Polaris reports 18 percent drop in net income – February 12, 2007

Polaris Industries Inc.’s string of 24 years of reporting record earnings per share ended in 2006 after the company suffered more than $100 million losses in ATV sales and nearly as much in its snowmobile segment.
Overall, the Minnesota manufacturer reported an 18 percent decline in its net income for its fiscal year, which ended Dec. 31. Overall sales decreased 11 percent, including nearly a 40 percent drop in snowmobile sales to $156.9 million from $256.6 million in 2005.
“This past year proved to be challenging for us,” Polaris CEO Tom Tiller said in a press release. “We did, however, finish in line with our previously issued guidance and continue to make good progress in getting our business back on track.
“The snowmobile market has remained difficult as inadequate early season snowfall across most of the North American snowbelt continued to negatively impact our results.”
The company also attributed the decline in sled sales to decreased dealer orders and quality issues relating to certain 2005 and 2006 model-year snowmobiles.
ATV sales, which make up about two-thirds of the manufacturer’s vehicle sales in terms of revenue, also were down significantly. One year after reporting a 7 percent increase in quad sales, Polaris said its ATV sales fell 10 percent in 2006 compared to the previous year. That’s more than twice the decrease the industry suffered as a whole in 2006.
“We have seen progress in our dealers’ efforts to lower their inventories thus far for both ATVs and snowmobiles,” Tiller said, “and feel we are taking the necessary steps to make both of these businesses more competitive, including cost reductions, strong retail promotions and increased advertising as we move into 2007.”
Polaris did say several of its new products, including the Sportsman X2, continue to show growth. However, the company’s ATV sales fell 13 percent in the fourth quarter compared to the previous-year period. Polaris said the decrease is mainly due to dealers cutting back their orders. As a result, dealer inventory levels in North America are in a better position now than in 2005.
Victory motorcycles continue to be a bright spot for Polaris. Overall, Victory sales were up 13 percent from a year ago to $112.8 million. Polaris’ motorcycles did suffer a sales decrease in the fourth quarter because it shipped more model year 2007 motorcycles in the third quarter this year compared to 2005.
In its year-end fiscal report, Polaris also revealed:

  • its PG&A sales decreased 2 percent for the year to $269 million;
  • income from financial services increased 22 percent for the year to $47.1 million thanks in part to a retail credit relationship with HSBC; and
  • equity from its manufacturing affiliates, largely KTM, amounted to $3.6 million last year.
    Polaris said it expects its sales to grow in the 1-3 percent range in 2007. psb

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