Shares of Polaris (PII) jumped more than 5% in pre-market trading after the company announced its second quarter results and increased its full year guidance for year 2014.
Polaris Industries Inc. (NYSE:PII) today reported record second quarter net income of $96.9 million for the quarter ended June 30, 2014, up 21 percent from the prior year’s second quarter net income of $80.0 million. Earnings per share were also a record at $1.42 per diluted share for the 2014 second quarter compared to $1.13 for the second quarter of 2013. Sales for the second quarter 2014 totaled a record $1,014.0 million, an increase of 20 percent over last year’s second quarter sales of $844.8 million. Company increases full year 2014 Sales and EPS guidance. Full year 2014 sales are now expected to grow in the range of 16 percent to 18 percent when compared to 2013.
Scott Wine, Polaris’ Chairman and Chief Executive Officer, stated, “The second quarter results, our 19th consecutive quarter of record earnings performance, exemplify our commitment to delivering high quality innovative products and a first-class purchase experience that our consumers expect. Our strong financial performance in the quarter was driven by outstanding retail sales growth, up 15 percent in North America, driven by share gains in our side-by-side vehicle product line and continued growth of our Indian motorcycle business. The recently introduced Sportsman ACE( further solidifies our #1 market share position in the North American ORV market and our Small Vehicle and PG&A businesses delivered impressive growth, up 29 percent and 20 percent year-over-year in the second quarter, respectively.”
Wine continued, “On the heels of last year’s new product launch, which was lauded to be the largest and most groundbreaking in our Company’s history, next week we will celebrate our 60th anniversary and further enhance our innovation profile with the unveiling of our model year 2015 products for ORVs, motorcycles and the much anticipated Slingshot vehicle. Between strong demand for our existing offerings and our industry leading product innovation, we believe sales and earnings will continue to accelerate in the second half of the year, supporting our confidence and decision to again raise full year sales and earnings guidance for 2014.”
Sales for the Motorcycles division increased 107 percent to $103.1 million in the 2014 second quarter compared to same period last year due to continued strong demand for the new model year 2014 Indian motorcycles. Consumer retail demand for Polaris motorcycles, driven by Indian Motorcycle retail sales, was up approximately 50 percent during the 2014 second quarter, while second quarter North American industry heavyweight cruiser and touring motorcycle retail sales were about flat versus the 2013 second quarter. The re-launch of Indian Motorcycle continued during the 2014 second quarter as additional dealers began retailing the bikes and awareness of the brand’s revival continued to gain momentum in the motorcycle community. Victory retail sales in the 2014 second quarter were down mid-single digits percent largely due to a product recall in May, but Polaris is encouraged by its performance of market share gains in April and June. Sales of Polaris motorcycles outside of North America almost doubled in the second quarter of 2014 as compared to the year-ago period driven by strong retail demand for Indian motorcycles.
Off-Road Vehicle (“ORV”) sales increased 13 percent from the second quarter 2013 to $701.5 million. This increase reflects increased demand and North American market share gains for both ATVs and side-by-side vehicles. Polaris North American ORV unit retail sales were up low-double digits percent from the second quarter last year, with consumer purchases of side-by-side vehicles climbing low-teens percent, ATV retail sales increasing mid-single digits percent and the new Sportsman ACE(TM) category continuing to gain retail momentum. The Company estimates the North American industry ORV retail sales increased high-single-digits percent from the second quarter of 2013. North American ORV dealer inventories for Polaris were up low-teens percent from the second quarter of 2013 primarily as a result of efforts to support new ORV product categories, but down sequentially from the 2014 first quarter, as anticipated. Sales of Polaris ORVs outside of North America increased 19 percent in the second quarter of 2014 as compared to the year-ago period driven by continued market share gains in side-by-side vehicles and ATVs.
Snowmobile sales totaled $6.1 million for the 2014 second quarter compared to $8.5 million for the second quarter of 2013. Snowmobile sales in the Company’s second quarter are routnely low as it is the off-season for snowmobile retail sales and shipments.
Sales of the Small Vehicles division increased 29 percent to $43.5 million compared to the second quarter of 2013. All three businesses, Aixam Mega, GEM and Goupil experienced increased sales during the 2014 second quarter compared to the same period last year.
Parts, Garments, and Accessories (“PG&A”) sales increased 20 percent to $159.7 million during the second quarter of 2014 as compared to the same period last year. All product lines experienced double digits percent sales growth during the quarter. In addition, the Kolpin acquisition in April 2014 added to the sales increase during the quarter. Sales of PG&A to customers outside of North America increased ten percent during the 2014 second quarter compared to the same period last year.
International sales totaled $170.5 million for the 2014 second quarter, a 26 percent increase over the same period in 2013. The increase in second quarter sales resulted from strong sales growth in all international regions. Europe, Middle East and Africa (“EMEA”) sales increased 22 percent, Asia Pacific sales were up 40 percent and Latin America sales increased 36 percent. Both ORV and Motorcycles gained market share outside of North America during the 2014 second quarter.
Gross profit increased 21 percent to $304.9 million compared to $252.3 million in the second quarter of 2013. As a percentage of sales, gross profit margin improved 20 basis points to 30.1 percent of sales for the second quarter of 2014, compared to 29.9 percent of sales for the same period last year. The pressure to gross margins from the negative currency movements of the Canadian dollar and weaker product mix during the 2014 second quarter was more than offset by lower product costs and higher pricing.
Operating expenses for second quarter 2014 declined 20 basis points, as a percentage of sales, to 16.2 percent compared to 16.4 percent of sales in the 2013 second quarter. Operating expenses in dollars increased 19 percent to $164.1 million in the 2014 second quarter compared to $138.3 million for the second quarter of 2013. Operating expenses as a percent of sales for the 2014 second quarter declined due to lower long-term incentive compensation expenses partially offset by higher marketing and advertising expenses related to the re-launch of Indian Motorcycle and higher product liability provisioning.
Income from financial services increased 27 percent to $14.6 million during the second quarter 2014 compared to $11.5 million in the second quarter of 2013, primarily due to higher income from Polaris Acceptance’s dealer inventory financing.
Equity in loss of affiliates was $1.0 million for the second quarter of 2014 compared to $0.6 million in the second quarter last year, which represents the Company’s portion of the start-up costs related to the Polaris/Eicher joint venture in India established in 2012.
Non-operating other income, which primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries, was $1.9 million in the second quarter of 2014 compared to $1.2 million in the second quarter of 2013.
The provision for income taxes for the second quarter of 2014 was $56.4 million or 36.8 percent of pretax income compared to $44.8 million or 35.9 percent of pretax income for the second quarter 2013. The higher income tax rate for the second quarter of 2014 is primarily due to the United States federal government not yet extending the research and development income tax credit as of June 30, 2014.
The weighted average diluted shares outstanding for the second quarter of 2014 decreased four percent to 68.1 million shares compared to 70.8 million shares in the second quarter of last year. The decrease in the weighted average diluted shares outstanding is primarily due to the Company’s purchase of 3.96 million shares of Polaris stock previously held by FHI Heavy Industries Ltd. (“Fuji”) in November 2013.