Polaris Q4: Sales increase 24% year-over-year

Polaris has released its Q4 2020 financial and operational results, reporting an adjusted sales increase of 24% to $2.156 billion, with a full-year reported sales increase of 4% to $7.028 billion. The details of the full release can be found HERE, with the key points below.

Highlights for the quarter ending Dec. 31, 2020, include:

* Full year 2020 reported net income was $1.99 per diluted share; adjusted net income for the same period was $7.74 per diluted share, exceeding the high-end of previously issued guidance

* North American retail sales increased 28% for the quarter compared to last year led by strength in ORV, Motorcycles and Snow. Boats retail sales were also strong during the quarter.

* Gross profit margin for the fourth quarter was 25.5%, up 112 basis points over prior year. Adjusted gross profit margin was 25.6%, up 95 basis points versus last year primarily due to positive product mix and lower promotional costs, offset somewhat, by costs related to supplier constraints.

* Full year operating cash flow finished at a record $1.019 billion

* Polaris announced full year 2021 sales and adjusted earnings guidance with full year adjusted earnings in the range of $8.45 to $8.75 per diluted share and full year sales up in the range of $7,950 million to $8,150 million, an increase of 13% to 16%

CEO Commentary

“The Polaris team once again demonstrated its strength and agility to deliver a strong finish to an exceptionally unusual year. While 2020 brought many unforeseen challenges, we emerged from the abrupt shutdown of the global economy early in the year to leverage the surge in demand across the Powersports industry and outdoor recreation, growing full year adjusted sales and earnings 4% and 22%, respectively. Our highly innovative product line-up of ORVs, snowmobiles and boats brought in new customers and powersports enthusiasts to Polaris. Over the year, we introduced over 120 new products across our portfolio and over 900 new accessories in our PG&A business and Aftermarket segment, combined. While supply chain challenges remain front and center for Polaris and most of the industry as we enter 2021, the operational track record of our team gives me great confidence in our ability to navigate those constraints, rebuild dealer inventories, and continue to bring to market the highest quality, most innovative products and services in the powersports industry.” – Mike Speetzen, Interim Chief Executive Officer of Polaris Inc.

Gross Profit

Gross profit increased 30 percent to $550 million for the fourth quarter of 2020 from $423 million in the fourth quarter of 2019. Reported gross profit margin was 25.5 percent of sales for the fourth quarter of 2020, up 112 basis points compared to 24.4 percent of sales for the fourth quarter of 2019. The improvement in gross profits was primarily driven by positive product mix and lower promotional costs incurred during the quarter, offset somewhat by costs related to supplier constraints. Adjusted gross profit for the fourth quarter 2020 was $552 million, or 25.6 percent of adjusted sales compared to the fourth quarter of 2019 adjusted gross profit of $428 million, or 24.7 percent of sales. Adjusted gross profit for the fourth quarter of 2020 and 2019 excludes the negative impact of $2 million and $5 million of restructuring and realignment costs, respectively.

Operating Expenses

Operating expenses decreased one percent for the fourth quarter of 2020 to $304 million from $308 million in the same period in 2019. Operating expenses were lower due to decreased compensation expense related to the CEO departure, in addition to lower non-essential expenses driven by the Company’s ongoing cautionary approach to spending given the pandemic-generated economic uncertainty.

Product Segment Highlights

Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1,468 million for the fourth quarter of 2020, up 29 percent compared to $1,140 million for the fourth quarter of 2019 driven by broad based strength across ATV and side-by-side sales. PG&A sales for ORV and Snowmobiles combined increased 35 percent in the fourth quarter of 2020 compared to the fourth quarter last year. Gross profit increased 29 percent to $387 million in the fourth quarter of 2020, compared to $299 million in the fourth quarter of 2019. Gross profit percentage increased 11 basis points during the 2020 fourth quarter compared to the prior year due to strong retail demand, positive product mix and lower promotional and floor-plan financing costs offset somewhat, by higher logistical costs and plant inefficiencies from supply chain constraints.

ORV wholegood sales for the fourth quarter of 2020 increased 33 percent. Polaris North American ORV retail sales increased low-thirties percent for the quarter with side-by-side vehicles up high-thirties percent and ATV vehicles up high-teens percent. The North American ORV industry was up high-twenties percent compared to the fourth quarter last year.

Snowmobile wholegood sales in the fourth quarter of 2020 were $183 million, up four percent compared to $176 million in the fourth quarter last year. Polaris snowmobile retail sales were up low-twenties percent during the fourth quarter of 2020 compared to the prior year while North American industry retail was up mid-teens percent for the fourth quarter compared to the prior year.

Motorcycles segment sales, including PG&A, totaled $147 million, up 23 percent compared to the fourth quarter of 2019, driven primarily from increased sales of Slingshot and PG&A. Gross profit for the fourth quarter of 2020 was $1 million compared to a $5 million loss in the fourth quarter of 2019. The increase in gross profit margin was driven by improved quality driving lower warranty costs, along with a decrease in promotional costs offset somewhat, by negative product mix as more mid-sized vehicles were sold during the quarter and increased costs from supply chain constraints.

North American consumer retail sales for Indian Motorcycle increased low-thirties percent during the fourth quarter of 2020 in a weak mid to heavy-weight two-wheel motorcycle industry that was down mid-single digits percent. North American consumer retail sales for Polaris’ motorcycle segment, including both Indian Motorcycle and Slingshot, increased high-thirties percent during the fourth quarter of 2020, while the North American motorcycle industry retail sales for mid- to heavy-weight motorcycles including three-wheel vehicles, was down low-single digits percent in the fourth quarter of 2020.

Global Adjacent Markets segment sales, including PG&A, increased 18 percent to $142 million in the 2020 fourth quarter compared to $120 million in the 2019 fourth quarter driven by increases in demand in North America and EMEA. Gross profit increased 18 percent to $41 million or 29.0 percent of sales in the fourth quarter of 2020, compared to $35 million or 28.9 percent of sales in the fourth quarter of 2019. Gross profit percentage increased during the quarter primarily due to lower warranty and promotional costs.

Aftermarket segment sales of $238 million in the 2020 fourth quarter increased eight percent compared to $221 million in the 2019 fourth quarter. Transamerican Auto Parts (TAP) sales of $186 million in the fourth quarter of 2020 increased one percent compared to $185 million in the fourth quarter of 2019. The Company’s other aftermarket brands sales were up 45 percent compared to the fourth quarter of 2019. Gross profit increased 33 percent to $65 million or 27.4 percent of sales in the fourth quarter of 2020, compared to $49 million or 22.3 percent of sales in the fourth quarter of 2019.

Boats segment sales increased 20 percent to $162 million in the 2020 fourth quarter compared to $135 million in the 2019 fourth quarter, driven by strength from all three brands, Bennington, Godfrey and Hurricane. Gross profit increased 36 percent to $35 million or 21.5 percent of sales in the fourth quarter of 2020, compared to $26 million or 19.0 percent of sales in the fourth quarter of 2019 primarily due to increased volume offset somewhat, by costs related to supply chain driven plant inefficiencies.