Investors should expect Polaris Industries' (NYSE:PII) boat business to make waves when the powersports vehicle manufacturer reports its third-quarter earnings next week.

The boating industry has been undergoing a buying surge during the pandemic, with sales soaring as consumers seek out options for recreation that also facilitate social distancing, but Polaris' sales jump may have been particularly sharp because of its decision to focus on one niche of the market.

Couples on pontoon boats waving to each other

Image source: Bennington.

Smooth sailing

The National Marine Manufacturers Association reported that boat-building revved up in July, as wholesale shipments doubled from the month before, and production hit 92% of the industry's pre-pandemic levels.

The industry trade group said that in July, retail sales of cruisers, freshwater fishing boats, pontoons, and tow boats reached their highest monthly totals since 2007.

  • Personal watercraft (PWC) wholesale shipments were up 271% in July compared to June
  • Outboard motorboats were up 7%
  • Jet boats were up 176%

Although powerboat sales slowed in August, with total sales down 13% sequentially, year-to-date sales remain elevated. PWCs were up 2%, pontoons rose 9% higher, and fishing boats jumped 10%.

An extended cruise

In the wake of that boat-buying frenzy, a number of analysts upgraded their outlooks for manufacturers including Brunswick (NYSE: BC), MarineMax (NYSE: HZO), Malibu Boats (NASDAQ: MBUU), and MasterCraft (NASDAQ: MCFT).

Riley & Sons told investors in a research note that its channel checks indicated post-Labor Day demand remained strong and suggested that the typical boat-selling season is likely to be extended.

JPMorgan agrees, believing all the buying has depleted inventory, which should drive higher restocking demand among dealers.

New boat registrations jumped during the first three months of the pandemic and they surged 14% year over year in August, with pontoons seeing the greatest increase at nearly 44%. Year to date, pontoons only lag behind PWCs in the total number of new boats registered.

That bodes well for Polaris, which dove headfirst into the pontoon boat business with its 2018 acquisition of Boat Holdings and its subsequent purchase of Larson Boats last year.

The sweet spot of boating

The pontoon boat market was a smart segment for Polaris Industries to get into because of the boat's versatility. Consumers appreciate them because they can be used for fishing, pleasure sailing, or parties, which was part of the original lure of the Boat Holdings acquisition. 

And though it has shut down the fishing boat business of the 100-year old Larson Boats, Polaris said it was maintaining its Bennington, Godfrey, and Hurricane lines, which are Larson's pontoon and deck boats.

Polaris' boat business suffered earlier in the year because of COVID-19; sales fell 28% in the second quarter to $132 million leading to a 54% decline in gross profits for the segment. That followed a 16% sales drop and an 18% decline in profits in the first quarter. Yet those months included the early stage of the pandemic, which is why the third quarter report could swamp expectations.

Taking to the high seas

Boat Holdings was the pontoon industry's leading manufacturer with a 26% share of the market at the time, and the segment was one of the industry's largest and fastest-growing. The latest sales and registration data seems to confirm that is still the case.

While boats still account for a minor portion of Polaris Industries total sales -- less than 9% of second-quarter revenue -- the business has the potential to be a uniquely complementary piece of the company in its efforts to meet the needs of would-be powersports vehicle owners. 

It has been said a boat is a hole in the water that you dump money into. Polaris Industries third-quarter results should show that consumers were willing to dump their money into its boats.

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