Look, but don't touch. That admonition from your mom growing up applies to the Polaris Industries (NYSE:PII) all-terrain vehicle it is set to unveil publicly in Florida this week, an all-new turbo diesel-powered version of its dominant RZR brand. Why the hands-off policy? Because they're for military use only and are not available to the public.
Polaris has been providing specially designed RZRs, dubbed MRZRs, to U.S. special ops forces as part of the lightweight tactical all-terrain vehicle (LTATV) program since 2013. Last July it was awarded an $83 million five-year, indefinite-delivery, indefinite-quantity contract for its MRZR 2 and MRZR 4 vehicles. The new diesel model could be what helps lift sales at the defense unit of the powersports vehicle maker.
The U.S. Special Operations Command, or SOCOM, has been engaging in a buy-try-decide evaluation of light vehicles after discovering a hole in its fleet capabilities for an internally transportable vehicle for its CV-22 Osprey tiltrotor helicopter from Bell Boeing, the joint venture between Textron's Bell division and Boeing. The ability to deliver an LTATV to forward-deployed troops is considered critical to their mission, and Polaris' ultralight MRZR's have helped fill the gap.
In its latest iteration, the powersports vehicle maker took feedback it received from field use of its existing vehicles and updated the MRZR's occupant seating space, ergonomics, and sightlines. But what really sets the MRZR-D apart from its predecessors is the turbo-charged diesel engine, which provides greater range and more power than gas-powered vehicles while using fuel that's likely to be more widely available where these vehicles will be deployed. Gasoline supplies tend not to be very reliable in global hot spots and are often of lower quality. DefenseNews reports the diesel engine also increases the MRZR's range by up to 30% on roads.
Polaris already has a sole-source deal with SOCOM for as many as 2,000 of its MRZRs, but the military found them lacking in how far they could travel and how much they could carry, whether in terms of passengers or injured. The new MRZR-D could resolve those issues, as it's customizable from two to six passengers, meaning it can be configured to carry more weaponry or allow for transporting gurneys, while also giving troops access to more remote locations.
Polaris Defense is a relatively small component of the powersports vehicle maker, which realizes more than three-quarters of its annual revenues from civilian sales of off-road vehicles. Even its motorcycle business accounts for more sales than does the military business, which is tucked into its global adjacent markets segment that also produces commercial utility vehicles.
In its first-quarter earnings report, Polaris blamed a shift in military budget spending patterns for the "significant" decline in sales it realized during the period, but the segment also suffered a 2% drop in 2015 for similar reasons as it said "budgetary constraints" hurt sales.
If the new MRZR-D it will unveil this week at the 2016 Special Operations Forces Industry Conference in Tampa is able to prove its worth in the field, Polaris Defense may just find it becomes a new growth business. And because the new vehicle is diesel-powered rather than gasoline-powered like the current models, it could be a more attractive option to foreign customers as well.
RZR enthusiasts can only hope Polaris Industries applies the lessons it's learning from its military business and applies them to its civilian models too. We just may see some of these enhancements trickle down to the models geared toward fun rather than fighting.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.