Polaris North America ORV retail rises in Q3
Reported and adjusted sales for the third quarter of 2018 increased 12% to $1,651 million and $1,653 million, respectively
Reported net income was $1.50 per diluted share, up 17% over the prior year; adjusted net income for the same period was $1.86 per diluted share, up 22% over the prior year
North American retail sales increased 1% for the quarter compared to a strong 13% increase last year; ORV N.A. retail sales were up low single-digits driven by side-by-side vehicles
Dealer inventory was up 6% year-over-year for the third quarter 2018, in line with expectations
Polaris maintaining full year 2018 adjusted sales and earnings guidance with full year adjusted sales in the range of 11% to 12% over the prior year and full year adjusted earnings in the range of $6.48 to $6.58 per diluted share which includes the absorption of an estimated $40 million of tariff cost increases anticipated in 2018 before counter-measures.
Key Financial Data |
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(in thousands, except per share data) | ||||||||||||||||
INCOME STATEMENT – Q3 September 30, 2018 | Reported | YOY % Chg. | Adjusted* | YOY % Chg. | ||||||||||||
Sales | $ | 1,651,415 | 12% | $ | 1,653,130 | 12% | ||||||||||
Net income | $ | 95,529 | 17% | $ | 117,926 | 21% | ||||||||||
Diluted EPS | $ | 1.50 | 17% | $ | 1.86 | 22% | ||||||||||
BALANCE SHEET – Q3 September 30, 2018 | Reported | YOY % Chg. | ||||||||||||||
Cash and cash equivalents | $ | 183,411 | 39% | |||||||||||||
Inventories, net | $ | 1,019,517 | 21% | |||||||||||||
Total debt, capital lease obligations and notes payable | $ | 1,864,327 | 103% | |||||||||||||
Shareholders’ equity | $ | 898,252 | — | |||||||||||||
CASH FLOW – YTD September 30, 2018 | Reported | YOY % Chg. | ||||||||||||||
Net cash provided by operating activities | $ | 354,138 | (29)% | |||||||||||||
Purchase of property & equipment | $ | 157,763 | 25% | |||||||||||||
Repurchase and retirement of common shares | $ | 246,931 | 178% | |||||||||||||
Cash dividends to shareholders | $ | 112,748 | 4% | |||||||||||||
Acquisition of businesses | $ | 729,925 | NM | |||||||||||||
NM = Not meaningful | ||||||||||||||||
Note: the results and guidance in this release, including the highlights above, include references to non-GAAP operating measures, which are identified by the word “adjusted” preceding the measure. *A reconciliation of GAAP / non-GAAP measures can be found at the end of this release. | ||||||||||||||||
CEO Commentary
“The dedication and strong execution of our Polaris team continued to drive broad based growth across the business in the third quarter. Our model year ’19 product news was well received and our improving manufacturing and logistics performance accelerated the successful roll-out of RFM for side-by-sides. International growth again outpaced North America, with Indian market share gains continuing in every market we serve. We were also pleased with the early performance of Boat Holdings, the largest manufacturer of pontoon boats in the U.S. that we welcomed to our growing Powersports portfolio earlier in the quarter. Our commitment to customers and investments in the U.S. remain strong, as we broke ground on a new multi-product PG&A and aftermarket distribution center in Nevada. We are strategically and tactically committed to being a customer-centric, highly efficient growth company, and our investments demonstrate that commitment. Our goals do not eliminate or even diminish the serious challenges we face from tariffs, but they certainly increase our resolve to find acceptable solutions or offsets. We are making too much progress with our supply chain, safety and quality and innovation initiatives to have the benefits wiped out by protracted trade negotiations. The challenge is real, and so are our efforts to overcome them. We remain well-positioned with a world-class team and product line-up and are confident in our ability to deliver strong financial and operational performance in the quarter and years ahead.”
— Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc.
