Supply chain issues for Polaris aside, BMO Capital Markets analyst Gerrick Johnson is ‘bullish’ on Polaris, according to a research note provided to Powersports Business.
Here’s Johnson’s comment:
“Supply chain dominated Polaris' (PII) 3Q21 results, negatively impacting retail performance and also tempering 2021 guidance. Coming into the quarter, the prevailing concern was over the sustainability of demand, followed by the ability (or inability) to adequately supply current demand. Neither concern was addressed this quarter, with near-term visibility even more muddied. While supply chain and inflation issues could dog the company over the next few quarters, we remain bullish owing to the ongoing consumer trend towards outdoor recreation. We would use today's pullback as a buying opportunity.
“Polaris reported 3Q21 adjusted EPS of $1.98, better than our $1.87 estimate and consensus of $1.96, but down from adjusted EPS of $2.85 in 3Q20. 3Q21 revenue was flat y/y at $1.96 billion, below our estimate for $2.1 billion (+7%) and the consensus of $2.13 billion (+9%).
“Polaris’ North American retail sales declined -24% in the quarter (vs. a +15% comp), trailing our -20% estimate, but a bit better than the industry which was down in the mid-20% range; retail declined -13% compared to 2019. ORV retail declined in the mid-20% range, with SxS down mid-20% and ATV -20%. Polaris slightly outperformed the industry, which is down in the high-20% range. Management commentary around recent retail trends remains positive with demand remaining “very strong” particularly for premium models.
“North American dealer inventory was down -46% y/y at quarter-end (ORV -40%, motorcycle -50%, snowmobile -50%) and -75% vs. 2019 (ORV -80%, motorcycle -70%, snowmobile -60%). Dealer inventories will remain lean through 2022.
“Supply chain bottlenecks and inflation continue to be the biggest issues for Polaris. Costs related to supply chain disruptions are 5x higher than expected at the start of the year, which amounts to a $300 million incremental headwind this year. PII expects supply chain headwinds will continue into 2022 and has implemented another round of price increases to help mitigate the pressure. Price increases have stuck according to our research, with 80% of dealers saying higher prices had no impact on their customers.
“PII’s updated 2021 guidance calls for adjusted EPS of $9.00 (+16%) on sales of $8.15 billion (+16%). Prior guidance was for adjusted EPS of $9.35–9.60 (+21% to +24%) on sales of $8.375 to $8.5 billion (+19% to +21%).”