Polaris' new 2016 motorcycle lineup. Image source: Polaris Industries.

On Wednesday, Polaris Industries (NYSE:PII) announced its 24th consecutive quarterly earnings record. But thanks to narrowed guidance and cautious comments on impending market headwinds, shares of the off-road vehicle specialist ended the day down more than 10%.

Polaris Industries results: The raw numbers


Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)


 $1.456 billion

 $1.302 billion


Net Income

 $155.2 million

 $140.8 million


Earnings per share




Data source: Polaris Industries. 

What happened with Polaris this quarter?

  • Foreign exchange remained a primary antagonist, as revenue was up 16% on a constant currency basis.
  • Results exceeded consensus estimates, which called for revenue of $1.43 billion and earnings of $2.28 per share.
  • International sales rose just 1% to $153.6 million, but would have climbed 18% excluding currencies.
  • North American retail sales rose 7% year over year
  • The off-road vehicle segment revenue rose 3% to $822.9 million
  • Snowmobiles revenue increased 14% to $185.5 million (up 19% year to date, due to the timing of shipments last quarter to give dealers early access to new premium models).
  • Parts, garments, and accessories rose 3% to $226.3 million.
  • Global adjacent markets (including government/military and work and transportation) rose 10% to $60.8 million.
  • Motorcycle revenue skyrocketed 154% to $160.4 million.
  • Resolved inefficiencies with "consistent enhancements" to Spirit Lake paint system, helping stabilize operations and exceeding shipment goals for the first time in 2015. Further optimizations and upgrades planned for the next six months.
  • Acquired a paint facility in South Dakota, which will bolster paint capacity later in Q4.

What management had to say 
"Our record third quarter results continue to reflect the efficacy of our long-term strategy and the resiliency of the Polaris organization," said Polaris CEO Scott Wine, "as motorcycle growth accelerated, ORV share gains continued and our developing adjacencies built momentum. We accomplished this in a difficult environment, with the combination of weakening currencies and softening economies adding to the pressure we face from the sluggish oil and agriculture markets, all in the midst of the most competitive powersports landscape we have seen in nearly a decade."

Looking forward 
However, Wine also noted that these economic headwinds "show little sign of abating in the near term," and currency exchange rate pressures have actually worsened since Polaris' second-quarter call. As such, Polaris now anticipates currencies will reduce full-year 2015 total reported revenue by $150 million to $170 million. This, in turn, will reduce gross profit by $75 million to $85 million, and reduce pre-tax income by $70 million to $80 million. All told, that's a roughly 7% decrease from previous expectations.

But thanks to aggressive counter measures in anticipation of this challenge, Polaris was able to merely narrow (not reduce) 2015 guidance. Now, it anticipates 2015 revenue to increase 10% to 11% year over year, compared to its previous range of 10% to 12%, while earnings per share are expected to be $7.37 to $7.42, up 11% to 12% and compared to previous guidance for 10% to 12% growth. By contrast, analysts on Wall Street were modeling roughly the same earnings on slightly higher 11.4% revenue growth.

Finally, Wine offered some initial caution regarding 2016, saying "I'm not yet willing to predict the U.S. or global recession in the next 15 months, but there is ample evidence of an economic and market slowdown. [...] While competitive offerings and promotional efforts expand, we anticipate slightly slower growth in the powersports industry in general, and the side-by-side segment in particular."

That said, Wine also insisted Polaris intends to continue to lead its core markets by consistently introducing innovative new motorcycle and off-road vehicle models, while at the same time continuing to enhance operational execution. In the end, that should mean the company will be able to continue extending its streak of achieving record quarterly earnings. And over the long term, when these headwinds finally abate, Polaris should emerge stronger than ever.