With Polaris reporting its first quarter 2022 results before the open on Tuesday, BMO Capital Markets analyst Gerrick Johnson has provided a research note to Powersports Business.
“We expect Polaris (PII) to report adjusted 1Q22 EPS of $1.62 (-30% y/y), below the consensus of $1.78 (-23%). We expect revenue to increase +5% to $2.06 billion, below the Street at $2.13 (+9%).
“Our checks and 1Q22 dealer survey indicate demand has remained solid, albeit limited by a lack of inventory. We think investor sentiment is extremely low given concern over macro headwinds, sustainability of demand, and ongoing supply chain issues. But we anticipate encouraging commentary from management and reiteration of guidance, which could provide a lift to shares.
“For 1Q22, we expect Off-Road segment sales will increase +5% y/y to $1.34 billion with ORV whole goods, specifically, up +13%. We expect On Road revenue to grow +29% to $295 million, with motorcycles up +14%; marine revenue to grow +1% to $190 million; and aftermarket sales to decline -2% to $230 million.
“We expect PII to report North American off-road vehicle (ORV) retail unit sales to be down -20% (+30% vs. 2019). While our most recent round of channel checks has indicted retail demand has remained solid, sales continue to be suppressed by a lack of inventory. Our 1Q22 BMO/Powersports Dealer Survey was much more positive, with 53% of Polaris dealers reported growth (average growth rate of -3%). We do not think demand in PII's core markets has been impacted much by inflation or the compression of family budgets (yet), though this will likely be an area of focus for investors.
“Our adjusted gross margin estimate calls for -340 bps of contraction to 21.3% from 24.7% owing mainly to higher input and logistics costs as well as inefficiencies from out-of-sequence production. With price increases, minimal promotions, and reduced floorplan support, we think gross margin could actually be one area of upside to our and consensus models. The consensus gross margin expectation is 21.2%.
“PII’s 2022 guidance calls for adjusted EPS of $10.10-10.40 (+11% to +14%) on sales of $9.215-9.455 billion (+12% to +15%). For 2022, we are estimating EPS of $10.15 (+11% y/y) on revenue of $9.35 billion (+14%), while consensus is for EPS of $10.23 (+12%) on revenue of $9.33 billion (+14%). Given increased macro uncertainty since issuing guidance, we think investors have become more skeptical of the company's guide, which is back-half weighted.”