Q2 2019 Highlights
Reported and adjusted sales for the second quarter of
2019 increased 18% to $1,779 million
Reported net income was $1.42 per diluted share, down 1%
over the prior year; adjusted net income for the same period was
$1.73 per diluted share, down 2% over the prior year
North American Side-by-side retail sales increased
low-single digits percent for the quarter compared to last year;
Indian retail sales were down high-single digits percent,
outperforming the industry and gaining share in an extremely
challenging market
Dealer inventory was up 1% year-over-year for the second
quarter 2019, slightly below targeted inventory levels
Polaris narrowed its full year 2019 earnings guidance by
maintaining the upper end of the net income range and increasing
the lower end of the range and now expects earnings to be in
the $6.10 to $6.30 per diluted share range, which takes into
account the China 301 list 3 tariff increasing from 10% to 25%.
Full year 2019 adjusted sales growth guidance was also narrowed to
up 12% to 13% over the prior year.
Polaris Industries Inc. (NYSE: PII):
Key Financial Data
(in thousands, except per share data)
INCOME STATEMENT - Q2 June 30,
2019
Reported
YOY % Chg.
Adjusted*
YOY % Chg.
Sales
$
1,779,315
18%
$
1,779,315
18%
Net income attributable to Polaris
$
88,263
(5)%
$
107,480
(6)%
Diluted EPS
$
1.42
(1)%
$
1.73
(2)%
BALANCE SHEET - Q2 June 30,
2019
Reported
YOY % Chg.
Cash and cash equivalents
$
96,081
(47)%
Inventories, net
$
1,130,264
22%
Total debt, finance lease obligations and
notes payable
$
1,898,068
71%
Shareholders' equity
$
951,909
8%
CASH FLOW - YTD June 30, 2019
Reported
YOY % Chg.
Net cash provided by operating
activities
$
202,852
23%
Purchase of property & equipment
$
137,203
31%
Repurchase and retirement of common
shares
$
6,537
(97)%
Cash dividends to shareholders
$
74,430
(2)%
*Note: the results and guidance in this
release, including the highlights above, include references to
non-GAAP operating measures, which are identified by the word
“adjusted” preceding the measure. A reconciliation of GAAP /
non-GAAP measures can be found at the end of this release.
CEO Commentary
“Our second quarter results reflect the deft leadership and
disciplined execution of our Polaris team. We worked diligently to
overcome the impacts of tariffs, a very wet spring and an
aggressive promotional environment, delivering financial results
slightly favorable to expectations but trailing our long-term
performance goals. The strength of our industry-leading brands and
vehicles enabled us to gain share in Indian Motorcycles and drive
growth in Side-by-Sides with RANGER and RZR, although our decision
to assume price leadership did impact volume, specifically in our
lower margin youth and value segments. We are encouraged by our
market share gains and year-to-date growth in Boats, as well as the
continued improvement at TAP, where retail store sales growth was
up nicely. Our operational and dealer fundamentals are in good
shape as we head into the critically important model year 2020
product introductions, and we anticipate improved retail
performance during the second half of the year. We are excited to
host our unrivaled dealer network at our 65th Anniversary dealer
show later this month, and look forward to demonstrating how we
will continue to be the global leader in Powersports with our
unwavering commitment to be a customer-centric, highly efficient
growth company.”
-- Scott Wine, Chairman and Chief Executive
Officer of Polaris Industries Inc.
Second Quarter Performance Summary
(Reported)
(in thousands, except per share data)
Three months ended June
30,
2019
2018
Change
Sales
$
1,779,315
$
1,502,532
18
%
Gross profit
436,448
385,176
13
%
% of Sales
24.5
%
25.6
%
-111 bpts
Total operating expenses
321,072
284,063
13
%
% of Sales
18.0
%
18.9
%
-86 bpts
Income from financial services
19,746
21,344
(7
)%
% of Sales
1.1
%
1.4
%
-31 bpts
Operating income
135,122
122,457
10
%
% of Sales
7.6
%
8.2
%
-56 bpts
Net income attributable to
Polaris
88,263
92,540
(5
)%
% of Sales
5.0
%
6.2
%
-120 bpts
Diluted net income per share
$
1.42
$
1.43
(1
)%
Polaris Industries Inc. (NYSE: PII) (the "Company") today
released second quarter 2019 results with sales of $1,779 million
on a reported and adjusted basis, up 18 percent from reported and
adjusted sales of $1,503 million and $1,505 million for the second
quarter of 2018, respectively, including $182 million of Boat
segment sales reported in the second quarter of 2019. The Company
reported second quarter 2019 net income of $88 million, or 1.42 per
diluted share, compared with net income of $93 million, or 1.43 per
diluted share, for the 2018 second quarter. Adjusted net income for
the quarter ended June 30, 2019 was $107 million, or $1.73 per
diluted share compared to $115 million, or $1.77 per diluted share
in the 2018 second quarter.