Third Quarter Performance Summary (Reported) |
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(in thousands, except per share data) | Three months ended September 30, | |||||||||||||
2018 | 2017 | Change | ||||||||||||
Sales | $ | 1,651,415 | $ | 1,478,726 | 12 | % | ||||||||
Gross profit | 401,270 | 363,962 | 10 | % | ||||||||||
% of Sales | 24.3 | % | 24.6 | % | -31 bpts | |||||||||
Total operating expenses | 283,749 | 265,192 | 7 | % | ||||||||||
% of Sales | 17.2 | % | 17.9 | % | -75 bpts | |||||||||
Income from financial services | 21,348 | 18,138 | 18 | % | ||||||||||
% of Sales | 1.3 | % | 1.2 | % | +7 bpts | |||||||||
Operating income | 138,869 | 116,908 | 19 | % | ||||||||||
% of Sales | 8.4 | % | 7.9 | % | +50 bpts | |||||||||
Net income | 95,529 | 81,888 | 17 | % | ||||||||||
% of Sales | 5.8 | % | 5.5 | % | +25 bpts | |||||||||
Diluted net income per share | $ | 1.50 | $ | 1.28 | 17 | % | ||||||||
Polaris Industries Inc. today reported third quarter 2018 sales of $1,651 million, up 12 percent from $1,479 million for the third quarter of 2017. Adjusted sales for the third quarter of 2018 were $1,653 million, up 12 percent from the prior year period. The Boat Holdings, LLC (“Boat Holdings”) acquisition added $134 million of sales in the third quarter. The Company reported third quarter 2018 net income of $96 million, or $1.50 per diluted share, compared with net income of $82 million, or $1.28 per diluted share, for the 2017 third quarter. Adjusted net income for the quarter ended September 30, 2018 was $118 million, or $1.86 per diluted share, up 21 percent and 22 percent respectfully, compared to $98 million, or $1.52 per diluted share in the 2017 third quarter.
Gross profit increased 10 percent to $401 million for the third quarter of 2018 from $364 million in the third quarter of 2017. Reported gross profit margin was 24.3 percent of sales for the third quarter of 2018 compared to 24.6 percent of sales for the third quarter of 2017. Gross profit for the third quarter of 2018 includes the negative impact of $8 million of Victory Motorcycles®wind-down costs, acquisition-related costs for the acquisition of Boat Holdings and realignment and restructuring costs. Excluding these items, third quarter 2018 adjusted gross profit was $410 million, or 24.8 percent of adjusted sales. For the third quarter of 2017 adjusted gross profit of $378 million, or 25.5 percent of adjusted sales, excludes the negative impact of $14 million in Victory Motorcycles wind down costs and other restructuring and realignment costs. Gross profit margins on an adjusted basis were down slightly primarily due to mix and the impact of tariff, commodity and freight cost pressures during the quarter, partially offset by lower warranty and promotional costs.
Operating expenses increased seven percent for the third quarter of 2018 to $284 million, or 17.2 percent of sales, from $265 million, or 17.9 percent of sales, in the same period in 2017. Operating expenses in dollars increased primarily due to the Boat Holdings acquisition completed during the quarter and investments in strategic projects. Operating expenses as a percentage of sales, improved as the Company realized efficiencies through its selling, marketing and general and administrative spend along with the addition of Boat Holdings which inherently has a lower operating expense to sales ratio.
Income from financial services was $21 million for the third quarter of 2018, up 18 percent compared with $18 million for the third quarter of 2017. The increase is attributable to higher retail demand and penetration rates along with increased income from Polaris Acceptance as dealer inventories were at more appropriate levels to meet demand.
Non-Operating Expenses (Reported) |
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(in thousands) | Three months ended September 30, | |||||||||||||
2018 | 2017 | Change | ||||||||||||
Interest expense | $ | 19,823 | $ | 8,492 | 133 | % | ||||||||
Equity in loss of other affiliates | $ | 111 | $ | 1,603 | (93 | )% | ||||||||
Other expense (income), net | $ | (4,124 | ) | $ | (2,368 | ) | 74 | % | ||||||
Provision for income taxes | $ | 27,530 | $ | 27,293 | — | |||||||||
Interest expense was $20 million for the third quarter of 2018 compared to $8 million for the same period last year, primarily due to increased debt levels to finance the Boat Holdings acquisition.
Other expense (income), net, was $4 million and $2 million of income in the third quarter of 2018 and 2017, respectively, resulting from foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries.
The provision for income taxes for the third quarter of 2018 was $28 million, or 22.4 percent of pretax income, compared with $27 million, or 25.0 percent of pretax income for the third quarter of 2017. The decrease in the effective income tax rate is primarily due to the reduction in the federal statutory tax rate to 21 percent as a result of U.S. Tax Reform offset by a decrease in excess tax benefits related to stock based compensation compared to the prior year.
