Polaris Industries Inc. (PII -1.07%) announced second-quarter 2018 results on Wednesday before the market opened, highlighting the fruits of healthy retail demand, increasing market share, the completion of a large acquisition, and clarity on recent tariff concerns.

Still, with shares of the off-road vehicle (ORV) and motorcycle leader down modestly in early trading as of this writing, let's take a closer look at what Polaris accomplished over the past few months.

Polaris RZR Turbo kicking up dirt with two riders inside

IMAGE SOURCE: POLARIS INDUSTRIES.

Polaris Industries results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Growth

Sales*

$1.503 billion

$1.365 billion

10.1%

GAAP net income (loss)

$92.5 million

$62.0 million

 49.2%

GAAP earnings per diluted share

$1.43

$0.97

 47.4%

DATA SOURCE: POLARIS INDUSTRIES, *AS REPORTED. 

What happened with Polaris this quarter?

  • On an adjusted (non-GAAP) basis -- which notably excludes restructuring expenses, acquisition costs, as well as sales and other costs related to the wind-down of Victory Motorcycles -- net income increased 47.1% year over year to $114.6 million, or $1.77 per share. Adjusted sales grew 11% year over year to $1.505 billion.
  • These results easily exceeded expectations for adjusted earning of $1.62 per share on revenue of $1.45 billion.
  • Parts, garments, and accessories (PG&A) revenue (excluding aftermarket segment sales) grew 11% driven by growth in all segments, regions, and product lines.
  • International sales (including PG&A) increased 7% (or 3% at constant currency) to $204 million, led by strong demand in the EMEA region for both ORVs and motorcycles.
  • ORV and snowmobile sales increased 17% year over year to $991 million. ORV and snowmobile PG&A sales grew 13%.
    • Within that total, ORV wholegood sales grew 18%, thanks to strong RANGER, RZR, and ATV shipments. For perspective, Polaris North American OV retail sales increased in the mid-single-digit percent range, outpacing roughly flat sales for the broader ORV industry.
    • Snowmobile wholegood sales fell to $4 million from $7 million last year in the seasonally slow quarter.
  • Motorcycle sales fell 13% year over year to $171 million, driven by a combination of shipment timing and weakness in the broader motorcycle industry.
  • Global adjacent market sales increased 17% to $113 million, helped by higher Goupil and Commercial/Government/Defense business product sales within the segment.
  • Aftermarket segment sales grew 1% to $227 million, as a slight increase from Transamerican Auto Parts (to $210 million) was mostly offset by lower accessory sales related to the delayed availability of the new Jeep Wrangler.
  • On July 2, 2018, Polaris completed its $805 million acquisition of Boat Holdings, LLC, the country's largest manufacturer of pontoon boats.

What management had to say

Polaris CEO Scott Wine said:

With solid retail growth and market share gains in both our Off-Road Vehicle business and Indian Motorcycles, we are clearly reaping the benefits of our safety and quality investments, new product innovations and improved delivery performance. Consumer sentiment and dealer traffic improved throughout the Quarter, building momentum which will help offset the rising risk of tariffs in the 2nd half. [...] Between organic growth and considered acquisitions, Polaris' underlying performance has significantly improved, but much of our success is being masked by substantial cost escalation driven by tariffs and commodities. As we navigate through increasingly dynamic markets, our efforts to enhance product quality and innovation, boost productivity and become a more customer centric company are paying off, and Polaris is well-positioned for further success.

Looking forward

Given the acquisition of Boat Holdings and accounting for an estimates $50 million of escalating tariff and commodity cost increases, Polaris now expects adjusted sales growth in the range of 11% to 12% over 2017 and adjusted net income per share of $6.48 to $6.58. By comparison, most investors were modeling earnings of $6.53 per share -- or right at the midpoint of Polaris' new guidance -- on top-line growth near the low end of that range.

In the end, while today's slight decline may not indicate as much -- and noting shares were already up almost 30% in the year leading up to this report -- I think this was as solid a quarter as Polaris investors could have hoped to see.