Gross profit increased 13 percent to $436 million for the
second quarter of 2019 from $385 million in the second quarter of
2018. Reported gross profit margin was 24.5 percent of sales for
the second quarter of 2019 compared to 25.6 percent of sales for
the second quarter of 2018. Gross profit for the second quarter of
2019 includes the negative impact of $7 million of restructuring
and realignment costs. Excluding these costs, second quarter 2019
adjusted gross profit was $443 million, or 24.9 percent of adjusted
sales. For the second quarter of 2018 adjusted gross profit of $390
million, or 25.9 percent of adjusted sales, excludes the negative
impact of $6 million of restructuring and realignment costs. Gross
profit margins on an adjusted basis were down 104 basis points
reflecting tariff costs and the addition of Boats which has a lower
gross profit margin, partially offset by increased productivity and
higher average selling prices.
Operating expenses increased 13 percent for the second
quarter of 2019 to $321 million, or 18.0 percent of sales, from
$284 million, or 18.9 percent of sales, in the same period in 2018.
Operating expenses in dollars increased primarily due to the Boat
Holdings acquisition completed during the third quarter of 2018 and
investments in strategic projects. Operating expenses as a
percentage of sales, improved as the Boat segment has a lower
operating expense to sales ratio compared to the legacy Polaris
business.
Income from financial services was $20 million for the
second quarter of 2019, down 7 percent compared with $21 million
for the second quarter of 2018. The decrease is primarily
attributable to lower retail sales and lower penetration rates
during the quarter.
Non-Operating Expenses
(Reported)
(in thousands)
Three months ended June
30,
2019
2018
Change
Interest expense
$
20,620
$
9,216
124
%
Equity in loss of other affiliates
$
455
$
3,954
(88
)%
Other income, net
$
(271
)
$
(3,561
)
(92
)%
Provision for income taxes
$
26,173
$
20,308
29
%
Interest expense was $21 million for the second quarter
of 2019 compared to $9 million for the same period last year,
primarily due to increased debt levels to finance the Boats
acquisition and higher interest rates.
Equity in loss of other affiliates was $455 thousand for
the second quarter of 2019 compared to $4 million for the same
period last year. In the second quarter 2018, the Company recorded
charges of approximately $4 million associated with the shut down
of the Eicher-Polaris joint venture in India.
Other income, net, was $271 thousand in the second
quarter of 2019 compared to $4 million in the second quarter of
2018. Other income is the result of foreign currency exchange rate
movements and the corresponding effects on foreign currency
transactions related to the Company’s foreign subsidiaries.
The provision for income taxes for the second quarter of
2019 was $26 million, or 22.9 percent of pretax income, compared
with $20 million, or 18.0 percent of pretax income for the second
quarter of 2018. The increase in the effective income tax rate is
primarily due to a decrease in excess tax benefits related to
stock-based compensation.
Product Segment Highlights
(Reported)
(in thousands)
Sales
Gross Profit
Q2 2019
Q2 2018
Change
Q2 2019
Q2 2018
Change
Off-Road Vehicles / Snowmobiles
$
1,049,321
$
990,841
6
%
$
312,689
$
297,221
5
%
Motorcycles
$
196,773
$
171,412
15
%
$
26,802
$
24,672
9
%
Global Adjacent Markets
$
121,924
$
113,418
7
%
$
33,884
$
28,107
21
%
Aftermarket
$
228,872
$
226,861
1
%
$
55,214
$
57,747
(4
)%
Boats
$
182,425
$
—
$
40,477
$
—
Off-Road Vehicles (“ORV”) and
Snowmobiles segment sales, including PG&A, totaled
$1,049 million for the second quarter of 2019, up six percent over
$991 million for the second quarter of 2018 driven by increased
average selling prices, particularly in side-by-side's, and growth
in PG&A. PG&A sales for ORV and Snowmobiles combined
increased 9 percent in the second quarter of 2019 compared to the
second quarter last year. Gross profit increased five percent to
$313 million in the second quarter of 2019, compared to $297
million in the second quarter of 2018. Gross profit percentage
declined 20 basis points during the quarter as higher average
selling prices and increased productivity were more than offset by
higher promotions and tariff costs.
