Tuesday, 4 August 2020

Polaris 2020 Second Quarter Results - "Far Above Our Expectations

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Polaris 2020 Second Quarter Results - "Far Above Our Expectations"
Polaris has unveiled second quarter results that CFO Mike Speetzen described as nothing short of "far above our expectations" as the better than anticipated performance of the motorcycle and wider powersports markets during the pandemic lockdowns starts to translate into filings.

For Q2, the company's reported and adjusted sales decreased 15% to $1,512m and $1,510m, respectively. The company reported a second quarter 2020 net loss of $235m. Second quarter reported net loss was $3.82 per share; adjusted net income for the same period was $1.30 per share.
North American retail sales increased 57% for the quarter compared to last year, with both ORV and Motorcycle retail sales up significantly.
Dealer inventory levels decreased 47%, given the strong retail sales growth and lower shipments resulting from the COVID-19 related temporary suspension of production during the quarter.
 
consumer retail sales for Indian Motorcycle increased mid-teens percent

Evaluation of the company's aftermarket goodwill and other intangibles resulted in a pre-tax $379m non-cash impairment charge taken during the quarter. Operating expenses, excluding the impairment charge, decreased 15%, given the substantial reduction in discretionary and non-essential spending in response to the pandemic crisis.
Polaris' liquidity profile remains solid with debt/EBITDA below three times and total liquidity of $1.2bn at quarter end; Polaris re-initiated full year 2020 sales and adjusted earnings guidance with full year adjusted earnings in the range of $6.40 to $6.60 per diluted share and full year sales in the range of $6.650bn to $6.750bn.
Scott Wine, Chairman and Chief Executive Officer of Polaris Inc., stated: "Polaris' second quarter results significantly outperformed expectations, once again demonstrating the resiliency and dedication of our global team. 



"We overcame a near complete shutdown of our dealers and the U.S. economy early in the quarter to capitalize on unprecedented retail demand for our motorcycles and off-road vehicles through May, June and now July. Our broad array of best-in-class products provided an attractive social distancing solution for both existing, and encouragingly, a wide range of new powersports customers.
"During the quarter, we navigated a level of uncertainty and unrest that is unparalleled in our nation's history, beginning with rapidly and successfully restarting our production facilities, while protecting the health and safety of our employees. And, importantly, following the death of George Floyd here in Minnesota, we united to do our part to bridge divides and drive meaningful change.
"From executive leadership to our production line employees, we are working under a shared goal of positively impacting our company and communities. Despite social turbulence and softness in our Adjacent Markets businesses, between ongoing strong consumer demand and historically low dealer inventory levels, we are well-positioned for the second half of the year." 


Polaris Chairman and CEO Scott Wine said: "We overcame a near complete shutdown of our dealers and the U.S. economy early in the quarter to capitalize on unprecedented retail demand for our motorcycles and off-road vehicles through May, June and July."

Retail demand accelerated throughout the quarter, benefiting company performance as both new and existing customers took advantage of off-road vehicles and motorcycles to enjoy the outdoors while maintaining social distancing etiquette, partially mitigating the COVID-19 driven economic slowdown.
Motorcycles segment sales, including PG&A, totaled $141m, down 28% compared to the second quarter of 2019, driven by decreased sales of both Indian Motorcycle and Slingshot. Polaris motorcycles segment sales were down driven by the COVID-19 related temporary suspension of production that impacted shipments primarily in April. Gross profit for the motorcycle sector for second quarter was $4m compared to $23m in the second quarter of 2019.
North American consumer retail sales for Indian Motorcycle increased mid-teens percent during the second quarter of 2020 in a weak mid to heavy-weight two-wheel motorcycle industry that was down high-teens percent.
North American consumer retail sales for Polaris' Motorcycles segment, including both Indian Motorcycle and Slingshot, increased low-twenties percent during the second quarter of 2020, while the North American motorcycle industry retail sales for mid to heavy-weight motorcycles, including three-wheel vehicles, was down high-teens percent in the second quarter of 2020.
 

"We couldn't be more pleased with the response to the class- leading Challenger."

Despite the strong retail sales, Polaris Motorcycles segment sales were down driven by COVID-19 related temporary suspension of production during the quarter.
The 2020 second quarter net loss includes a $379m pre-tax, non-cash goodwill and other intangible asset impairment charges related to the company's aftermarket business, principally Transamerican Auto Parts (TAP).
Gross profit decreased 24% to $333m for the second quarter; reported gross profit margin was 22.0% of sales.
Income from financial services was $25m for the second quarter of 2020, up 28% - primarily due to the strong North American retail sales demand during the quarter.
Off-Road Vehicles ("ORV") and Snowmobiles segment sales, including PG&A, totaled $953m for the second quarter of 2020, down 9% due to a decline in side-by-side sales. PG&A sales for ORV and Snowmobiles combined increased 17%; gross sector profit decreased 15% to $252m.
ORV wholegood sales for the second quarter of 2020 decreased 14%. Polaris North American ORV retail sales increased over 60% for the quarter, with both side-by-side vehicles and ATV vehicles up significantly. The North American ORV industry was up over 60% compared to the second quarter last year.
Snowmobile wholegood sales in the second quarter of 2020 were $12m compared to $16m in the second quarter last year.
Boats segment sales decreased 28% to $132m in the 2020 second quarter compared to $182m in the 2019 second quarter. Gross profit decreased 54% to $19m or 14.1% of sales in the second quarter of 2020, compared to $41m or 22.2% of sales in the second quarter of 2019.
2020 Business Outlook - The company re-initiated its sales and adjusted earnings guidance for the full year 2020. Adjusted net income is expected to be in the range of $6.40 to $6.60 per diluted share for the full year 2020 compared to adjusted net income of $6.32 per diluted share for 2019. Sales are now expected to be in the range of $6.650bn to $6.750bn, flat to down two percent compared to 2019 adjusted sales of $6,783m, due to the pandemic-driven plant shutdown in the second quarter 2020.

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