Polaris Industries Beats on Q2 Earnings & Revenues, Ups View - Analyst Blog

Polaris Industries, Inc. (PII) posted earnings per share of $1.42 in the second quarter of 2014, reflecting a 26% rise from $1.13 per share reported in the year-ago quarter. Earnings beat the Zacks Consensus Estimate by 2 cents.

Net income increased 21% to $96.9 million from $80 million a year ago. Revenues for the second quarter 2014 were $1.01 billion, reflecting an increase of 20% over last year's second quarter sales of $844.8 million. Revenues surpassed the Zacks Consensus estimate of $1 billion.

Earnings and revenues were driven by significant retail sales growth, up 15% in North America, attributable to share gains in the side-by-side vehicle product line and continued growth of the Indian motorcycle business.

International sales for the second quarter of 2014 were $170.5 million, a 26% increase over the same period in 2013. The increase in second quarter sales was led by strong sales growth in all international regions. Europe, Middle East and Africa (EMEA) sales increased 22%, Asia Pacific sales were up 40% and Latin America sales rose 36%. Both ORV and Motorcycles gained market share outside of North America during the second quarter.

Gross profit rose 21% to $304.9 million from $252.3 million in the second quarter of 2013. As a percentage of sales, gross profit margin improved 20 basis points to 30.1% of sales for the second quarter of 2014, compared with 29.9% of sales in the same period last year. Impact of negative currency movements of the Canadian dollar and weaker product mix on gross margins during the quarter was more than offset by lower product costs and higher pricing.

Product Line Highlights

Revenues from off-road vehicles increased 13% from second quarter 2013 to $701.5 million in the reported quarter.  The increase was driven by higher demand and North American market share gains for both ATVs and side-by-side vehicles.

Meanwhile, revenues from snowmobiles dropped 27% to $6.1 million in the reported quarter compared with $8.5 million in the second quarter of 2013. The low sales in the quarter result from the off-season for snowmobile retail sales and shipments.

Revenues of the Motorcycles division soared 107% year over year to $103.1 million in the second quarter due to continued strong demand for the new model year 2014 Indian motorcycles.

Revenues of the Small Vehicles division rose 29% year over year to $43.5 million. All three businesses – Vis Aixam Mega, GEM and Goupil – recorded year over year increase in sales.

Revenues in the Parts, Garments, and Accessories (PG&A) increased 20% year over year to $159.7 million during the second quarter of 2014. Sales of PG&A to customers outside of North America increased 10% year over year. Revenues in all the product lines experienced double-digit percentage growth during the quarter driven by the Kolpin acquisition in Apr 2014.

Operating expenses surged 19% to $164.1 million from $138.3 million in the year-ago quarter.

Financial Position

Polaris had cash and cash equivalents of $119.0 million as of Jun 30, 2014, down from $217.7 million as of Jun 30, 2013. Total debt at the end of the second quarter was $367.6 million. Debt-to-total capital ratio rose to 35% as of Jun 30, 2014 from 12% as of Jun 30, 2013 due to the significant share repurchase transaction completed in Nov 2013.

Outlook

Polaris raised its full year 2014 guidance for earnings to $6.48–$6.58 per share, up 20%–22% over 2013 earnings from continuing operations of $5.40 per share. Meanwhile, the company expects 16%–18% sales growth in 2014.

Polaris currently carries a Zacks Rank #2 (Buy).

Other better-ranked stocks in the auto sector are Lithia Motors Inc. (LAD), Rush Enterprises, Inc. (RUSHA) and Asbury Automotive Group, Inc. (ABG). While Lithia Motors and Rush Enterprises hold a Zacks Rank #1 (Strong Buy), Asbury Automotive Group sports a Zacks Rank #2 (Buy).