ORV wholegood sales for the second
quarter of 2019 increased 4 percent primarily driven by increased
average selling prices. Polaris North American ORV retail sales
decreased low-single digits percent for the quarter with
side-by-side vehicles up low-single digits percent and ATV vehicles
down high-single digits percent. Shipment unit volume was down
during the quarter, in-line with retail sales declines as the
Company's retail flow management process (RFM) performed as
designed. The North American ORV industry was up high-single digits
percent compared to the second quarter last year partly driven by
new competitive product not in the market a year ago.
Snowmobile wholegood sales in the
second quarter of 2019 were $16 million compared to $4 million in
the second quarter last year. Snowmobile sales in the Company’s
second quarter are routinely low as it is the off-season for
snowmobile retail sales and shipments.
Motorcycles segment sales,
including PG&A, totaled $197 million, up 15 percent compared to
the second quarter of 2018, driven by strength in Indian sales,
particularly the new FTR1200 motorcycle which began shipping
globally in the second quarter, offset by declines in Slingshot
sales. Gross profit for the second quarter of 2019 was $27 million
compared to $25 million in the second quarter of 2018. The increase
in gross profit was primarily the result of higher volume mostly
offset by increased tariff costs.
North American consumer retail sales for the Polaris Indian
motorcycles decreased high-single digits percent during the second
quarter of 2019 in a weak mid to heavy-weight two-wheel motorcycle
industry that was down low double digits percent. Indian
outperformed the market with modest market share gains in North
American during the quarter driven by retail sales of our new
mid-size bike, the race inspired FTR1200, which has experienced
strong initial demand both in North America and Internationally.
North American consumer retail sales for Polaris' motorcycle
segment, including both Indian Motorcycles and Slingshot, decreased
mid-teens percent during the second quarter of 2019, while the
North American Motorcycle industry retail sales for mid to
heavy-weight motorcycles including three-wheel vehicles, was down
mid-single digits percent in the second quarter of 2019.
Global Adjacent Markets
segment sales, including PG&A, increased seven percent to $122
million in the 2019 second quarter compared to $113 million in the
2018 second quarter. Gross profit increased 21 percent to $34
million or 27.8 percent of sales in the second quarter of 2019,
compared to $28 million or 24.8 percent of sales in the second
quarter of 2018, due to increased volume and favorable product
mix.
Aftermarket segment sales of
$229 million in the 2019 second quarter increased one percent
compared to $227 million in the 2018 second quarter. TAP sales in
the second quarter of 2019 were $210 million, which was flat
compared to the second quarter of 2018. The Company's other
aftermarket brands increased sales by 12 percent. Gross profit
decreased to $55 million in the second quarter of 2019, compared to
$58 million in the second quarter of 2018 due to higher tariff
costs.
Boats segment sales, which
consist of the Boat Holdings acquisition which closed July 2, 2018,
were $182 million in the 2019 second quarter. Gross profit was $40
million or 22.2 percent of sales in the second quarter of 2019.
Supplemental Data:
Parts, Garments, and Accessories
(“PG&A”) sales increased 10 percent for the 2019 second
quarter primarily driven by growth across the Company's
segments.
International sales to customers
outside of North America, including PG&A, totaled $231 million
for the second quarter of 2019, up 13 percent from the same period
in 2018. The increase in sales is primarily attributable to growth
in Indian Motorcycles and Global Adjacent Markets.
