Tuesday, July 20, 2010

Polaris Industires (PII) Impresses on Earnings; Raises Guidance

I closed out the position in Polaris Industries (PII) at the beginning of July when it crashed through technical support, but have kept an eye on it since.  Unlike many stocks which never recovered from the swoon a few weeks back, this stock has roared back and topped it off with a stellar earnings report (and raised guidance) this morning.  However, showing how tough this market is, all stockholders have been rewarded with today is a 1.5% gain as of this typing.  Ironically, Harley Davidson (HOG) [not a competitor but same big picture 'theme'] had what I consider a much worse report (in their core business), chock full of adjustments in their finance arm to create bliss, and investors are gobbling it up hand over fist - shows you how the market is all about expectations.

One area of concern is an increase in dealer inventory; if this is not worked out soon (via stronger customer orders) it will be causing headaches down the road.

Overall the 'thesis' was correct here, but I was definitely shaken out by the whipsaw market ... considering the space PII is in (consumer discretionary) the performance is that much more impressive.  Keep in mind, American jobs are to be outsourced to Mexico in the not too distant future, creating even more profit opportunity for Polaris.

(current year over year comparisons below should be very easy as Q2 2009 was the depths of the Great Recession)

Via AP:
  • Polaris Industries Inc. said its profit grew 47 percent in the second quarter as sales of all-terrain vehicles roared back and the company boosted its profit and sales expectations for the year.  The company gained market share in North America and saw off-road vehicles sales jump 33 percent compared to the same period last year. Sales in Europe rose 32 percent.
  • Polaris reported net income of $25.6 million, or 75 cents per share, in the quarter ended June 30. That's up from $17.5 million, or 53 cents per share, a year ago. Revenue jumped 25 percent to $430.9 million.  Analysts polled by Thomson Reuters had been looking for a net income of 68 cents per share and $404.7 million in revenue on average.
  • The company says a shift to sell products directly to consumers has worked so far even as dealer inventories increased.
“Polaris maintained strong momentum in the second quarter, driven by solid market share gains, sales growth and margin expansion. Innovation and execution enabled us to deliver another quarter of solid operating results in an overall economic and powersports industry environment that remains sluggish,” commented Scott Wine, Polaris’ Chief Executive Officer.

  • Polaris bumped its sales expectations and now expects a profit of $3.80 to $3.90 per share for the year. It said sales will rise 17 percent to 20 percent, to a range of $1.83 billion to $1.88 billion.
  • Three months ago, it forecast a profit of $3.48 to $3.60 per share with revenue of $1.69 billion to $1.74 billion, or growth of 8 to 11 percent.
  • Analysts are expecting net income of $3.62 per share and $1.74 billion in revenue.

More financial detail on their "realignment" (i.e. outsourcing)

Execution of the previously announced manufacturing realignment is underway and will be a key part of Polaris’ overall strategy to increase its competitiveness in the years ahead. The realignment will consolidate manufacturing operations into existing operations in Roseau, Minnesota and Spirit Lake, Iowa as well as establish a new facility in Mexico. The realignment will lead to the sale or closure of the Osceola, Wisconsin manufacturing operations by 2012. The Company expects to record pretax transition charges to its income statement in the range of $20 million to $25 million and incur capital expenditures up to $35 million over the next few years related to the implementation of the manufacturing realignment. The Company expects to realize savings in excess of $30 million annually when the transition is completed.

[Jun 14, 2010: Polaris Gets an Upgrade]
[May 25, 2010: Polaris Industries to Move American Jobs to Mexico - Great for Profits and Shareholders; Not so Much for American Workers]

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