Product Segment Highlights (Reported) |
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(in thousands) | Sales | Gross Profit | ||||||||||||||||||||||||||
Q3 2018 | Q3 2017 | Change | Q3 2018 | Q3 2017 | Change | |||||||||||||||||||||||
Off-Road Vehicles / Snowmobiles | $ | 1,035,554 | $ | 1,007,392 | 3 | % | $ | 290,631 | $ | 296,904 | (2 | )% | ||||||||||||||||
Motorcycles | $ | 155,316 | $ | 155,059 | — | $ | 19,577 | $ | 10,354 | 89 | % | |||||||||||||||||
Global Adjacent Markets | $ | 96,251 | $ | 91,575 | 5 | % | $ | 24,155 | $ | 15,983 | 51 | % | ||||||||||||||||
Aftermarket | $ | 229,973 | $ | 224,700 | 2 | % | $ | 66,092 | $ | 63,239 | 5 | % | ||||||||||||||||
Boats | $ | 134,321 | $ | — | $ | 20,253 | $ | — | ||||||||||||||||||||
Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $1,036 million for the third quarter of 2018, up three percent over $1,007 million for the third quarter of 2017 driven by growth across most categories. PG&A sales for ORV and Snowmobiles combined increased 12 percent in the 2018 third quarter compared to the third quarter last year. Gross profit decreased two percent to $291 million in the third quarter of 2018, compared to $297 million in the third quarter of 2017.
ORV wholegood sales for the third quarter of 2018 increased 12 percent primarily driven by strong RANGER and ATV shipments. Polaris North American ORV retail sales increased low-single digits percent for the quarter with side-by-side vehicles up low-single digits percent and ATV vehicles down low-single digits percent. ATVs again gained market share during the quarter. The Company experienced a modest amount of market share loss for side-by-sides due to a very difficult comparable in the third quarter of 2017. The North American ORV industry was up low-single digits percent compared to the third quarter last year.
Snowmobile wholegood sales in the third quarter of 2018 was $69 million compared to $144 million in the third quarter last year. Snowmobile sales are expected to be more heavily weighted towards the fourth quarter of 2018 due to the timing of shipments for the Company’s pre-season snowmobile orders.
Motorcycle segment sales, including PG&A, totaled $155 million, which were flat compared to the third quarter of 2017. Gross profit for the third quarter of 2018 was $20 million compared to $10 million in the third quarter of 2017. Adjusted for the Victory wind-down costs recorded in both the 2018 and 2017 third quarters, motorcycle gross profit was $21 million in the 2018 third quarter compared to $18 million for the 2017 third quarter.
North American consumer retail sales for the Polaris motorcycle segment, including both Indian Motorcycle and Slingshot, decreased high-single digits during the 2018 third quarter. Indian Motorcycle retail sales increased low-single digits, in spite of an overall weak N.A. motorcycle market. Slingshot’s retail sales were down during the quarter. Motorcycle industry retail sales, 900cc and above, were down low-teens percent in the 2018 third quarter. Indian Motorcycle gained market share for the 2018 third quarter on a year-over-year basis.
Global Adjacent Markets segment sales, including PG&A, increased five percent to $96 million in the 2018 third quarter compared to $92 million in the 2017 third quarter. Reported gross profit increased 51 percent to $24 million in the third quarter of 2018, compared to $16 million in the third quarter of 2017. Adjusted gross profit increased nine percent to $24 million in the third quarter of 2018, compared to $22 million in the third quarter of 2017.
Aftermarket segment sales increased two percent to $230 million in the 2018 third quarter compared to $225 million in the 2017 third quarter driven by the Company’s powersports aftermarket brands. TAP sales in the third quarter of 2018 were $189 million, which was down slightly compared to the third quarter of 2017. TAP sales were impacted by delayed accessory development work and weakness in business-to-business sales in the South/Southwest. Gross profit increased to $66 million in the third quarter of 2018, compared to $63 million in the third quarter of 2017.
Boats segment sales, which consist of the Boat Holdings acquisition that closed July 2, 2018, were $134 million in the 2018 third quarter, slightly better than expectations. Reported gross profit was $20 million or 15.1 percent of sales in the third quarter of 2018. Adjusted gross profit, which excludes integration costs and purchase accounting, was $23 million or 17.4 percent of sales in the third quarter of 2018.