Financial Position and Cash
Flow
(in thousands)
Six months ended June
30,
2019
2018
Change
Cash and cash equivalents
$
96,081
$
181,753
(47
)%
Net cash provided by operating
activities
$
202,852
$
165,149
23
%
Repurchase and retirement of common
shares
$
6,537
$
192,367
(97
)%
Cash dividends to shareholders
$
74,430
$
75,694
(2
)%
Total debt, finance lease obligations and
notes payable
$
1,898,068
$
1,112,622
71
%
Debt to Total Capital Ratio
67
%
56
%
Net cash provided by operating activities was $203
million for the six months ended June 30, 2019, compared to $165
million for the same period in 2018. Total debt at June 30, 2019,
including finance lease obligations and notes payable, was $1,898
million. The Company’s debt-to-total capital ratio was 67 percent
at June 30, 2019 compared to 56 percent at June 30, 2018. Cash and
cash equivalents were $96 million at June 30, 2019, down from $182
million at June 30, 2018.
2019 Business Outlook
For the full year 2019, the Company is narrowing its earnings
guidance range by increasing the lower end to $6.10 per diluted
share and maintaining the upper end at $6.30 per diluted share,
including the impact of the China 301 list 3 tariff rate increasing
from 10 percent to 25 percent effective May 2019, and the benefit
of the Company's tariff mitigation actions. The Company is also
narrowing its full year 2019 sales guidance range and now expect
sales to grow in the range of 12 percent to 13 percent compared to
the prior year given only six months remain to year-end.
Non-GAAP Financial Measures
This press release and our related earnings call contain certain
non-GAAP financial measures, consisting of “adjusted" sales, gross
profit, income before taxes, net income and net income per diluted
share as measures of our operating performance. Management believes
these measures may be useful in performing meaningful comparisons
of past and present operating results, to understand the
performance of its ongoing operations and how management views the
business. Reconciliations of reported GAAP measures to adjusted
non-GAAP measures are included in the financial schedules contained
in this press release. These measures, however, should not be
construed as an alternative to any other measure of performance
determined in accordance with GAAP.
Second Quarter 2019 Earnings Conference Call and
Webcast
Today at 9:00 AM (CDT) Polaris Industries Inc. will host a
conference call and webcast to discuss the 2019 second quarter
results released this morning. The call will be hosted by Scott
Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President
- Finance and CFO. The earnings presentation and link to the
webcast will be posted on the Polaris Investor Relations website at
ir.polaris.com. To listen to the conference call by phone, dial
1-877-883-0383 in the U.S., or 1-412-902-6506 internationally. The
Conference ID is 9324868. A replay of the conference call will be
available by accessing the same link on our website.
Polaris Industries Inc. to Host and Webcast Analyst &
Investor Meeting
Polaris Industries Inc. also announced today that the executive
management team of Polaris will host an Analyst/Investor Meeting in
Minneapolis, MN in conjunction with its 65th anniversary
celebration and dealer meeting. The meeting will be held on Monday,
July 29, 2019 from 7:30 AM to 10:30 AM central time. Management
will be discussing its future strategy to drive growth and
profitability, including a first look at several exciting new model
year 2020 Polaris products. Presenters at the Analyst/Investor
meeting will include Scott Wine, Chairman and CEO; Mike Speetzen,
Executive Vice President - Finance and CFO; Ken Pucel, EVP
Operations, Engineering and Lean along with other Polaris executive
team members. The meeting agenda, slide presentation, and a link to
the live audio webcast will be posted on the Polaris Investor
Relations website at ir.polaris.com on the Events &
Presentations page. A replay of the webcast will be available for
one week following the event and will be accessible on the same
website link. For more information about the Analyst/Investor
Meeting, please contact Peggy James at 763-542-0502.
About Polaris
Polaris Industries Inc. (NYSE: PII) is a global powersports
leader that has been fueling the passion of riders, workers and
outdoor enthusiasts for more than 60 years. With annual 2018 sales
of $6.1 billion, Polaris’ innovative, high-quality product line-up
includes the RANGER®, RZR® and Polaris GENERAL™ side-by-side
off-road vehicles; the Sportsman® and Polaris ACE® all-terrain
off-road vehicles; Indian Motorcycle® mid-size and heavyweight
motorcycles; Slingshot® moto-roadsters; snowmobiles; and pontoon,
deck, and cruiser boats. Polaris enhances the riding experience
with parts, garments and accessories, along with a growing
aftermarket portfolio, including Transamerican Auto Parts. Polaris’
presence in adjacent markets globally includes military and
commercial off-road vehicles, quadricycles, and electric vehicles.
