this morning. The call will be hosted by Scott Wine, CEO, Bennett Morgan, President and COO, and Mike Malone, Vice President--Finance and CFO. A slide presentation and link to the audio webcast will be posted on the Investor Relations page of the Polaris web site at ir.polaris.com approximately 30 minutes before the conference call begins.

 

To listen to the conference call by phone, dial 800-374-6475 in the U.S. and Canada, or 973-200-3967 internationally. The Conference ID is # 75875515.

 

A replay of the conference call will be available approximately two hours after the call for a one-week period by accessing the same link on our website, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 internationally.

 

 

About Polaris

With annual 2010 sales of $1.99 billion, Polaris designs, engineers, manufactures and markets innovative, high quality off-road vehicles (ORVs), including all-terrain vehicles (ATVs) and the Polaris RANGER® for recreational and utility use, snowmobiles, motorcycles and on-road electric powered vehicles.

 

Polaris is a recognized leader in the powersports industry, among the global sales leaders for both snowmobiles and off-road vehicles. The Company has established a presence in the heavyweight cruiser and touring motorcycle market with Victory motorcycles and the acquisition of Indian Motorcycle Company. Additionally, Polaris continues to invest in the global on-road low speed vehicle industry with internally developed vehicles and the acquisition of Global Electric Motorcars (GEM). Polaris enhances the riding experience with a complete line of Pure Polaris apparel, accessories and parts, available at Polaris dealerships.

 

Polaris Industries Inc. trades on the New York Stock Exchange under the symbol "PII", and the Company is included in the S&P Mid-Cap 400 stock price index.

 

Information about the complete line of Polaris products, apparel and vehicles accessories are available from authorized Polaris dealers or anytime at polaris.com.

 

Except for historical information contained herein, the matters set forth in this news release, including management's expectations regarding 2011 and 2012 sales, shipments, net income, net income per share, manufacturing realignment transition costs and savings in logistical and production costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.Potential risks and uncertainties include such factors as the Company's ability to successfully implement its manufacturing operations realignment initiatives, product offerings, promotional activities and pricing strategies by competitors; acquisition integration costs; warranty expenses; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; changes in tax policy and overall economic conditions, including inflation, consumer confidence and spending and relationships with dealers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to any person to provide updates to its forward-looking statements.

 

(summarized financial data follows)

 

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

 
   

For Three Months

Ended September 30,

 

For Nine Months

Ended September 30,

   

2011

 

2010

 

2011

 

2010

Sales

 

$

729,861

 

$

580,082

   

$

1,874,980

 

$

1,372,697

 
                             

Cost of Sales

   

523,025

   

429,383

     

1,338,705

   

1,014,000

 

Gross profit

   

206,836

   

150,699

     

536,275

   

358,697

 

Operating expenses

               

Selling and marketing

   

49,074

   

38,118

     

129,740

   

102,380

 

Research and development

   

25,750

   

22,257

     

74,248

   

59,507

 

General and administrative

   

28,049

   

26,764

     

92,632

   

66,872

 

Total operating expenses

   

102,873

   

87,139

     

296,620

   

228,759

 
                 

Income from financial services

   

6,327

   

4,136

     

17,139

   

12,637

 

Operating Income

   

110,290

   

67,696

     

256,794

   

142,575

 
                 

Non-operating Expense (Income):

               

Interest expense

   

1,270

   

721

     

2,766

   

2,149

 
                             

(Gain) on securities held for sale, net

   

-

   

(1,594

)

   

-

   

(825

)

Other expense (income), net

   

5,480

   

(1,482

)

   

3,921

   

1,016

 

Income before income taxes

   

103,540

   

70,051

     

250,107

   

140,235

 
                 

Provision for Income Taxes

   

35,903

   

22,830

     

86,431

   

47,619

 

Net Income

 

$

67,637

 

$

47,221

     

163,676

   

92,616

 
                             

Basic Net Income per share

 

$

0.98

 

$

0.71

   

$

2.38

 

$

1.39

 

Diluted Net Income per share

 

$

0.95

 

$

0.69

   

$

2.30

 

$

1.36

 

Weighted average shares outstanding:

               
                 

Basic

   

68,937

   

66,811

     

68,761

   

66,487

 

Diluted

   

71,289

   

68,753

     

71,056

   

68,250

 

 

Note: Shares outstanding and per share data have been adjusted to give effect to the two-for-one- stock split declared on July 20, 2011 and paid on September 12, 2011 to shareholders of record on September 2, 2011.

