Polaris Industries (NYSE:PII) announced third-quarter 2019 results early Tuesday that -- while technically mixed relative expectations -- helped allay investors' fears over the negative impact of tariffs and macro uncertainty on the off-road vehicle, motorcycle, and boat manufacturer's performance.
With shares up nearly 11% in response, let's dive in to better understand what Polaris accomplished over the past few months, as well as what investors can expect as 2019 comes to a close.
To start, here's how Polaris fared this quarter relative to the same year-ago period:
|Metric||Q3 2019||Q3 2018||Change|
|Sales||$1.772 billion||$1.651 billion||7.3%|
|GAAP net income (loss)||$88.4 million||$95.5 million||(7.4%)|
|GAAP earnings per diluted share||$1.42||$1.50||(5.3%)|
Investors should note those GAAP results incorporate the impact of unusual expenses related to restructuring or acquisitions. Adjusted for one-time items, Polaris' (non-GAAP) earnings arrived at $104 million, or $1.68 per share, down roughly 9.7% year over year from $1.86 per share in last year's particularly strong third quarter. For perspective, consensus estimates called for slightly higher revenue of $1.79 billion, but significantly lower adjusted earnings of $1.58 per share.
Within its top line, sales of parts, garments and accessories (PG&A) climbed 11% year over year, and sales outside of North America (including PG&A) grew 8% to $187 million.
By business segment, combined off-road vehicle (ORV) and snowmobile sales soared 11% to $1.152 billion, as modest declines in ATV sales were more than offset by a combination of low-single-digital percent growth in side-by-side vehicles, as well as the timing of pre-season snowmobile wholegood sales (up 53% to $106 million).
Meanwhile, Polaris' motorcycle sales fell 3% year over year, to $150 million, with declines from both its Indian and Slingshot brands. The drop was most pronounced in North America, where consumer retail sales of Polaris' motorcycles fell in the low-double-digit percent range. With tariffs costs and unfavorable price mix working against it, the motorcycle business saw gross profit plunge nearly 40% to $12 million.
Aftermarket segment sales mustered modest 3% growth, to $230 million, namely driven by a 2% bump in sales from Polaris' 2016 acquisition of Transamerican Auto Parts stores. Aftermarket gross profit dropped 6% to $62 million, again due to higher tariffs.
Next, at Polaris' global adjacent markets segment -- think specialized military and commercial ORVs, quadricycles, and electric vehicles -- sales grew a solid 18% to $114 million, led by strength in commercial, government, and defense sales, as well as increases from the "Polaris Adventures" ride and drive destination network. Segment profit grew 29%, to $31.1 million.
Finally, boats segment sales -- comprised of revenue from the acquisitions of Larson Boat Group earlier this year and Boat Holdings in mid-2018 -- fell 11% year over year to $119 million, due to what Polaris describes as "a slowing marine industry." That said, boats segment profit climbed 10% to $22.3 million, aided by favorable pricing and product mix.
The road ahead
Polaris Chairman and CEO Scott Wine lauded their revenue growth and expanded profit margins in spite of "mounting macroeconomic ambiguity," adding its RANGER/GENERAL and RZR-brand ORVs managed to continue driving growth "despite an increasingly competitive market."
Looking forward to the full year of 2019, Polaris also revised its guidance to call for revenue growth of roughly 12%, or near the lower end of the 12% to 13% target range management provide in July. But it also raised the lower end of its expected 2019 earnings range by $0.10 per share, resulting in a revised per-share earnings outlook of $6.20 to $6.30.
In the end, even in the face of macro concerns and steep competition, Polaris' relative durability in the third quarter gave bullish investors plenty of justification to drive shares well above the narrow range in which the stock has traded since early this year. So, barring a pronounced recession that might dampen the consumer spending on which Polaris relies, I suspect the stock has plenty of room to run even higher in the months ahead.