Proudly headquartered in Minnesota, Polaris serves more than 100
countries across the globe. Visit www.polaris.com for more information.
Forward-looking Statements
Except for historical information contained herein, the matters
set forth in this news release, including management’s expectations
regarding 2019 future sales, shipments, net income, and net income
per share, future cash flows and capital requirements, operational
initiatives, tariffs, currency fluctuations, interest rates, and
commodity costs, are forward-looking statements that involve
certain risks and uncertainties that could cause actual results to
differ materially from those forward-looking statements. Potential
risks and uncertainties include such factors as the Company’s
ability to successfully implement its manufacturing operations
expansion initiatives, product offerings, promotional activities
and pricing strategies by competitors; economic conditions that
impact consumer spending; disruptions in manufacturing facilities;
acquisition integration costs; product recalls, warranty expenses;
impact of changes in Polaris stock price on incentive compensation
plan costs; foreign currency exchange rate fluctuations;
environmental and product safety regulatory activity; effects of
weather; commodity costs; freight and tariff costs; changes to
international trade policies and agreements; uninsured product
liability claims; uncertainty in the retail and wholesale credit
markets; performance of affiliate partners; changes in tax policy;
relationships with dealers and suppliers; and the general overall
economic and political environment. Investors are also directed to
consider other risks and uncertainties discussed in documents filed
by the Company with the Securities and Exchange Commission. The
Company does not undertake any duty to any person to provide
updates to its forward-looking statements. The data source for
retail sales figures included in this release is registration
information provided by Polaris dealers in North America compiled
by the Company or Company estimates and other industry data
sources. The Company must rely on information that its dealers
supply concerning retail sales, and other retail sales data sources
related to Polaris and the powersports industry, and this
information is subject to revision. Retail sales references to
total Company retail sales includes only ORV, snowmobiles and
motorcycles in North America unless otherwise noted.
CONSOLIDATED STATEMENTS OF
INCOME
(In Thousands, Except Per Share
Data) (Unaudited)
Three months ended June
30,
Six months ended June
30,
2019
2018
2019
2018
Sales
$
1,779,315
$
1,502,532
$
3,275,005
$
2,800,005
Cost of sales
1,342,867
1,117,356
2,486,109
2,091,348
Gross profit
436,448
385,176
788,896
708,657
Operating expenses:
Selling and marketing
140,603
122,859
269,862
240,566
Research and development
76,379
68,330
143,499
133,560
General and administrative
104,090
92,874
197,028
171,567
Total operating expenses
321,072
284,063
610,389
545,693
Income from financial services
19,746
21,344
38,551
42,769
Operating income
135,122
122,457
217,058
205,733
Non-operating expense:
Interest expense
20,620
9,216
41,039
17,264
Equity in loss of other affiliates
455
3,954
1,061
25,465
Other income, net
(271
)
(3,561
)
(3,772
)
(23,536
)
Income before income taxes
114,318
112,848
178,730
186,540
Provision for income taxes
26,173
20,308
42,189
38,286
Net income
88,145
92,540
136,541
148,254
Net loss attributable to noncontrolling
interest
118
—
100
—
Net income attributable to Polaris
Industries Inc.
