Polaris Industries (NYSE:PII) is apparently listening to what the market is saying. Earlier this month, it introduced a lineup of 2020 models of RZR side-by-sides and Sportsman ATVs, with the latter being discounted.
While consumers have shown a mixed attitude toward paying premium prices for many recreational vehicles and are beginning to gravitate to lower-cost models, Polaris was still able to see sales rise last quarter on the back of a 7% increase in selling prices. It has been a market leader in off-road vehicles for years, and if it applies the same strategic vision to its other powersports vehicle segments, it may see momentum accelerate.
Polaris will be reporting fourth-quarter and full-year earnings on Tuesday, and while the new products won't affect its results, let's see if the company applied any of these lessons earlier.
Tariffs should still cast a shadow
Trade tariffs are likely to play a big role in how its business performed in the quarter. The U.S. and China seemed to have stepped back from the ledge, but there is still tension percolating between the U.S. and Europe, though even there the two sides may have reached a detente.
Polaris has mitigated a lot of the tariff impact by moving production out of China where possible, along with dozens of other strategies. Last quarter, CEO Scott Wine said he was confident it had minimized the total full-year cost by $5 million, but the company was still hurt in the third quarter because of the production that remained in China.
It filed a tariff exemption request with the Trump administration to avoid import penalties, and if a cease-fire has been arranged with our trading partners in the meantime, the worst of it may be behind the company.
A winter wonderland
Polaris should also benefit from the fourth quarter naturally being one of its strongest for snowmobiles, but it will be going up against a strong performance in 2018 that was driven by its SnowCheck pre-order program, which lets buyers customize their snowmobiles. It's only possible during a narrow window in the spring, and has helped boost sales.
The company also generates substantial side-by-side and ATV sales in the fourth quarter. It introduced new RZR, Ranger, and General recreational and utility vehicles late in the third quarter, so it didn't get any benefit at retail at the time. That could be a very different case for the fourth quarter as consumers may be ready to splurge, and management forecasts that snowmobiles and off-road vehicles are expected to see sales grow by high-single-digit percentages.
They're somewhat similar businesses and are driven by many of the same economic factors. Both are stable now, and Polaris is far and away the leader, especially in side-by-sides, where it is three times larger than its nearest competitor. That kind of dominance will prevail, even in somewhat down markets.
Bikes and boats are still a problem
Yet much like last time around, the performance is likely going to be undermined by its motorcycle business and its new marine operations. Although the fourth quarter is seasonally slow anyway, the Indian motorcycle division has seen sales turn sharply worse in recent periods, and the boat business has yet to make waves.
The broader industries are weak for both, but Polaris sales have been worse than what's been seen generally. Certainly in motorcycles, it has a bit of a Harley-Davidson problem with Indian in that its bikes may be too big and too expensive.
Expect good things
Management did raise the low end of its full-year earnings guidance last quarter, setting a new range of between $6.20 and $6.30 per share. Revenue is forecast to climb 12% over 2018 to almost $6.1 billion.
Polaris isn't firing on all cylinders at the moment. But the holiday season is one of its strongest seasons for sales, and its results should reflect that.