Supplemental Data:
Parts, Garments, and Accessories (“PG&A”) sales increased eight percent for the 2018 third quarter primarily driven by growth in ORV.
International sales to customers outside of North America, including PG&A, totaled $172 million for the third quarter of 2018, up 10 percent, from the same period in 2017. Foreign exchange movements reduced sales by three percent for the quarter. The increase was driven by strong sales in snowmobiles and motorcycles.
Financial Position and Cash Flow |
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(in thousands) | Nine Months ended September 30, | |||||||||||||
2018 | 2017 | Change | ||||||||||||
Cash and cash equivalents | $ | 183,411 | $ | 132,260 | 39 | % | ||||||||
Net cash provided by operating activities | $ | 354,138 | $ | 497,095 | (29 | )% | ||||||||
Repurchase and retirement of common shares | $ | 246,931 | $ | 88,877 | 178 | % | ||||||||
Cash dividends to shareholders | $ | 112,748 | $ | 108,923 | 4 | % | ||||||||
Acquisition of businesses | $ | 729,925 | $ | (1,645 | ) | NM | ||||||||
Total debt, capital lease obligations and notes payable | $ | 1,864,327 | $ | 919,984 | 103 | % | ||||||||
Debt to Total Capital Ratio | 67 | % | 51 | % | ||||||||||
NM = Not meaningful | ||||||||||||||
Net cash provided by operating activities was $354 million for the nine months ended September 30, 2018, compared to $497 million for the same period in 2017. The decrease in net cash provided by operating activities for the 2018 period was due to the timing of accrual payments and higher factory inventory needed for ongoing refinement of retail flow management (“RFM”). Total debt at September 30, 2018, including capital lease obligations and notes payable, was $1,864 million. The Company’s debt-to-total capital ratio was 67 percent at September 30, 2018 compared to 51 percent at September 30, 2017. Cash and cash equivalents were $183 million at September 30, 2018, up from $132 million at September 30, 2017.
Share Buyback Activity: During the third quarter of 2018, the Company repurchased 507,000 shares of its common stock for $55 million. Year-to-date through September 30, 2018, the Company has repurchased 2,069,000 shares of its common stock for $247 million. As of September 30, 2018, the Company has authorization from its Board of Directors to repurchase up to an additional 4.4 million shares of Polaris common stock.
2018 Business Outlook
The Company is maintaining its adjusted sales and earnings guidance for the full year 2018. Adjusted sales are expected to increase in the range of 11 percent to 12 percent over 2017 adjusted sales of $5,428 million and adjusted net income is expected to be in the range of $6.48 to $6.58 per diluted share for the full year 2018 compared to adjusted net income of $5.10 per diluted share for 2017. The Company is maintaining its current sales and earnings per share guidance ranges given the fluid nature of tariffs and the potential impact of trade negotiations and a more difficult motorcycle environment, which is impacting growth and profitability for that segment. The full year earnings guidance includes approximately $40 million of tariff cost increases before counter-measures, as the Company understands them today.
Non-GAAP Financial Measures
This press release and our related earnings call contain certain non-GAAP financial measures, consisting of “adjusted” sales, gross profit, income before taxes, net income and net income per diluted share as measures of our operating performance. Management believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations and how management views the business. Reconciliations of adjusted non-GAAP measures to reported GAAP measures are included in the financial schedules contained in this press release. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.
Investor Conference Call
Third Quarter 2018 Earnings Conference Call and Webcast Presentation
Today at 10:00 AM (CDT) Polaris Industries Inc. will host a conference call and webcast to discuss the 2018 third quarter results released this morning. The call will be hosted by Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President – Finance and CFO. A slide presentation and link to the webcast will be posted on the Polaris Investor Relations website at ir.polaris.com. To listen to the conference call by phone, dial 1-877-883-0383 in the U.S., or 1-412-902-6506 internationally. The Conference ID is 1886245. A replay of the conference call will be available by accessing the same link on our website.
