Polaris Industries Inc. (NYSE:PII)(PSE:PII), Medina, Minn., continued the celebration of its 50th Anniversary year by posting record sales and earnings for the second quarter ended June 30, 2004.
Polaris reported record net income of 54 cents per diluted share for the second quarter, a 15% increase over the prior year second quarter net income of 47 cents per diluted share. Higher sales volume primarily from snowmobiles, ATVs, PG&A and International operations along with expanded gross margins and higher income from financial services contributed to the second quarter earnings increase.
Reported net income for the second quarter 2004 was a record $24.4 million, a 16% increase over the prior year second quarter net income of $21.0 million. Sales for the second quarter 2004 totaled a record $422.3 million, up 12% from the prior year’s second quarter sales of $377.1 million.
“We are anticipating balanced growth across the company in 2004 and the second quarter continues that trend,” said Tom Tiller, Polaris president and CEO.
“All of our product lines experienced sales growth during the quarter which marks our 25th consecutive quarter of increased sales and earnings,” he said.
According to Tiller, recent innovations and investments made in new product development pushed the growth in sales and earnings during the second quarter.
And later this month, he said, the company expects to continue that trend with the largest new product launch in the history of the company. New ATV and motorcycle products will be introduced at the company’s dealer meeting in late July. See Page 20 for a complete report on the new Polaris ATV lineup for 2005.
Six Month Results
For the six months ended June 30, 2004, Polaris reported a 16% increase in net income to $38.7 million and a 15% increase in earnings per share to 86 cents per diluted share compared to $33.4 million or 75 cents per diluted share in the first six months of 2003. Sales for the six months ended June 30, 2004 totaled $768.3 million, up 11% from $691.1 million in the comparable period of 2003.
ATV sales growth accelerated over the first quarter 2004, increasing seven percent in the second quarter 2004 compared to last year's second quarter.
The RANGER line of utility vehicles sales increased sharply during the second quarter while sales of Polaris ATVs outside of North America continued to grow, increasing 55% during the second quarter 2004 compared to the second quarter of 2003, the company reported.
Demand for the new Sportsman 700 EFI (electronic fuel injection) ATV continued to gain momentum during the quarter.
Sales of Parts, Garments and Accessories increased 11% during the second quarter 2004 over the second quarter 2003. All product lines experienced growth in PG&A during the quarter with snowmobiles and Victory motorcycles experiencing double digit growth, Tiller said.
The PG&A business will continue to focus on accelerating innovation for accessories, maintaining high order fill rates and improving product and service quality.
Sales of Victory motorcycles increased three percent during the second quarter 2004 from last year's second quarter. For the six month period ended June 30, 2004, sales of Victory motorcycles increased 20% from the comparable period in 2003.
Polaris said the Victory Vegas and Kingpin continue to gain momentum in the market place in addition to the overall Victory name gaining acceptance as a viable and successful brand in the motorcycle industry.
Watercraft Sales steady
Polaris’ Personal Watercraft (PWC) sales increased three percent during the second quarter 2004 compared to the second quarter 2003. Sales of the new MSX 150 and MSX 110 four stoke PWC models are gaining momentum in the market, the company said.
Sales of PWC for the year-to-date period ended June 30, 2004 increased 16% from the comparable period in 2003.
Snowmobile sales jump
Snowmobile sales increased 65% during the second quarter 2004 compared to the second quarter 2003 due to lower dealer carryover inventory levels and more normal snowfall this past riding season.
Income from financial services increased 59% to $7.3 million in the second quarter 2004, up from $4.6 million in the second quarter of 2003 primarily due to increased profitability generated from the retail credit portfolio as consumers used available retail financing options in greater numbers.
Company sponsored promotional programs more closely tied to retail financing have driven an increase in the retail credit portfolio over the past number of quarters, the company said.
The credit quality of the retail credit portfolio has remained stable and credit losses continue to be in line with expectations, according to the company.
key financial ratios
Gross profit, as a percentage of sales, was 21.4% for the second quarter 2004, an improvement from 20.6% in the comparable quarter of 2003. The gross profit margin improvement for the quarter was fueled by production efficiency gains and ongoing cost reduction efforts, as well as a sales mix benefit during the quarter, Tiller said. These improvements were offset somewhat by a higher level of sales promotional expenses required in the second quarter 2004 compared to the second quarter in the prior year.
For the second quarter 2004, operating expenses increased 19% to $60.6 million or 14.4% of sales compared to $50.9 million or 13.5% of sales for the second quarter 2003.
Operating expenses increased for the quarter primarily due to the continuation of initiatives taken to accelerate the design, development and introduction of new products, as well as distribution network improvements and added expense and currency fluctuations related to the growing international subsidiaries.
Research and development expenses increased 37% for the quarter as the company accelerated investment in the design and development of new products.
Sales and marketing expenses increased 18% as Polaris continued to work at upgrading its distribution network of nearly 2,000 dealers in North America in the areas of sales, service, and merchandising.
Share buyback continues
During the second quarter 2004 the company repurchased and retired nearly 388,000 shares of its common stock at a cost of $16.8 million. Since inception of the share repurchase program in 1996, approximately 19.4 million shares have been repurchased at an average price of $21.52 per share.
Under the current authorization of the board of directors, approximately 3.6 million shares of Polaris stock are available for repurchase.
Company sees good year
Tiller, addressing Polaris’ expectations for the second half of the year said, “Given the balanced growth we are experiencing in all our businesses this year and our high expectations related to the new products to be introduced later this month, we are increasing our previously announced sales growth guidance to eight to ten percent sales growth for the full year 2004.”
At the same time, he said the company is increasing its full year 2004 earnings per share outlook from the previously announced range of $2.65 to $2.77 to the current range of $2.72 to $2.80 per diluted share, an 11% to 14% increase over 2003.
“I feel confident we can deliver another record year in sales and earnings in 2004, the 50th anniversary year for Polaris,” Tiller said.
50th Anniversary Celebration
2004 marks the 50th anniversary of Polaris Industries. A worldwide celebration took place in St. Paul, Minn., on July 24, 2004.
A report of the events will be available in the Aug. 16, 2004, issue of Powersports Business. psb