As part of the Wells Fargo Securities Midwest Powersports Tour with investor, analyst Tim Conder met with Polaris CFO Mike Speetzen and provided a research note to Powersports Business. Wells Fargo Securities remains “bullish, acknowledging tariffs remain the primary overhang (largely reflected in the stock).”
Conder reports that “Can-Am is still viewed the best competitor followed by Honda and then Yamaha. Can-Am promotions lower from Q418, but likely to remain elevated with more difficult retail comps. Investors remain concerned about Can-Am ramping capacity, but we expect it'll likely be 3-5 years before fully utilized. We believe that while ORV promotions are a little elevated, the absolute elevation is potentially not as much as perceived by the Street with spending reallocated amongst products.
“Motorcycles. Middleweight opportunities with FTR, Adventure Touring, and Streetfighter segments appear to be the primary focus for motorcycle growth, along with some Heavyweight fill-in. Gross margin goal low-20%. We believe that Heavyweight industry promotions will remain aggressive and note that PII's Middleweight built-out will compete with a key part of HOG's new product strategy along with entrenched players BMW and Ducati.
“Slingshot. Anticipated automatic model will be key to Slingshot's viability.
“TAP. Very committed to, management believes business is now making a positive turn.
“Cost Savings. Management is confident in reaching 2022 margin objectives absent tariffs. $200MM strategic sourcing initiative benefits materializing, ramping through H219. LEAN/process improvements also yielding more consistent production, R&D peaking, normalized warranties to further improve.
“Tariffs. List 3 increase to 25% represents an incremental $80MM annualized gross impact. Tariffs would need to increase to 40% before it makes sense to move ~$90MM annual China spend given incremental $50MM-$60MM cost of next best supplier. Management has not yet quantified List 4 impact, but Lists 1 and 3 are PII's greatest exposure. We expect management to update tariff impact at worst by Q219 earnings.”