Bombs away! Tomorrow's the day that Polaris (NYSE:PII) investors have been waiting for. The maker of ATVs, motorcycles, and snowmobiles launches its latest round of earnings news (this time, for Q1 2006) tomorrow morning.
What analysts say:
- Buy, Sell, or Waffle? Ten analysts follow Polaris. Five of them think the stock's a buy, four a hold, and one a sell.
- Revenues. Quarterly sales are expected to decline 7% year over year, to $332.4 million.
- Earnings. Profits seem headed for a bigger slide, with analysts projecting a 38% decline to $0.26 per share.
What management says:
In early March, Polaris released an investor presentation, a copy of which was filed with the SEC. In it, management is forthright in describing both its successes and failures in 2005. The former included 5% sales growth translating into 8% profit growth, and the successful acquisition of a stake in motorcycle maker KTM. (Motorcycles are one of Polaris' best business opportunities.) Failures centered on disappointing sales in the firm's snowmobile segment. Polaris also noted its problems with excess inventory pile-up and gross margin erosion, the latter stemming from last year's (well-publicized) rise in raw material costs.
What management does:
The chart below reflects the gross margin problem -- but it also shows that despite some erosion in the rolling gross margins, Polaris has maintained its operating margins pretty well, and actually increased its net profitability by more than 36% over the last 18 months. To its credit, Polaris didn't try to take credit for the net's revival, however. It had less to do with the company becoming more profitable in 2005, and more to do with a $26 million charge to earnings taken in the September 2004 quarter, which made the 2005 numbers look better by contrast.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
25.1 |
25.3 |
25.3 |
24.9 |
24.7 |
23.9 |
|
Op. |
11.4 |
11.7 |
11.7 |
11.7 |
11.9 |
11.4 |
|
Net |
5.5 |
5.8 |
5.9 |
6.1 |
7.7 |
7.5 |
One Fool says:
But while Polaris hasn't declared itself "more profitable" yet, its presentation lays out clear goals for better profitability in the future. By 2009, Polaris aims to net 9% of all sales as bottom-line profits. The KTM deal could be key to this plan; according to the presentation, the market for motorcycle sales is two-and-a-half times the combined size of all the other markets in which Polaris currently operates. And Polaris has only a 1% share of total worldwide motorcycle sales, which signals plenty of room for growth.
Competitors:
- Honda (NYSE:HMC)
- Harley-Davidson (NYSE:HDI)
- Arctic Cat (NASDAQ:ACAT)
Fool contributor Rich Smith does not own shares of any company named above.
