Polaris' Indian Motorcycles contributed to 23% growth at its motorcycle segment in Q2. IMAGE SOURCE: POLARIS INDUSTRIES.

Polaris Industries Inc. (NYSE:PII) reported second-quarter 2016 results Wednesday morning, and shares are up about 5% as of this writing. Given persistent headwinds still holding back its core markets, the motorcycle and off-road-vehicle specialist is rightly pleased with the latest leg of its journey. Let's dig deeper into Polaris' Q2 performance:

Polaris Industries results: The raw numbers


Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)


$1.131 billion

$1.124 billion


Net income

$71.2 million

$100.9 million


Earnings per share (diluted)





What happened with Polaris this quarter?

  • Polaris didn't offer specific revenue or earnings guidance last quarter, but these results were roughly in line with expectations.
  • Growth was fueled by a 5% year-over-year increase in international sales, to $170.5 million (including parts, garments, and accessories), and would have increased 7% had it not been for the negative effects of currency exchange rates.
  • North American retail sales fell 7% year over year, primarily due to weakness in off-road vehicles and a disruptive RZR recall.
  • Off-road vehicle (ORV) and snowmobile revenue fell 6% year over year, to $808.5 million.
    • Within that, ORV sales fell 6%, to $645.4 million, hurt by continued softness in North American oil markets and another difficult comp to the year-ago period.
    • Snowmobile sales dropped 55% year over year, primarily due to a shift in the timing of shipments -- keep in mind this is the off-season for snowmobiles.
  • Motorcycle segment revenue grew 23% year over year, to $231.3 million, driven by growth across all brands. 
    • North American consumer retail demand for Polaris motorcycles, including Victory, Indian Motorcycle, and Slingshot, increased in the mid-teens percent, while the broader motorcycle industry suffered a mid-single-digits percent decline.
    • Product availability for all brands was "adequate" as year-over-year paint capacity at Polaris' Spirit Lake, Iowa, motorcycle plant improved significantly.
  • Global adjacent markets (including government/military and work and transportation vehicles) grew 14% year over year, to $91 million.
    • Work and transportation wholegood sales increased 10% driven by continued strength at microcar manufacturer Aixam.
  • Parts, garments, and accessories sales (included in each of the above segments) rose 5% year over year.
  • Operating expenses increased 9% year over year, to $188 million, representing 16.6% of total revenue, slightly below the 10% increase forecast by management during last quarter's call. This increase was driven by higher research and development expenses (up 10%, to $45.6 million), and higher general and administrative expenses (up 24.3%, to $64.6 million) due to legal expenses and other costs related to product recalls. Selling and marketing expenses declined 2.3% year over year, to $77.8 million.
  • Cash from operations for the first six months of the year was $348.3 million, up from $89.9 million in the first half of 2015, with the increase driven by decreased working capital.
  • Debt, including capital lease obligations and notes payable, was $468.1 million at quarter's end, good for a debt-to-total-capital ratio of 34% (up from 31% this time last year). Cash and equivalents as of June 30, 2016, were $146.6 million, up from $118.8 million this time last year.
  • The company repurchased 652,000 shares of common stock for $58.9 million, leaving 8.7 million shares remaining under Polaris' repurchase authorization.

What management had to say 

Polaris CEO Scott Wine stated:

Our team's diligent and methodical execution drove a modest increase in second quarter sales despite a strong year-over-year sales comparison, a weaker retail sales environment, and product recalls. Our all-out assault on costs continued to make progress during the quarter, generating earnings that finished in-line with our updated guidance. As we move into the second half of the year, [...] we are redoubling our commitment to providing our consumers with the safest and most reliable vehicles in the industry while building a platform to return to profitable growth.

Looking forward 

Wine also teased Polaris will introduce several model-year 2017 products next week at its annual dealer meeting, including "vehicles that will significantly strengthen our line-up in areas where the competition has been the most intense."

Finally, given the latest visibility into current market conditions and expected increased warranty expenses, Polaris revised its guidance for full-year 2016 earnings per diluted share in the range of $6.00 to $6.30 (down from $6.20 to $6.80 previously), with sales in the range of down 2% to flat from 2015 (narrowed from previous guidance for down 2% to up 3%).

As it stands, this guidance assumes a roughly $0.30 per share negative impact to earnings from foreign exchange, all while Polaris aims to keep dealer inventory flat and successfully defend its market share in today's increasingly competitive power sports environment. If all goes as planned, and when these current market headwinds inevitably abate, Polaris should be set to emerge a stronger, leaner company for it. 

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