$
88,263
$
92,540
$
136,641
$
148,254
Net income per share attributable to
Polaris Industries Inc. common shareholders:
Basic
$
1.44
$
1.46
$
2.23
$
2.34
Diluted
$
1.42
$
1.43
$
2.20
$
2.28
Weighted average shares outstanding:
Basic
61,419
63,172
61,352
63,238
Diluted
62,164
64,886
62,096
65,052
CONSOLIDATED BALANCE SHEETS
(In Thousands), (Unaudited)
June 30, 2019
June 30, 2018
Assets
Current Assets:
Cash and cash equivalents
$
96,081
$
181,753
Trade receivables, net
224,501
190,343
Inventories, net
1,130,264
925,243
Prepaid expenses and other
112,921
106,586
Income taxes receivable
7,037
10,269
Total current assets
1,570,804
1,414,194
Property and equipment, net
889,825
762,268
Investment in finance affiliate
97,303
92,954
Deferred tax assets
92,641
115,399
Goodwill and other intangible assets,
net
1,508,722
765,050
Operating lease assets
108,013
—
Other long-term assets
96,904
89,613
Total assets
$
4,364,212
$
3,239,478
Liabilities and Equity
Current Liabilities:
Current portion of debt, finance lease
obligations and notes payable
$
66,505
$
40,120
Accounts payable
418,850
361,717
Accrued expenses:
Compensation
140,205
129,719
Warranties
132,758
106,155
Sales promotions and incentives
182,089
184,811
Dealer holdback
138,726
125,016
Other
212,067
161,659
Current operating lease liabilities
35,084
—
Income taxes payable
6,094
5,973
Total current liabilities
1,332,378
1,115,170
Long term income taxes payable
28,380
25,332
Finance lease obligations
15,780
17,135
Long-term debt
1,815,783
1,055,367
Deferred tax liabilities
5,357
8,667
Long-term operating lease liabilities
75,479
—
Other long-term liabilities
128,360
127,529
Total liabilities
$
3,401,517
$
2,349,200
Deferred compensation
10,607
12,768
Equity:
Total shareholders’ equity
951,909
877,510
Noncontrolling interest
179
—
Total equity
952,088
877,510
Total liabilities and equity
$
4,364,212
$
3,239,478
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands), (Unaudited)
Six months ended June
30,
2019
2018
Operating Activities:
Net income
$
136,541
$
148,254
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization
111,946
98,584
Noncash compensation
34,233
33,001
Noncash income from financial services
(15,465
)
(14,626
)
Deferred income taxes
(5,903
)
(1,704
)
Impairment charges
—
20,249
Other, net
1,061
(8,262
)
Changes in operating assets and
liabilities:
Trade receivables
(26,941
)
5,326
Inventories
(159,090
)
(146,661
)
Accounts payable
72,049
45,835
Accrued expenses
18,950
(35,693
)
Income taxes payable/receivable
30,773
19,828
Prepaid expenses and others, net
4,698
1,018
Net cash provided by operating
activities
202,852
165,149
Investing Activities:
Purchase of property and equipment
(137,203
)
(104,569
)
Investment in finance affiliate, net
10,221
10,436
Investment in other affiliates, net
—
7,366
Acquisition of businesses, net of cash
acquired
(1,800
)
—
Net cash used for investing activities
(128,782
)
(86,767
)
Financing Activities:
Borrowings under debt arrangements /
finance lease obligations
1,788,696
1,511,810
Repayments under debt arrangements /
finance lease obligations
(1,853,507
)
(1,310,863
)
Repurchase and retirement of common
shares
(6,537
)
(192,367
)
Cash dividends to shareholders
(74,430
)
(75,694
)
Proceeds from stock issuances under
employee plans
6,213
43,448
Net cash used for financing activities
(139,565
)
(23,666
)
Impact of currency exchange rates on cash
balances
(112
)
(6,370
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(65,607
)
48,346
Cash, cash equivalents and restricted cash
at beginning of period
193,126
161,618
Cash, cash equivalents and restricted
cash at end of period
$
127,519
$
209,964
The following presents the classification
of cash, cash equivalents and restricted cash within the
consolidated balance sheets:
Cash and cash equivalents
$
96,081
$
181,753
Other long-term assets
31,438
28,211
Total
$
127,519
$
209,964
NON-GAAP RECONCILIATION OF RESULTS
(In Thousands, Except Per Share
Data), (Unaudited)
Three months ended June
30,
Six months ended June
30,
2019
2018
2019
2018
Sales
$
1,779,315
$
1,502,532
$
3,275,005
$
2,800,005
Victory wind down (1)
—
798
