Polaris Industries' (NYSE:PII) investment in an all-new diesel-power version of its popular RZR all-terrain, side-by-side vehicle looks like it's already paying off. The powersport vehicle manufacturer announced last week that the Canadian military will acquire 36 MRZR-D utility vehicles and 12 tactical trailers for evaluation. Polaris says there is an option for up to 18 more MRZR-Ds and up to six more tactical trailers to be delivered under a contract awarded in June.
Going where ATVs haven't gone before
The MRZR-D is not your typical trail ATV, and not least because the public can't get its hands on one. These are military-issue-only vehicles, and they're powered by turbo-diesel engines, giving them greater range and more power than their gas-powered siblings.
Polaris has been providing the U.S. military with MRZRs since 2013, and was awarded an $83 million five-year, indefinite-delivery, indefinite-quantity contract a year ago for its MRZR 2 and MRZR 4. However, the U.S. Special Operations Command has been looking for an improved version that would be transportable to forward-deployed troops via its CV-22 Osprey tiltrotor helicopter. While the ultralight MRZR helped the military in that capacity, it has some limitations, primarily its reliance upon gasoline, which may be in short supply or unavailable in the hot spots in which these vehicles are needed.
The diesel engine of the MRZR-D overcomes that hurdle, while also giving the vehicle more power and an extended range. It's also highly configurable, meaning end users can choose to carry more troops or handle enhanced litter duties by transporting additional gurneys. In addition to Ospreys, MRZR-Ds can also be transported via CH-47 Chinook or CH-53 Sea Stallion helicopters.
When it unveiled the new design earlier this year, Polaris anticipated it would prove just as attractive to foreign military forces as it would be to the U.S., and this contract from Canada seems to prove the point.
All the bells and whistles
According to Polaris, the Canadian Army will be getting an MRZR-D equipped with infrared lighting, a 4,500-pound winch, and other standard and tactical features. A tactical trailer provides an additional 1,000-pound payload. Both vehicles and trailers will be delivered to the light infantry battalions stationed at bases in Edmonton, Petawawa, and Valcartier, where they'll undergo user evaluations.
Although the MRZR-D will likely be going up against competing vehicles from defense-industry heavyweights like Boeing, General Dynamics, and Lockheed Martin, Polaris Industries has a competitive advantage in that its pedigree is as an off-road vehicle manufacturer, not a military contractor. Its vehicles have already gone through the crucible of years of testing and have proven popular and reliable.
Moreover, as a consumer-oriented powersport vehicle manufacturer, Polaris is adept at quickly implementing changes based on user feedback. The relatively quick turnaround on the MRZR-D indicates Polaris Industries' responsiveness, unlike the labyrinthine maze of changes presented by traditional military contractors.
Going on offense by playing defense
Military spending remains just a small component of Polaris Industries' business, included in its global adjacent markets segment, which also houses commercial utility vehicles. The whole segment reported less than $91 million in revenue in the second quarter, a 14% gain from last year, but still just 8% of Polaris' total $1.1 billion in quarterly revenues.
Motorcycles have been its big growth area in recent periods, but even that amounts to just 20% of the total. The bread-and-butter division remains its off-road vehicle segment, representing more than 70% of total sales.
Although the powersport vehicle maker is counting on the MRZR-D to help jump-start a growth spurt in military sales, thus far it has been getting traction with another of its military vehicles, the DAGOR, which is an "ultra light combat vehicle" (ULCV). Polaris noted that defense sales jumped 30% in the quarter as the DAGOR got more orders from Defense Department customers.
Still, as the MRZR-D goes through rigorous field evaluations at home and abroad, it could prove to be the vehicle that makes military procurement programs a bigger part of Polaris Industries' overall mission.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and 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.