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||
(In Thousands, Except Per Share Data) (Unaudited) | |||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Sales | $ | 1,651,415 | $ | 1,478,726 | $ | 4,451,420 | $ | 3,997,428 | |||||||||||
Cost of sales | 1,250,145 | 1,114,764 | 3,341,493 | 3,040,589 | |||||||||||||||
Gross profit | 401,270 | 363,962 | 1,109,927 | 956,839 | |||||||||||||||
Operating expenses: | |||||||||||||||||||
Selling and marketing | 128,929 | 122,642 | 369,495 | 355,486 | |||||||||||||||
Research and development | 64,181 | 63,129 | 197,741 | 175,887 | |||||||||||||||
General and administrative | 90,639 | 79,421 | 262,206 | 245,998 | |||||||||||||||
Total operating expenses | 283,749 | 265,192 | 829,442 | 777,371 | |||||||||||||||
Income from financial services | 21,348 | 18,138 | 64,117 | 57,711 | |||||||||||||||
Operating income | 138,869 | 116,908 | 344,602 | 237,179 | |||||||||||||||
Non-operating expense: | |||||||||||||||||||
Interest expense | 19,823 | 8,492 | 37,087 | 24,438 | |||||||||||||||
Equity in loss of other affiliates | 111 | 1,603 | 25,576 | 4,839 | |||||||||||||||
Other expense (income), net | (4,124 | ) | (2,368 | ) | (27,660 | ) | 7,088 | ||||||||||||
Income before income taxes | 123,059 | 109,181 | 309,599 | 200,814 | |||||||||||||||
Provision for income taxes | 27,530 | 27,293 | 65,816 | 59,796 | |||||||||||||||
Net income | $ | 95,529 | $ | 81,888 | $ | 243,783 | $ | 141,018 | |||||||||||
Net income per share: | |||||||||||||||||||
Basic | $ | 1.54 | $ | 1.31 | $ | 3.88 | $ | 2.24 | |||||||||||
Diluted | $ | 1.50 | $ | 1.28 | $ | 3.78 | $ | 2.21 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||||||
Basic | 62,207 | 62,646 | 62,894 | 62,890 | |||||||||||||||
Diluted | 63,546 | 63,885 | 64,550 | 63,942 | |||||||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||
(In Thousands), (Unaudited) | |||||||||
September 30, | September 30, | ||||||||
2018 | 2017 | ||||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 183,411 | $ | 132,260 | |||||
Trade receivables, net | 217,694 | 184,074 | |||||||
Inventories, net | 1,019,517 | 841,922 | |||||||
Prepaid expenses and other | 105,066 | 80,859 | |||||||
Income taxes receivable | 5,865 | 9,535 | |||||||
Total current assets | 1,531,553 | 1,248,650 | |||||||
Property and equipment, net | 807,511 | 735,441 | |||||||
Investment in finance affiliate | 88,790 | 70,910 | |||||||
Deferred tax assets | 116,447 | 191,287 | |||||||
Goodwill and other intangible assets, net | 1,515,431 | 784,616 | |||||||
Other long-term assets | 88,299 | 102,162 | |||||||
Total assets | $ | 4,148,031 | $ | 3,133,066 | |||||
Liabilities and Shareholders’ Equity | |||||||||
Current Liabilities: | |||||||||
Current portion of debt, capital lease obligations and notes payable | $ | 66,595 | $ | 27,835 | |||||
Accounts payable | 436,401 | 385,858 | |||||||
Accrued expenses: | |||||||||
Compensation | 160,033 | 148,280 | |||||||
Warranties | 122,544 | 112,085 | |||||||
Sales promotions and incentives | 187,307 | 192,568 | |||||||
Dealer holdback | 124,259 | 117,934 | |||||||
Other | 179,738 | 183,030 | |||||||
Income taxes payable | 8,963 | 27,448 | |||||||
Total current liabilities | 1,285,840 | 1,195,038 | |||||||
Long term income taxes payable | 26,805 | 22,036 | |||||||
Capital lease obligations | 16,712 | 18,451 | |||||||
Long-term debt | 1,781,020 | 873,698 | |||||||
Deferred tax liabilities | 7,054 | 9,366 | |||||||
Other long-term liabilities | 122,728 | 107,182 | |||||||
Total liabilities | $ | 3,240,159 | $ | 2,225,771 | |||||
