Polaris Industries (PII 0.93%) cruised slowly past both revenue and earnings estimates when it released its fourth-quarter and full-year 2013 results before the market open today. Shares, however, opened down about 6% before partially recovering to end the day down 2.5%, as the company issued 2014 revenue and earnings forecasts below consensus estimates.

Polaris was the second main player in the broad powersports industry to report quarterly earnings. Arctic Cat (ACAT), a main competitor in the snowmobile and off-road vehicle spaces, announced results last Thursday that majorly missed the mark, and shares were pummeled by about 18% on Thursday and Friday in the aftermath. Motorcycle powerhouse Harley-Davidson (HOG 2.50%) is scheduled to report on Thursday.

Powering into Polaris' quarterly numbers  
First, the highlights, before we dig deeper:

  • Revenue increased 20% to $1.08 billion, slightly beating the consensus estimate of $1.06 billion.
  • Earnings per share increased 26% to $1.56, inching past the consensus by $0.01.
  • International sales powered up 46% to $203.2 million, heavily because of the Aixam Mega acquisition, but also reflecting solid organic growth.
  • Margins increased across the board, with gross, operating, and profit margins increasing 110 basis points to 29.3%, 60 basis points to 15.6%, and 20 basis points to 10%, respectively.
  • 2014 guidance was set with EPS in the range of $6.17-6.37 versus the consensus of $6.66, and revenue of $4.19-4.31 billion versus the consensus of $4.31 billion, representing year-over-year growth of 14.3%-18% and 11%-14%, respectively.

Here's how Polaris' revenue broke out in the quarter (keep in mind there is seasonality involved with snowmobile and motorcycle sales).

Data from Polaris' fourth-quarter earnings report.

Here's how each segment performed:

  • Off-road vehicles: up 16% to $659.1 million
  • Snowmobiles: down 13% to $134.9 million 
  • Motorcycles: up 94% to $68.8 million
  • Small vehicles: up 286% to $46.3 million
  • Parts, garments, and accessories: up 33% to $174.7 million

Indian sales rev up, while snowmobile sales cool down
Polaris posted strong numbers across the board with the exception of snowmobiles. Growth was entirely organic in all segments except small vehicles (which includes results from the Aixam Mega acquisition; Aixam Mega is a French quadricycle company) and parts, garments, and accessories (which benefited from the acquisition of Klim, a leader in technically advanced apparel and gear). However, both of these businesses also experienced solid organic growth.

Polaris' Indian motorcycle sales helped power the company's motorcycle revenue up 94%. While motorcycle sales -- which include the Indian and Victory lines -- comprise a small portion of Polaris' revenue, they're much more important than their percentage of revenue would suggest. In August, the company launched three 2014 Indian models, which are the first models Polaris has completely designed, engineered, and manufactured since its 2011 acquisition of Indian Motorcycles, America's first motorcycle company. Polaris is hoping that the iconic Indian brand paired with its engineering expertise will prove a winning combination as it competes with bike king Harley-Davidson. The fourth quarter was the first quarter in which the new Indian models -- which started shipping to dealers in mid-September -- were available for the full quarter.

Off-road vehicles -- which includes all-terrain vehicles and side-by-sides -- continue to show accelerating growth, with quarterly growth of 16% exceeding annual growth of 13%. International sales drove the ORV results, as they were up a very strong 24% versus the mid-single digits in North America. While Polaris gained market share in ATVs in the quarter, its share of the side-by-side market was flat, which it attributed to several competitors becoming "significantly more aggressive in product introductions and promotions" during the quarter. No doubt, one of those competitors is Arctic Cat, which experienced double-digit retail sales gains in its Wildcat line of side-by-sides, primarily driven by its new Wildcat X and Wildcat X Limited models.

Side-by-sides are the fastest-growing category of powersports vehicles, so Polaris, Arctic Cat, and other competitors have been rolling out new models. This space is likely to become increasingly competitive, so investors should closely monitor Polaris' ORV and, specifically, side-by-side, results going forward for both growth and margins.

The decrease in snowmobile sales was expected, as the company moved shipments to dealers up compared with last year to free up plant capacity. Of course, this inflated last quarter's snowmobile sales figures. It's best to look at the snowmobile selling season as a whole. Polaris' retail sales for the season-to-date (Dec. 31) period increased nearly 10%, whereas industry retail sales increased in the high-teens percent. Given snowmobiles are a very small part of Polaris' business -- 6% for the full year 2013 -- I don't view Polaris' lagging the industry growth rate as a concern. While competitor Arctic Cat has gained the most market share in the industry year-to-date in its 2014 fiscal year (which ends March 31), it has done so at the expense of its margins. 

Foolish final thoughts
Polaris issued a solid quarterly report, especially in light of the increasingly competitive environment in its product lines, most especially side-by-sides. Further, solid Indian motorcycle sales in the first full quarter they've been available should bode well for future results, especially since the new models continue to garner much praise from bike enthusiasts.

While Polaris' 2014 guidance of EPS growth in the range of 14.3%-18% failed to meet the Street's expectation of 23% growth, it's likely guidance was conservatively set. Polaris' management is surely well aware of what happens to a company's stock when a company -- especially one that regularly beats estimates -- fails to meet expectations, even slightly.

While investors should closely monitor Polaris' margins in the next couple of quarters, the company remains the best long-term investment in the broad powersports industry, in my opinion. It sports great metrics, solid diversification with respect to product line and customer type, and innovative and acquisition-savvy management. While Harley has been doing a good job coming back from its struggles during the recession, it's largely a one product company selling to consumers, and Arctic Cat, while possessing some attractive features, likely remains too erratic from a profitability standpoint for many investors.