—
249
Restructuring & realignment (3)
—
1,659
—
2,129
Adjusted sales
1,779,315
1,504,989
3,275,005
2,802,383
Gross profit
436,448
385,176
788,896
708,657
Victory wind down (1)
—
(874
)
—
(822
)
Restructuring & realignment (3)
6,592
6,045
13,283
11,837
Adjusted gross profit
443,040
390,347
802,179
719,672
Income before taxes
114,318
112,848
178,730
186,540
Victory wind down (1)
—
(426
)
—
243
Acquisition-related costs (2)
2,351
5,729
3,481
7,809
Restructuring & realignment (3)
6,592
11,696
13,283
17,893
EPPL impairment (5)
—
3,817
—
23,447
Brammo (6)
—
—
—
(13,478
)
Intangible amortization (7)
10,250
6,058
20,497
12,188
Other expenses (4)
6,151
1,722
12,510
1,722
Adjusted income before taxes
139,662
141,444
228,501
236,364
Net income
88,263
92,540
136,641
148,254
Victory wind down (1)
—
(325
)
—
185
Acquisition-related costs (2)
1,792
4,366
2,653
5,951
Restructuring & realignment (3)
5,022
8,912
10,121
13,633
EPPL impairment (5)
—
2,908
—
22,325
Brammo (6)
—
—
—
(13,113
)
Intangible amortization (7)
7,717
4,446
15,430
8,945
Other expenses (4)
4,686
1,767
9,532
2,037
Adjusted net income (8)
107,480
114,614
174,377
188,217
Diluted EPS
$
1.42
$
1.43
$
2.20
$
2.28
Victory wind down (1)
—
(0.01
)
—
—
Acquisition-related costs (2)
0.03
0.07
0.04
0.09
Restructuring & realignment (3)
0.08
0.14
0.16
0.21
EPPL impairment (5)
—
0.04
—
0.34
Brammo (6)
—
—
—
(0.20
)
Intangible amortization (7)
0.12
0.07
0.25
0.14
Other expenses (4)
0.08
0.03
0.16
0.03
Adjusted EPS (8)
$
1.73
$
1.77
$
2.81
$
2.89
(1) Represents adjustments for the wind
down of Victory Motorcycles, including wholegoods, accessories and
apparel
(2) Represents adjustments for integration
and acquisition-related expenses and purchase accounting
adjustments
(3) Represents adjustments for corporate
restructuring, network realignment costs, and supply chain
transformation
(4) Represents adjustments for class
action litigation-related expenses and the impacts of tax
reform
(5) Represents adjustments for the
impairment of the Company's equity investment in Eicher-Polaris
Private Limited (EPPL). This charge is included in Equity in loss
of other affiliates (non-operating) on the Consolidated Statements
of Income.
(6) Represents a gain on the Company's
investment in Brammo, Inc. This gain is included in Other income
(non-operating) on the Consolidated Statements of Income.
(7) Represents amortization expense for
acquisition-related intangible assets
(8) The Company used its estimated
statutory tax rate of 23.8% for the non-GAAP adjustments in 2019
and 2018, except for the non-deductible items and the tax reform
related changes noted in Item 4
NON-GAAP RECONCILIATION OF SEGMENT RESULTS
(In Thousands), (Unaudited)
Three months ended June
30,
Six months ended June
30,
SEGMENT SALES
2019
2018
2019
2018
ORV/Snow segment sales
$
1,049,321
$
990,841
$
1,916,768
$
1,823,405
Restructuring & realignment (2)
—
1,659
—
2,129
Adjusted ORV/Snow segment sales
1,049,321
992,500
1,916,768
1,825,534
Motorcycles segment sales
196,773
171,412
314,715
302,969
Victory wind down (1)
—
798
—
249
Adjusted Motorcycles segment sales
196,773
172,210
314,715
303,218
Global Adjacent Markets (GAM) segment
sales
121,924
113,418
226,880
226,745
No adjustment
—
—
—
—
Adjusted GAM segment sales
121,924
113,418
226,880
226,745
Aftermarket segment sales
228,872
226,861
449,407
446,886
No adjustment
—
—
—
—
Adjusted Aftermarket sales
228,872
226,861
449,407
446,886
Boats segment sales
182,425
—
367,235
—
No adjustment
—
—
—
—
Adjusted Boats sales
182,425
—
367,235
—
Total sales
1,779,315
1,502,532
3,275,005
2,800,005
Total adjustments
—
2,457
—
2,378
Adjusted total sales
$
1,779,315
$
1,504,989
$
3,275,005
$
2,802,383
Three months ended June
30,
Six months ended June
30,
SEGMENT GROSS PROFIT
2019
2018
2019
2018
ORV/Snow segment gross profit
$
312,689
$
297,221
$
564,924
$
540,782
Restructuring & realignment (2)
—
1,659
—
2,129
Adjusted ORV/Snow segment gross profit
312,689
298,880
564,924
542,911
Motorcycles segment gross
profit
26,802
24,672
33,764
41,240
Victory wind down (1)
—
(874
)
—
(822
)
Restructuring & realignment (2)
—
1,185
—
1,185
Adjusted Motorcycles segment gross