Deferred compensation | 9,620 | 11,331 | |||||||
Shareholders’ equity: | |||||||||
Total shareholders’ equity | 898,252 | 895,964 | |||||||
Total liabilities and shareholders’ equity | $ | 4,148,031 | $ | 3,133,066 | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(In Thousands), (Unaudited) | ||||||||||
Nine months ended September 30, | ||||||||||
2018 | 2017 | |||||||||
Operating Activities: | ||||||||||
Net income | $ | 243,783 | $ | 141,018 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 155,910 | 138,105 | ||||||||
Noncash compensation | 43,219 | 34,249 | ||||||||
Noncash income from financial services | (22,232 | ) | (20,131 | ) | ||||||
Deferred income taxes | (4,171 | ) | (2,703 | ) | ||||||
Impairment charges | 21,716 | 25,395 | ||||||||
Other, net | (9,618 | ) | 4,839 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Trade receivables | (991 | ) | (447 | ) | ||||||
Inventories | (201,229 | ) | (83,621 | ) | ||||||
Accounts payable | 90,842 | 108,198 | ||||||||
Accrued expenses | 1,620 | 80,949 | ||||||||
Income taxes payable/receivable | 28,715 | 62,336 | ||||||||
Prepaid expenses and others, net | 6,574 | 8,908 | ||||||||
Net cash provided by operating activities | 354,138 | 497,095 | ||||||||
Investing Activities: | ||||||||||
Purchase of property and equipment | (157,763 | ) | (126,647 | ) | ||||||
Investment in finance affiliate, net | 22,207 | 43,230 | ||||||||
Investment in other affiliates, net | 7,366 | (7,110 | ) | |||||||
Acquisition and disposal of businesses, net of cash acquired | (729,925 | ) | 1,645 | |||||||
Net cash used for investing activities | (858,115 | ) | (88,882 | ) | ||||||
Financing Activities: | ||||||||||
Borrowings under debt arrangements / capital lease obligations | 2,845,688 | 1,623,577 | ||||||||
Repayments under debt arrangements / capital lease obligations | (1,970,701 | ) | (1,850,247 | ) | ||||||
Repurchase and retirement of common shares | (246,931 | ) | (88,877 | ) | ||||||
Cash dividends to shareholders | (112,748 | ) | (108,923 | ) | ||||||
Proceeds from stock issuances under employee plans | 47,158 | 14,226 | ||||||||
Net cash provided by (used for) financing activities | 562,466 | (410,244 | ) | |||||||
Impact of currency exchange rates on cash balances | (5,904 | ) | 9,597 | |||||||
Net increase in cash, cash equivalents and restricted cash | 52,585 | 7,566 | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 161,618 | 145,170 | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 214,203 | $ | 152,736 | ||||||
Cash, cash equivalents and restricted cash by category: | ||||||||||
Cash and cash equivalents | $ | 183,411 | $ | 132,260 | ||||||
Other long-term assets | 30,792 | 20,476 | ||||||||
Total | $ | 214,203 | $ | 152,736 | ||||||
NON-GAAP RECONCILIATION OF RESULTS | |||||||||||||||||||
(In Thousands, Except Per Share Data), (Unaudited) | |||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Sales | $ | 1,651,415 | $ | 1,478,726 | $ | 4,451,420 | $ | 3,997,428 | |||||||||||
Victory wind down (1) | 1,055 | 1,560 | 1,304 | 507 | |||||||||||||||
Restructuring & realignment (3) | 660 | — | 2,789 | — | |||||||||||||||
Adjusted sales | 1,653,130 | 1,480,286 | 4,455,513 | 3,997,935 | |||||||||||||||
Gross profit | 401,270 | 363,962 | 1,109,927 | 956,839 | |||||||||||||||
Victory wind down (1) | 1,239 | 7,555 | 417 | 54,970 | |||||||||||||||
Acquisition-related costs (2) | 3,130 | — | 3,130 | 12,950 | |||||||||||||||
Restructuring & realignment (3) | 4,128 | 6,214 | 15,965 | 10,517 | |||||||||||||||
