Now that Christmas is out of the way, it's time for that other "most wonderful time ... of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up is playful Polaris (NYSE:PII), which reports on Thursday.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts follow the maker of snowmobiles and other fun things. Three of them think the stock's a buy, nine more a hold, and the last two a sell.
  • Revenues. On average, they're looking for a 15% decline in sales to $448.2 million.
  • Earnings. Profits are predicted to fall by a bit less -- 10% to $0.89 per share.

What management says:
The big news at Polaris this quarter has to be the accelerated unwinding of its relationship with motorcycle maker KTM. As mentioned in last quarter's Foolish Forecast, KTM's majority owner, Cross Industries, decided it was not interested in parting with any more shares in the company, derailing Polaris' plans to take control of KTM. Then, in late December, the other shoe dropped: Seeing as Polaris and KTM no longer had a future together, Polaris decided that a clean break was preferable to a long, drawn-out separation. The firm agreed to sell the majority of its KTM shares to Cross, and once the sale is finalized, it will hold less than a 5% interest in KTM.

In addition to setting back the company's plans to expand in the motorcycle segment, which it has called one of its "best business opportunities," the exit from KTM is expected to shave $0.02 per share off previous Q4 earnings guidance, and "impact the comparability of results for the full year 2007."

What management does:
In other words, expect the downward trend in margins (reflected below), to accelerate.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

24.7

24.5

23.9

23.5

23.7

23.3

Op.

11.5

11.5

11.4

11.0

10.9

10.7

Net

6.0

7.4

7.5

7.3

7.0

6.9
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
According to Polaris, the proceeds of its sale of KTM stock ($75.9 million) will be used for one of two purposes: buying back its own shares or paying down debt. Satisfying as it might be to use that cash to reduce net debt (which was $69 million, at last report), I'm rooting for a buyback.

This is a business that -- for all its current margin problems -- consistently produces returns on both equity and capital in the 30%-plus range. Moreover, the stock has lagged the S&P 500 by nearly 20 percentage points over the past year. Whatever growth prospects were forgone when KTM slipped away, I can't help but think that at current prices, the shares Polaris should really want to own are not KTM's, but its own.

Competitors:

  • Honda (NYSE:HMC)
  • Harley-Davidson (NYSE:HOG)
  • Ducati (NYSE:DMH)
  • Arctic Cat (NASDAQ:ACAT)

For further recreational (vehicle) reading, try:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.