Rich Duprey, The Motley Fool
Polaris Industries (NYSE: PII) delivered a strong second-quarter earnings report driven by surprising strength in its global motorcycle business as it launched a new bike that allowed the powersports-vehicle manufacturer to beat expectations and raise the low end of its full-year guidance.
Polaris posted a 15% sales gain for its motorcycle segment during the period, despite North American Indian sales slipping by mid-single-digit percentages and the three-wheeled Slingshot pulling the segment down further.
CFO Michael Speetzen said not only did Indian gain market share in the quarter from the introduction of the FTR 1200 motorcycle, but it also helped boost international sales 41% from last year while pushing sales of parts, garments, and accessories 11% higher.
Racing to the finish line
The FTR 1200 and the company’s earnings beat are a result of Polaris’ return to the flat-track racing circuit in 2017. After a 60-year absence, it announced its Indian Motorcycle brand would resurrect its racing team and take on Harley-Davidson (NYSE: HOG) in races that brought back the intense rivalry the two industry giants once shared.
The new FTR 1200 is Indian’s street version of its purpose-built racing bike, the FTR750. Image source: Indian Motorcycle.
To do so, Polaris built the Scout FTR750, a motorcycle designed for the racetrack, and hired former Harley racing champ Jared Mees to lead its team. Indian dominated the race circuit that year, with Mees and teammates Bryan Smith and Brad Baker sweeping the 2017 American Flat Track season with 14 total wins and 37 top-three finishes. Mees set a single-season record of 17 top-three finishes.
Harley’s humiliating loss, after owning the circuit for so many years, caused it to commit more than $500,000 to contingency awards for 2018, a program that allows riders not on the factory team, but still riding Harleys, to win money based on where they finish a race. The idea was to come at Indian with talent from all over, and the amount of money Harley had set aside — some five times greater than its prior contingency program — indicated it wanted to attract top riders.
Polaris had its own not-insignificant contingency awards of over $350,000, and that helped Mees’ team — called the Indian Wrecking Crew — to win 17 out of 18 races last year riding the FTR750. That kind of dominance by a single bike had the public clamoring for a street version of the motorcycle, and Polaris responded by developing the FTR 1200, which began shipping in the second quarter.
Polaris is ramping up production of the FTR 1200 for the third quarter and says it is preparing to steal even more market share with it.
The rest of the business was booming, too
Polaris was also able to post year-over-year sales increases in all of its other segments, with global adjacent markets — the segment containing its work and utility vehicles — rising 7%; off-road vehicles, including snowmobiles, providing a 6% lift; and even the aftermarket retail segment showing a 1% gain.
Because Boat Holdings was acquired in July of last year, there is no year-to-year comparison for the new boat segment, which also includes the Larson Boats business it bought earlier this year. But boats contributed $182 million to revenue.
Retail sales were down 2% on a pro forma basis for the quarter, mostly due to shipment timing and poor weather, but the largest contributor to the boat segment, the Bennington brand, saw sales grow as it gained market share. The segment also contributed $40 million in gross profits with margins of 22.2%, and Polaris is looking for it to add about 6% to its total full-year sales number.
Setting the pace for what’s to come
It was an overall powerful quarterly performance in the face of a North American motorcycle industry stuck in a serious downdraft. And it bodes well for the rest of the year now that Polaris is in the summer months, when most of its divisions are at their peak.
Launching a new motorcycle model that enjoys substantial buyer support, seeing its core off-road segment perform ably, adding new business in boating, and seeing its aftermarket business bounce back suggests Polaris could be ready to roll throughout the rest of the year and beyond.