Adjusted gross profit | 409,767 | 377,731 | 1,129,439 | 1,035,276 | |||||||||||||||
Income (loss) before taxes | 123,059 | 109,181 | 309,599 | 200,814 | |||||||||||||||
Victory wind down (1) | 1,514 | 8,809 | 1,757 | 77,240 | |||||||||||||||
Acquisition-related costs (2) | 8,989 | 3,492 | 16,798 | 23,459 | |||||||||||||||
Restructuring & realignment (3) | 4,671 | 6,214 | 22,564 | 10,517 | |||||||||||||||
EPPL impairment (5) | — | — | 23,447 | — | |||||||||||||||
Brammo (6) | — | — | (13,478 | ) | — | ||||||||||||||
Intangible amortization (7) | 10,403 | 6,344 | 22,591 | 18,772 | |||||||||||||||
Other expenses (4) | 3,288 | — | 5,010 | — | |||||||||||||||
Adjusted income before taxes | 151,924 | 134,040 | 388,288 | 330,802 | |||||||||||||||
Net income | 95,529 | 81,888 | 243,783 | 141,018 | |||||||||||||||
Victory wind down (1) | 1,154 | 5,537 | 1,339 | 53,378 | |||||||||||||||
Acquisition-related costs (2) | 6,848 | 2,195 | 12,799 | 14,746 | |||||||||||||||
Restructuring & realignment (3) | 3,559 | 3,906 | 17,192 | 6,611 | |||||||||||||||
EPPL impairment (5) | — | — | 22,325 | — | |||||||||||||||
Brammo (6) | — | — | (13,113 | ) | — | ||||||||||||||
Intangible amortization (7) | 7,763 | 4,030 | 16,708 | 11,933 | |||||||||||||||
Other expenses (4) | 3,073 | — | 5,110 | — | |||||||||||||||
Adjusted net income (8) | 117,926 | 97,556 | 306,143 | 227,686 | |||||||||||||||
Diluted EPS | $ | 1.50 | $ | 1.28 | $ | 3.78 | $ | 2.21 | |||||||||||
Victory wind down (1) | 0.02 | 0.09 | 0.02 | 0.83 | |||||||||||||||
Acquisition-related costs (2) | 0.11 | 0.03 | 0.20 | 0.23 | |||||||||||||||
Restructuring & realignment (3) | 0.06 | 0.06 | 0.26 | 0.10 | |||||||||||||||
EPPL impairment (5) | — | — | 0.34 | — | |||||||||||||||
Brammo (6) | — | — | (0.20 | ) | — | ||||||||||||||
Intangible amortization (7) | 0.12 | 0.06 | 0.26 | 0.19 | |||||||||||||||
Other expenses (4) | 0.05 | — | 0.08 | — | |||||||||||||||
Adjusted EPS (8) | $ | 1.86 | $ | 1.52 | $ | 4.74 | $ | 3.56 | |||||||||||
(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel | |||||||||||||||||||
(2) Represents adjustments for integration and acquisition-related expenses and purchase accounting adjustments | |||||||||||||||||||
(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation | |||||||||||||||||||
(4) Represents adjustments for the impacts of tax reform and non-recurring litigation expenses | |||||||||||||||||||
(5) Represents adjustments for the impairment of the Company’s equity investment in Eicher-Polaris Private Limited (EPPL). This charge is included in Equity in loss of other affiliates (non-operating) on the Consolidated Statements of Income. | |||||||||||||||||||
(6) Represents a gain on the Company’s investment in Brammo, Inc. This gain is included in Other income (non-operating) on the Consolidated Statements of Income. | |||||||||||||||||||
(7) Represents amortization expense for acquisition-related intangible assets | |||||||||||||||||||
(8) The Company used its estimated statutory tax rate of 23.8% and 37.1% for the non-GAAP adjustments in 2018 and 2017, respectively, except for the non-deductible items and the tax reform related changes noted in Item 4 | |||||||||||||||||||
NON-GAAP RECONCILIATION OF SEGMENT RESULTS | ||||||||||||||||||||
(In Thousands), (Unaudited) | ||||||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
SEGMENT SALES |
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
ORV/Snow segment sales | $ | 1,035,554 | $ | 1,007,392 | $ | 2,858,959 | $ | 2,577,003 | ||||||||||||
Restructuring & realignment (3) | 660 | — | 2,789 | — | ||||||||||||||||
