Polaris Industries Inc. Zooms Past Expectations

Polaris RZR. Source: Flickr/Chris.

Polaris Industries (PII 0.99%) reported earnings on Wednesday and once again provided an adrenaline boost for long-term investors. Though the stock waffled in early trading, the press release revealed a company moving in the right direction: The maker of off-road vehicles and motorcycles beat analysts' expectations for the third quarter by delivering 18% sales growth and 26% earnings-per-share growth year over year.

With gains spread quite evenly across all of the major vehicle segments, Polaris looks poised to accelerate through the rest of 2014.

The nuts and bolts
The third quarter is typically strong for Polaris, and this one was no exception. Here are the highlights from top to bottom:

• Sales up 18% year over year to a record $1,302 million
• Net income up 20% to $141 million
• Earnings per share up 26% to $2.06

For perspective, analysts were expecting revenue of $1,280 million and earnings per share of $2.02.

Most impressive was Polaris' balanced growth across all of its product lines during the quarter. Year-over-year percentage sales increases were as follows in these categories:

Off-road vehicles were the driving force behind sales gains, making up 69% of overall product sales during the quarter. Meanwhile, the company continues to gain traction with its Indian brand motorcycles -- up nearly 30% -- and the U.S. snowmobile market is showing strength early on in the winter season.

Overall, strong sales growth bolstered the top line, while cost cuts through lean manufacturing efforts produced a fatter bottom line. For the third quarter, operating expenses as a percentage of sales decreased by 95 basis points, bringing operating income up to 17.1% of sales from 16.4% in the same period last year.

Expect Polaris to continue making investments in the area of lean manufacturing going forward: CEO Scott Wine discussed the addition of a new role of executive vice president of Operations, Engineering, and Lean to be spearheaded by Ken Pucel, an outsider who was brought on board from Boston Scientific earlier this month.

Revving up guidance
Polaris boosted its previous guidance levels for earnings per share from a range midpoint of $6.43 to a midpoint of $6.60. The company noted that the new range is particularly wide -- $6.55 to $6.65 -- at this point in the year due to uncertainty around research-and-development tax credits that have yet to be extended by the U.S. Congress in 2014.

Activity across the pond
While Polaris' domestic sales were strong across the board, international sales were mixed. On the whole, overseas sales were up 9% over the same period in 2013, driven mostly by gains in Asia-Pacific and Latin America versus a roughly flat European region. Due to poor snowfall in the Scandinavian and Russian regions last season, snowmobile sales have lagged in Europe. Currency pressures also weighed on gross margins and are expected to do so through the rest of the fiscal year.

Meanwhile, Polaris sees opportunity to enhance European sales and profitability down the road since it completed construction of a brand-new manufacturing facility in Opole, Poland. The company expects the first plant shipments to begin in the first quarter of 2015.

The takeaway for investors
So far, the Medina, Minnesota-based recreational vehicle maker has yet to veer off course in 2014: The latest quarter marks the fourth straight earnings beat in a row for Polaris. Given the robust growth in everything from side-by-sides to snowmobiles to motorcycles, investors have to admit this is one of those companies that is truly firing on all cylinders.