Polaris Can't Ditch Recall Woes, Cuts Guidance

On Monday, Polaris Industries Inc. PII cut guidance for fiscal year 2016, seeing earnings per share (EPS) for the year coming in somewhere in the range of $3.30–$3.80.

Baird analysts, in a research note issued Tuesday, reminded investors that the initial guidance issued by Polaris was for EPS of $6.20–$6.80.

The Reason For The Reset

Polaris attributed the guidance cut to three factors: shipment delays, promotional spending and additional costs related to its voluntary recall of certain off-road vehicles. The recalls were due to reports of thermal-related incidents, including fires, with at least 19 injuries and one death reported.

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Polaris stopped shipping its high-margin RZR Turbo vehicles in order to verify their quality, hoping to get ahead of any further recall issues, and also spend more on promotions in order to soften the blow to the Polaris brand's image.

Polaris now sees an additional $65 million in costs related directly to the product recalls, bringing the total charge related to the recalls to $120 million this year.

Baird intimated that investor conversations reveal deeply frustrated shareholders, disappointed in the way Polaris has "failed to get ahead of recall issues." While the analysts acknowledged this sentiment, they added that a near-term bottom often forms in stocks following a guidance reset.

Baird maintains an Outperform rating on the shares, but slashed its price target from $105 down to $84. The stock traded at $74.86 midday Tuesday.

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