Tuesday, May 25, 2010

Polaris (PII) to Move American Jobs to Mexico - Great for Profits and Stocks; Not so Much for American Workers

While at the moment this sickly market has me standing to the side chewing on straw and swimming in cash, I am continuing to review the companies whose stocks are the last group sitting above the 50 and 200 day moving averages to diagnose why they are showing relative strength. One such candidate is Polaris Industries (PII) which makes a lot of "boy's toys" - i.e. all terrain vehicles, snowmobiles, and motorcyles. (most of the business however is ATV)

With annual 2009 sales of $1.6 billion, Polaris designs, engineers, manufactures and markets off-road vehicles (ORVs), including all-terrain vehicles (ATVs) and the Polaris RANGER™, snowmobiles and Victory motorcycles for recreational and utility use and has recently introduced a new on-road electric powered neighborhood vehicle.

The price point for these things is lower than a Harley, a boat, or a car, so this form of consumer discretionary item can be bought and paid for with just 4-6 missed mortgage payments by our nation of strategic defaulters. With strategic default becoming an increasingly important source of consumer spending, one must continue to utilize this "stimulus" when thinking out the American economy the next 2-3 years. Further, as other nations become wealthier they now have more disposable income for said toys. (ironically at the same time less Americans do)

As for another reason for stock strength? It seems like I read this story almost weekly for the past 15 years... just replace the name of the company and number of workers and insert a Ross Perot like "great sucking sound".
  • Polaris Industries is shutting down a manufacturing plant in Osceola, Wis., the company announced late Thursday. The move is part of a broader restructuring plan, which also calls for construction of a new manufacturing facility in Mexico. Polaris (NYSE:PII) plans to open the Mexico plant in 2011 and complete the full restructuring plan by 2012.
While a terrible blow to these 500+ employees of Polaris Industries, we have to think like dog eat dog capitalists as stock investors and cheer heartily at anything that reduces costs. Of course if you multiply this by thousands of companies, over 15+ years well you have a big issue. (remember the stock market's American nirvana will be achieved when the only workers here are government workers, investment bankers and corporate CEOs - and all other jobs have been outsourced to cheaper locales. You will need the government workers to keep cutting checks to the masses of unemployed of course....)

But really who needs private job creation in a country that now thrives on Medicare funding to build out its healthcare black hole, along with ever expanding government jobs? There is no problem here that cannot be solved by creating a Ponzi economy where all the job growth is in sectors that are government run or supported. Because we can pay (or subsidize) those costs indefinitely with money we don't have by borrowing or printing - presto magic ---> employment! Therefore, it looks like we will have 500 new government or healthcare workers in Wisconsin circa 2012.


The company was already coming in with some momentum before this announcement as the last earnings report in late April surprised to the upside. Also a raise in full year guidance. (full report here)
  • Market share gains in sales of off-road vehicles, Victory motorcycles and international markets contributed to a 16 percent increase in Polaris Industries Inc. first-quarter sales.
  • Medina-based Polaris reported revenue of $361.7 million, up from $312 million in the same quarter a year ago. Profits increased 127 percent to $19.8 million, or 59 cents per share.

This result of 59 cents beat the analysts guess by 13 cents, however the increase in full year guidance was roughly where the analysts had estimated. At $58, a forward PE of 16 is achieved for the top end of the company guidance and the location analysts currently are at.

The announcement of the jobs move came Thursday evening, and the stock rallied sharply Friday and again yesterday on an analyst upgrade.
  • Polaris Industries Inc. shares jumped Monday after Raymond James upgraded the maker of snowmobiles, all-terrain vehicles and motorcycles, saying a planned realignment of production will save the company $30 million per year.
  • Raymond James raised its rating to "Strong Buy" from "Market Perform," citing strong new products for Polaris. In the first quarter, the company's sales rose 20 percent even though industry sales of ATVs and motorcycles saw double-digit declines.
  • Raymond James said Polaris' retail sales have been outperforming rival Harley-Davidson Inc., and that Polaris has fewer risks to its earnings performance.

The chart looks quite nice, especially in relation to what has happened to most stocks.

To finish off this piece, a nice story in the Wall Street Journal yesterday [After Slashing Inventory, Polaris Now Struggles to Meet Demand] - I will be putting this stock on my growing watch list of potential portfolio additions, as a way to play 'consumer discretionary' so when the Kool Aid returns we have some exposure.
  • Like many manufacturers across the U.S., Polaris slashed inventories during the recession to cope with plunging sales and take pressure off its dealers. The trick — now that demand has perked up even for highly optional items like the company's motorcycles, snowmobiles and four-wheelers — is making sure that dealers have product on hand when customers come calling.
  • Many consumer-goods makers are keeping inventories lean for fear of a sluggish recovery, notes William Strauss, a Federal Reserve Bank of Chicago senior economist. And some "are unable to meet the demand because the inventories are low."
  • Polaris cut its U.S. and Canadian dealer inventories by nearly a quarter last year and expects an additional 15% drop this year, taking them to their lowest level since 1997. But sales so far this year "are better than we expected for all products," says Polaris President Bennett Morgan.

No position

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