Please ensure Javascript is enabled for purposes of website accessibility

Polaris Q3 Earnings Raises Questions About Its Motorcycle Division

By Eric Brandt - Nov 5, 2019 at 8:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The core business is doing well, but its motorcycle segment is another story.

Polaris Industries (PII -2.41%) had an impressive showing in its Q3 results, released last week. Reported and adjusted sales were up 7%, North American UTV (utility task vehicle) sales were up low single digits, and the powersports company saw a 24.6% boost to its gross profit margin. Polaris is doing well with its bread-and-butter of off-road recreational vehicles like the RZR and Ranger lines, but there's one part of its business that was a bit of a dark spot on its Q3 earnings report: the motorcycles division.

A downshift in sales

I wouldn't blame you if you didn't know Polaris had a motorcycles division until today. But it does, and its performance has been a bit of a mixed bag lately. Polaris Motorcycles consists of two brands; Indian Motorcycle and the Polaris Slingshot. Indian Motorcycle boasts the title of America's first motorcycle company; the Polaris Slingshot is a three-wheeled open-air roadster that is classified in most states as an "autocycle" (which means you don't need a separate motorcycle license to drive it).

In Polaris' Q3 earnings report, motorcycle segment revenue was down 3%, which isn't a major change, but gross profit was down a considerable 39% compared to the same quarter in 2018. That's the biggest gross profit change of any Polaris segment this quarter, and it's a change in the wrong direction. Motorcycles is a fairly small part of Polaris' bottom line compared to off-road vehicles and snowmobiles -- only 2.7% of the company's total gross profits -- but the decline is big enough that it raises some questions about the viability of that part of Polaris' business.

Black Polaris Slingshot in motion.

Image source: Polaris.

So which brand is to blame for this poor performance: Indian or Slingshot? Both brands saw a decline in sales, and Polaris noted in its earnings report that Indian retail sales in North America were down "mid-teens percent" while the mid-to-heavy-weight two-wheel motorcycle industry as a whole was down "high-single digits percent." North American retail sales for the whole Polaris motorcycle segment (both Indian and Slingshot) was down "low-double digit" percent, but Polaris doesn't specify by what percentage Slingshot sales were down.

So an industry decline is partially to blame, but Indian performed worse than the industry average, despite a pretty fresh 2019 lineup. (2019 ushered in the all-new FTR1200 flat-track inspired motorcycle, plus a heavy refresh to the Chieftain touring bike and updates to the Scout lineup, like standard antilock brakes and a standard USB port on most Scout models.) Polaris also pointed to tariff costs and "negative mix" in explaining the big decrease in gross profit. That means Indian sells a lot of big, heavy, pricy motorcycles that just aren't really in style right now.

Signs of a trend?

If you look at how Polaris Motorcycles has been performing for the year, it's mixed but mostly bad. Q2 was a bright spot with a 15% increase in sales and a 9% boost in gross profit. This was partially thanks to the successful launch of the aforementioned FTR1200 motorcycle, but Polaris noted that some of Indian's success was offset by declines in Slingshot sales. Q1 was pretty ugly for the motorcycles segment, with results similar to Q3, but sales and gross profit were down even more. In Q1, there was a decline in Indian sales, but a steeper decline of Slingshot sales.

Do you see a pattern here? Indian Motorcycle has had a few wins this year and has been steadily growing in market share since Polaris bought and relaunched the brand in 2013. Indian has another potential win in the all-new Indian Challenger that was just unveiled on Tuesday as a competitor to Harley-Davidson's Road Glide, but with better performance (on paper) and similar pricing. Indian has said previously that it has more in store for the FTR1200 chassis and engine, which will likely mean a more diverse model range. Indian adventure bike, anyone?

The Slingshot, however, may have been a failed experiment. The vehicle is polarizing among motorcycle enthusiasts; it's a love-it-or-hate-it thing. Personally, I'm on the love-it side. I've had a good amount of Slingshot seat time and I think it's an absolute blast to drive (or ride?) at any speed, and I see the crazy aesthetic of the three-wheeler as a good thing. However, I have no intention of buying one, at least not any time soon. It's less practical than a regular convertible (these things have almost no storage space) while taking up much more garage space than a motorcycle, making it hard to justify spending at least $20,999 on one of these wild roadsters.

Unlike Slingshot, the Indian Motorcycle name is too valuable for Polaris to let go of. If Indian can survive a lull in the heavy motorcycle segment and keep innovating with exciting new products, it could continue gaining market share in a competitive segment. Indian is the second name that comes to mind when riders think of American motorcycles, and that's a good thing. Indian is the Burger King to Harley-Davidson's McDonald's. That's a strong position to be in.

The Slingshot, on the other hand? It could go away and few people would even notice. Sure, it's one of the only players in a very niche segment of three-wheeled roadsters at its respective price point, but so far in 2019, it has just been a drag on the Polaris Motorcycles segment and on the company's bottom line.

I like the Slingshot and I'm rooting for its success, but I'm not sure Polaris investors are as understanding or enthusiastic about it as I am.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Polaris Industries Inc. Stock Quote
Polaris Industries Inc.
$98.57 (-2.41%) $-2.43
Harley-Davidson, Inc. Stock Quote
Harley-Davidson, Inc.
$32.34 (-0.28%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.