Why Polaris Industries Inc.'s Core Is Still Growing

Polaris's non-core business segments have grown rapidly, but that hasn't slowed down off-road vehicle innovation.

Feb 10, 2014 at 8:02PM

Polaris (NYSE:PII) recently reported high growth in non-core businesses, such as its motorcycle and its parts, garments, and accessories, or PG&A, divisions, which saw sales grow 94% and 33%, respectively. While these segments are important for the company's future, Polaris' off-road vehicles, or ORV, division still brings in roughly 60.8% of the company's revenue. With the segment's revenue growing 16% to $659.1 million in the company's fourth quarter of 2013, Polaris is still working to maintain its lead over competitor Arctic Cat (NASDAQ:ACAT).

Off-roading in 2013
According to Polaris, most of the growth in OVR can be attributed to consumer enthusiasm about its new ATVs and side-by-side vehicles introduced in the second half of the company's 2013 fiscal year.

The company gained market share in ATVs with the help of products from model year 2014, including the Sportsman 570 and the Scrambler 1000. The company's North American retail sales for ATVs were up mid-single digits amid an industry that remained flat. This growth might be above the industry average, but it's also lower than Arctic Cat's, which saw North American ATV retail sales increase by 15% during its most recent quarter.

Polaris's side-by-side sales also grew in the low-double digits for 2013 which slightly outpaced a market that grew 10%. The company gained market share in this segment, but it was less than previous years. Retail sales of Arctic Cat's new Wildcat line up are up 38% for the year and drove side-by-side sales.

Arctic Cat might have recently experienced positive retail sales results, but its gross margin took a hit due to ATV product mix and a new partnership with Yamaha. 

PII Gross Profit Margin (Quarterly) Chart

PII Gross Profit Margin (Quarterly) data by YCharts

So while Arctic Cat's sales are increasing, Polaris retains more of its revenue.

Moving forward
Despite increasing competition form Arctic Cat's ORVs, Polaris is optimistic for the year ahead. So far, 2014 models are selling well, driven by the new RZR XP 1000, the fastest-selling side-by-side in the company's history. In addition, the new Sportsman 570 ATV and four seat RANGER Crews have shown positive sales growth moving further into the year.

Polaris is still at the top of the North American ATV industry and has solid growth for side-by-sides, but the company has also created a new ORV segment.

Polaris recently announced the Sportsman ACE, an ORV that combines the handling and power found in ATVs with the security of a side-by-side to create a ride-in, single-seat vehicle designed to attract newer, less experienced riders to the off-roading industry. The new ORV comes with a suggested retail price of $7,499 and is currently expected to produce margins that are comparable to ATVs. With the launch comes some worry of cannibalization but, according to COO Bennett Morgan, "[We're] expecting some [cannibalization], but frankly, less than most of our products that we launched."

The core is still strong
With Polaris' new Indian motorcycle line and fast growing PG&A division the company is developing a diverse line of products to help it achieve its goal of growing yearly sales to $8 billion by 2020. But even with these new segments, most of the company's revenue comes from ORVs. With the 2014 models' early success, and with the introduction of the Sportsman ACE, it looks as though Polaris' ORV segment is in a position have significant growth during 2014.

Don't miss 2014's best stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers