BMO Capital Markets analyst Gerrick Johnson has provided Powersports Business with a research note following the Polaris Q2 earnings call this week.
“Polaris (PII) reported an astounding quarter that was almost incomprehensible just three months ago, with North American retail sales up +57%. Demand for family-based outdoor activities that are also socially distant has been very strong, and PII's products, owing to size, price, and function, fill this niche almost perfectly. The obvious question is whether this is as good as it gets and how long can it continue? New consumers suggest longer-term growth opportunities, but economic uncertainty also remains, threatening near-term trends. We rate shares Market Perform.
“PII reported 2Q20 adjusted EPS of $1.30, much better our $0.33 estimate and consensus of $0.63, though below $1.73 reported in 2Q19. Revenue declined -15% to $1.51 billion, ahead of our 1.24 billion (-31%) estimate and consensus of $1.37 billion (-23%), and better than guidance for revenue to decline -25% to -30%.
“PII's North American retail sales jumped +57% in the quarter, better than our expectation of +30% growth, as well as investors who we think had expectations higher than ours. We had thought inventory shortages could have resulted in growth of about half the actual rate.
“ORV retail was up over 60%, with both SxS and ATV sales “up strong.” Management commented that 75% of 2Q sales were to customers new to the brand—a potentially positive catalyst for the longer term. July retail was called out as above expectations and “very, very strong,” and we think likely still over 50%. Lack of inventory, though, may be preventing sales from being better.
“North American dealer inventory decreased -47%. Management sounded incredibly confident about its ability to manage the inventory shortage, though it expects year-end dealer inventory levels will still be down substantially.
“PII re-initiated 2020 guidance and now expects adjusted EPS of $6.40-6.60 with a sales range of $6.65 billion to $6.75 billion. This implies 6% to 9% revenue growth in the back half. On a segment basis ORV/Snow and Boats are expected to see sales increases in 2H20, while the remaining segments are expected to see declines.
“Given inventory shortages and the upcoming election, management is choosing to be more cautious with its guidance, noting it expects flattish retail sales in 2H20 with 3Q20 still positive but 4Q20 turning negative.”
— Dave McMahon, editor, dmcmahon at powersportsbusines.com