Adjusted ORV/Snow segment sales | 1,036,214 | 1,007,392 | 2,861,748 | 2,577,003 | ||||||||||||||||
Motorcycles segment sales | 155,316 | 155,059 | 458,285 | 473,345 | ||||||||||||||||
Victory wind down (1) | 1,055 | 1,560 | 1,304 | 507 | ||||||||||||||||
Adjusted Motorcycles segment sales | 156,371 | 156,619 | 459,589 | 473,852 | ||||||||||||||||
Global Adjacent Markets (GAM) segment sales | 96,251 | 91,575 | 322,996 | 280,152 | ||||||||||||||||
No adjustment | — | — | — | — | ||||||||||||||||
Adjusted GAM segment sales | 96,251 | 91,575 | 322,996 | 280,152 | ||||||||||||||||
Aftermarket segment sales | 229,973 | 224,700 | 676,859 | 666,928 | ||||||||||||||||
No adjustment | — | — | — | — | ||||||||||||||||
Adjusted Aftermarket sales | 229,973 | 224,700 | 676,859 | 666,928 | ||||||||||||||||
Boats segment sales | 134,321 | — | 134,321 | — | ||||||||||||||||
No adjustment | — | — | — | — | ||||||||||||||||
Adjusted Boats sales | 134,321 | — | 134,321 | — | ||||||||||||||||
Total sales | 1,651,415 | 1,478,726 | 4,451,420 | 3,997,428 | ||||||||||||||||
Total adjustments | 1,715 | 1,560 | 4,093 | 507 | ||||||||||||||||
Adjusted total sales | $ | 1,653,130 | $ | 1,480,286 | $ | 4,455,513 | $ | 3,997,935 | ||||||||||||
Three months ended | Nine months ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
SEGMENT GROSS PROFIT |
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
ORV/Snow segment gross profit | $ | 290,631 | $ | 296,904 | $ | 831,413 | $ | 776,013 | ||||||||||||
Restructuring & realignment (3) | 660 | — | 2,789 | — | ||||||||||||||||
Adjusted ORV/Snow segment gross profit | 291,291 | 296,904 | 834,202 | 776,013 | ||||||||||||||||
Motorcycles segment gross profit | 19,577 | 10,354 | 60,817 | 11,589 | ||||||||||||||||
Victory wind down (1) | 1,239 | 7,555 | 417 | 54,970 | ||||||||||||||||
Restructuring & realignment (3) | — | — | 1,185 | — | ||||||||||||||||
Adjusted Motorcycles segment gross profit | 20,816 | 17,909 | 62,419 | 66,559 | ||||||||||||||||
Global Adjacent Markets (GAM) segment gross profit | 24,155 | 15,983 | 83,520 | 65,297 | ||||||||||||||||
Restructuring & realignment (3) | 45 | 6,214 | 479 | 10,517 | ||||||||||||||||
Adjusted GAM segment gross profit | 24,200 | 22,197 | 83,999 | 75,814 | ||||||||||||||||
Aftermarket segment gross profit | 66,092 | 63,239 | 182,291 | 164,721 | ||||||||||||||||
Acquisition-related costs (2) | — | — | — | 12,950 | ||||||||||||||||
Adjusted Aftermarket segment gross profit | 66,092 | 63,239 | 182,291 | 177,671 | ||||||||||||||||
Boats segment gross profit | 20,253 | — | 20,253 | — | ||||||||||||||||
Acquisition-related costs (2) | 3,130 | — | 3,130 | — | ||||||||||||||||
Boats segment gross profit | 23,383 | — | 23,383 | — | ||||||||||||||||
Corporate segment gross profit | (19,438 | ) | (22,518 | ) | (68,367 | ) | (60,781 | ) | ||||||||||||
Restructuring & realignment (3) | 3,423 | — | 11,512 | — | ||||||||||||||||
Adjusted Corporate segment gross profit | (16,015 | ) | (22,518 | ) | (56,855 | ) | (60,781 | ) | ||||||||||||
Total gross profit | 401,270 | 363,962 | 1,109,927 | 956,839 | ||||||||||||||||
Total adjustments | 8,497 | 13,769 | 19,512 | 78,437 | ||||||||||||||||
Adjusted total gross profit | $ | 409,767 | $ | 377,731 | $ | 1,129,439 | $ | 1,035,276 | ||||||||||||
(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel | ||||||||||||||||||||
(2) Represents adjustments for integration expenses and purchase accounting adjustments | ||||||||||||||||||||
(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation |