How Polaris Earnings Could Make Harley-Davidson and Arctic Cat Look Slow

Polaris Industries (NYSE: PII  ) will release its quarterly report on Tuesday, and the stock has been on a nearly non-stop run since early 2009, hitting new all-time highs repeatedly for the past three years. Polaris gets some competition from snowmobile-rival Arctic Cat (NASDAQ: ACAT  ) and motorcycle legend Harley-Davidson (NYSE: HOG  ) , but Polaris earnings appear poised to keep climbing as the company increasingly broadens its year-round appeal.

Polaris makes a wide array of products that range from military all-terrain vehicles to recreational snowmobiles and motorcycles. The huge amount of growth that Polaris has reaped from these areas has vaulted its stock to the upper echelons of the mid-cap stock universe, leading some to believe that Polaris could enter the S&P 500 in the near future. Yet to foster growth, the company has to stay ahead of the more focused Arctic Cat in its core snowmobile market while also challenging Harley-Davidson in its own turf. Let's take an early look at what's been happening with Polaris over the past quarter and what we're likely to see in its report.

Stats on Polaris

Analyst EPS Estimate

$1.61

Change From Year-Ago EPS

21%

Revenue Estimate

$1.05 billion

Change From Year-Ago Revenue

19%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Polaris earnings keep up their rapid growth pace?
Analysts have remained enthusiastic about Polaris earnings prospects in recent months, boosting third-quarter estimates by $0.04 per share and full-year 2013 projections by more than triple that amount. The stock has continued its long climb, rising more than 30% since mid-July.

Early in the quarter, Polaris demonstrated its success in holding Harley-Davidson and Arctic Cat at bay with its second-quarter report. The company posted a record second quarter, with a 12% jump in revenue creating 15% higher earnings. Moreover, Polaris boosted its full-year earnings guidance to a range of $5.20 to $5.30 per share, an increase of 2% to 3% from its previous estimate, which itself had been an upward revision. Snowmobile sales declined, as did revenue from motorcycles. But off-road vehicle and small-vehicle sales soared.

One potential problem in its fight against Harley-Davidson, though, came in August, when Polaris recalled several model years of its Kings Mountain-era Indian-brand motorcycle line. The company said that a potential motor-safety defect in its rear wheel rims could lead to tire-pressure loss, increasing the risk of crashing. The recall included some production from years prior to Polaris' acquisition of Indian Motorcycle, but it fortunately doesn't include the newly launched Indian Chief motorcycle line. Moreover, Harley-Davidson has had its own recall problems, preventing it from taking full advantage of Polaris' woes.

Polaris has also been smart about capitalizing on every opportunity it has for growth. Its new airless tires will help not only recreational users who don't want the inconvenience of flat tires but also military users who can't afford to suffer an incapacitating loss of tire pressure. Polaris believes that its defense business could generate quadruple the sales it currently does, and doing so would broaden its overall exposure around the world and potentially lead to more civilian purchases as well.

In the Polaris earnings report, watch closely to see how it's gearing up for the 2013-14 winter season. A return to more normal winter conditions this year could provide a much-needed boost to its snowmobile business, helping it hold back Arctic Cat and reassert its dominance throughout the year.

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