 

POLARIS INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

           

Subject to Reclassification

 

September 30, 2011

   

September 30, 2010

           

Assets

         

Current Assets:

         

Cash and cash equivalents

 

$

335,747

   

$

264,511

Trade receivables, net

   

108,889

     

98,151

Inventories, net

   

338,285

     

279,778

Prepaid expenses and other

   

37,762

     

17,443

Income taxes receivable

   

9,037

     

-

Deferred tax assets

   

62,269

     

68,696

Total current assets

   

891,989

     

728,579

           

Property and equipment, net

   

198,018

     

180,936

Investments in finance affiliate

   

37,273

     

33,479

Investments in manufacturing affiliates

   

882

     

1,183

Deferred tax assets

   

10,240

     

-

Goodwill and other intangible assets, net

   

59,658

     

27,880

Total Assets

 

$

1,198,060

   

$

972,057

           

Liabilities and Shareholders' Equity

         

Current Liabilities:

         

Accounts payable

 

$

187,780

   

$

138,044

Accrued expenses:

         

Compensation

   

160,414

     

92,382

Warranties

   

36,724

     

29,602

Sales promotions and incentives

   

80,234

     

83,420

Dealer holdback

   

61,196

     

55,029

Other

   

66,189

     

50,463

Income taxes payable

   

1,598

     

4,559

Current liabilities of discontinued operations

   

1,550

     

1,850

Total current liabilities

   

595,685

     

455,349

           

Long term income taxes payable

   

7,156

     

4,045

Deferred income taxes

   

-

     

14,748

Long-term debt

   

100,000

     

200,000

Total liabilities

   

702,841

     

674,142

           

Shareholders' Equity:

         

Total shareholders' equity

   

495,219

     

297,915

Total Liabilities and Shareholders' Equity

 

$

1,198,060

   

$

972,057

               

 

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

       

Subject to Reclassification

 

For the Nine Months

Ended September 30,

   

2011

     

2010

Operating Activities:

           

Net income

 

$

163,676

     

$

92,616

 

Adjustments to reconcile net income to net cash provided by operating activities:

           

Noncash valuation adjustments on securities held for sale

   

-

       

(825

)

Depreciation and amortization

   

50,692

       

49,616

 

Noncash compensation

   

14,815

       

13,460

 

Noncash income from financial services

   

(3,398

)

     

(3,313

)

Noncash loss from manufacturing affiliates

   

127

       

1,203

 

Deferred income taxes

   

(6,404

)

     

(4,423

)

Changes in current operating items:

           

Trade receivables

   

(17,563

)

     

(7,745

)

Inventories

   

(96,474

)

     

(100,463

)

Accounts payable

   

73,207

       

62,387

 

Accrued expenses

   

27,243

       

52,031

 

Income taxes payable/receivable

   

(8,542

)

     

(3,086

)

Prepaid expenses and others, net

   

700

       

5,455

 

Net cash provided by operating activities

   

198,079

       

156,913

 
             

Investing Activities:

           

Purchase of property and equipment

   

(62,474

)

     

(35,040

)

Investments in finance affiliate, net

   

3,294

       

11,166

 

Proceeds from sale of investments

 

-

       

9,601

 

Acquisition of businesses, net of cash acquired

   

(27,960

)

     

(2,500

)

Net cash used for investing activities

   

(87,140

)

     

(16,773

)

             

Financing Activities:

           

Borrowings under senior notes

   

100,000

       

-

 

Repayments under credit agreement

   

(200,000

)

     

-

 

Repurchase and retirement of common shares

   

(62,462

)

     

(27,486

)

Cash dividends to shareholders

   

(46,147

)

     

(39,538

)

Tax effect of proceeds from share-based compensation exercises

   

13,361

       

7,502

 

Proceeds from stock issuances under employee plans

   

28,005

       

43,653

 

Net cash used for financing activities

   

(167,243

)

     

(15,869

)

             

Impact of currency exchange rates on cash balances

   

(1,876

)

     

-

 
             

Net (decrease) increase in cash and cash equivalents

   

(58,180

)

     

124,271

 
             

Cash and cash equivalents at beginning of period

   

393,927

       

140,240

 
             

Cash and cash equivalents at end of period

 

$

335,747

     

$

264,511

 

 

SOURCE: Polaris Industries Inc.

Polaris Industries Inc.
Richard Edwards, 763-542-0500

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