With retailers in a severe funk, energy costs at record highs, and consumer confidence dwindling, it wasn't much of a surprise that Polaris Industries (NYSE:PII), a producer of recreational and utility vehicles, reported mixed third-quarter results and cut guidance for the fourth quarter.

Let's take a look at the bad news first. With guidance cut for the final quarter, full-year results are now expected to come in at between $3.24 and $3.29 per share, which is about 4% lower than what the company originally expected. Inventory levels leave reason for concern as well: The company's inventory balance increased 26% against only a 6% increase in sales. On the conference call, Polaris officials readily admitted that inventories are high and that they expect it to take a couple of quarters to work the stockpile back down again.

Polaris' earnings report does give investors a number of positives to consider, though. Sales and earnings from continuing operations for the third quarter were up versus last year by 6% and 11%, respectively, after removing an income tax benefit of $0.06 per share. For the year, sales and earnings should be up as well. In addition, the company's line of Victory Motorcycles continues to progress well, with 45% growth versus last year. The Victory sales are still just 3% of total sales, but that's up from 2% last year, and this is a business that the company started from scratch and that continues to show solid growth as the product line is expanded.

Over the past few years, Polaris has undergone a number of changes as well. In the past, the company was primarily a domestic entity that focused on snowmobiles and ATVs. In recent years, the company has augmented this lineup by expanding internationally, bringing more engine development and manufacturing in-house, adding an accessories business, and creating the aforementioned motorcycle business. The added diversity helps, but it also expands the number of competitors. Arctic Cat (NASDAQ:ACAT), Bombardier, Deere (NYSE:DE), and Honda (NYSE:HMC) were always competitors in the traditional businesses, but the company now adds Harley-Davidson (NYSE:HDI) to the roster of competitors; it competes to a greater extent with Honda now as well.

Despite all of the negatives and the soft outlook, I'm not entirely pessimistic about the company's prospects. The near term may be terrible, but the company's more diversified product line helps to mitigate some of those effects -- though, admittedly, not all. Polaris also has a good handle on its operating expenses, has been a consistent generator of cash, and sports a well-funded dividend that currently yields 2.5%. Now is probably not the right time to jump in, but if things remain soft or are slow to improve, an opportunity to start a position in Polaris at an attractive valuation may present itself in the next couple of quarters.

For more Polaris-related Foolishness, check out:

Mathew Emmert likes a good dividend-payer, too. Find out which ones are his favorites by taking a free trial of his Motley Fool Income Investor newsletter.

Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.