July 23, 2007 – Polaris confident about 3Q

Nearing the end of an ATV inventory adjustment and benefiting from new product releases, Polaris Industries is anticipating its first sales increase in eight quarters.
The Minnesota manufacturer predicted the sales rise on July 17 for its third quarter after reporting its second-quarter financial numbers, which were largely similar to its 2006 second quarter. The company’s net income was $22.9 million, just slightly above last year’s second-quarter income of $22.7 million.
Overall sales were slightly off — by 2 percent — for the quarter, but the company did report an improving gross margin percentage. That mark — up to 23 percent — elevated because of increased sales of higher gross margin products, like its Ranger UTVs, and favorable foreign currency fluctuations.
“We are pleased with the continued momentum that we witnessed during the second quarter, and expect these successes to drive results in the second half of the year,” Polaris CEO Tom Tiller said in a press release. “Our market share gains in the first half of 2007, increased sales of higher margin products and strong demand on new product introductions give us confidence.”
The company is so confident for the second half of its fiscal year that its expected ’07 sales growth has been raised a couple of percentage points to 3-5 percent.
In the short term, Polaris sees its third-quarter sales rising 6-9 percent thanks in large part to increasing UTV sales, including its new Ranger RZR, which it began shipping to dealers in the second quarter. Tiller said Polaris has “accelerated the start-up of production” of the RZR. Multibrand dealers attending the recent American Suzuki Motor Corp. national dealer meeting told Powersports Business that many of their allotted RZRs had been presold.
What also is expected to drive Polaris’ third-quarter sales is its ATV business, which made up nearly 73 percent of its overall sales in the first six months of the year. The company said its ongoing attempts at reducing ATV inventory will be “substantially complete” by the third quarter.
The inventory reduction was cited as a reason for Polaris’ reduced ATV sales in 2007. Second-quarter quad sales were off 2 percent compared to the year-ago period and 5 percent for the first six months.
UTV sales, on the other hand, are experiencing double-digit growth in both sales and shipments.
Motorcycle sales also remain positive for Polaris. The Victory line is experiencing sales growth — 4 percent for the second quarter and 5 percent in the first half — while the North American market has experienced year-to-date declines, according to Polaris’ press release.
Besides ATVs, Polaris reported other soft spots in the second quarter, including:

  • Snowmobile sales were down 16 percent to $4.4 million in what is traditionally a seasonally low quarter for sled sales; and
  • PG&A sales decreased 5 percent partly due to the sled sales reduction.
    Looking forward, Polaris expects its financial services revenue to decrease because its retail finance partner, HSBC, decided to stop financing non-Polaris product at Polaris dealerships as of July 1. The company also reported that it is significantly increasing its third-quarter advertising expense to correlate with its new product launches. psb

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