profit
26,802
24,983
33,764
41,603
Global Adjacent Markets (GAM) segment
gross profit
33,884
28,107
63,713
59,365
Restructuring & realignment (2)
—
(11
)
—
434
Adjusted GAM segment gross profit
33,884
28,096
63,713
59,799
Aftermarket segment gross
profit
55,214
57,747
111,689
116,199
No adjustment
—
—
—
—
Adjusted Aftermarket segment gross
profit
55,214
57,747
111,689
116,199
Boats segment gross profit
40,477
—
76,641
—
No adjustment
—
—
—
—
Boats segment gross profit
40,477
—
76,641
—
Corporate segment gross profit
(32,618
)
(22,571
)
(61,835
)
(48,929
)
Restructuring & realignment (2)
6,592
3,212
13,283
8,089
Adjusted Corporate segment gross
profit
(26,026
)
(19,359
)
(48,552
)
(40,840
)
Total gross profit
436,448
385,176
788,896
708,657
Total adjustments
6,592
5,171
13,283
11,015
Adjusted total gross profit
$
443,040
$
390,347
$
802,179
$
719,672
(1) Represents adjustments for the wind
down of Victory Motorcycles, including wholegoods, accessories and
apparel
(2) Represents adjustments for corporate
restructuring, network realignment costs, and supply chain
transformation
NON-GAAP ADJUSTMENTS 2019 Second
Quarter Results & Full Year Guidance
Restructuring, Realignment and Acquisition Related Costs
Polaris announced in 2017 that it was making changes to its network
to consolidate production and distribution of like products and
better leverage plant capacity and embarked on a multi-phase supply
chain transformation initiative to continue to leverage its supply
chain as a strategic asset. Additionally, the Company has recorded
acquisitions and integration related costs associated with the TAP
and Boat Holdings acquisitions. For the second quarter of 2019, the
Company has recorded combined costs totaling $9 million.
Intangible amortization related to acquisitions As a
result of the Boat Holdings acquisition, Polaris' amortization of
intangible assets increased by approximately $20 million on an
annual basis. Given the significant increase in non-cash
amortization associated with this acquisition along with intangible
amortization from prior acquisitions, the Company has moved to an
adjusted net income metric, excluding intangible amortization from
all acquisitions. The Company believes this treatment will provide
additional transparency into the true, ongoing earnings performance
of its business. For the second quarter of 2019, Polaris excluded
$10 million of intangible amortization related to acquisitions.
Eicher-Polaris Joint Venture Impairment in India
Regulatory changes have negatively impacted the likelihood of
success of the joint venture, and as a result, in late-February
2018, the Board of Directors of the joint venture approved the
wind-down of the joint venture. For the full year ended December
31, 2018, Polaris has recorded charges totaling $27 million,
including the impairment of the Company's equity investment in the
Eicher-Polaris joint venture in India and wind down costs. No costs
were recorded in 2019.
2019 Adjusted Guidance 2019 guidance excludes the pre-tax
effect of acquisition integration costs of approximately $5 million
to $10 million, supply chain transformation and network realignment
costs of approximately $25 million to $30 million, and
approximately $15 million to $20 million for class action
litigation-related expenses. Intangible amortization of
approximately $40 million related to all acquisitions has also been
excluded. The Company has not provided reconciliations of guidance
for adjusted diluted net income per share, in reliance on the
unreasonable efforts exception provided under Item 10(e)(1)(i)(B)
of Regulation S-K. The Company is unable, without unreasonable
efforts, to forecast certain items required to develop meaningful
comparable GAAP financial measures. These items include
restructuring and realignment costs and acquisition integration
costs that are difficult to predict in advance in order to include
in a GAAP estimate.
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Investor Contact: Richard Edwards 763-513-3477
Media Contact: Jess Rogers 763-513-3445
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