Polaris CEO Drives Profit With New ATVs, Motorcycles

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With some sporty toys and adventure vehicles for boomers and Gen Xers selling well these days, the path ahead is looking promising for Polaris Industries -- with plenty of new terrain for its customers, just the way they like it.

Expect to see several product innovations fromPolaris ( PII ) this year, its CEO tells IBD. On Wednesday the world's top maker of off-road vehicles introduced one of them, its Sportsman ACE. Termed revolutionary and nimble, it has a sit-in chassis aimed at attracting newbie off-roaders.

The company's stock has climbed 57% in the last 12 months. That edges past the 53% gain of its rival in snowmobiles and all-terrain vehicles,Arctic Cat ( ACAT ), and is well ahead ofHarley-Davidson 's ( HOG ) 28%, though each pared back this month. Polaris competes with Harley through the vintage Indian Motorcycle brand it bought a few years ago and relaunched, debuting three models in 2013.

Polaris has been racking up double-digit quarterly sales and earnings growth for years, as the power-sports industry giant benefits from its consistent investments in R&D. Earnings per share grew 23% in Q3. Consensus forecasts call for a 25% pop when it reports Q4 financial results Jan. 28.

Polaris CEO Scott Wine recently spoke with IBD about prospects for his company, the power-sports market, the economy, big-ticket consumer spending and other trends.

IBD: How do you see the environment for the power-sports industry overall in 2014?

Wine: The power-sports industry was quite strong in 2013, and we expect it again to be better than the U.S. and European economies, although perhaps not to the extent it was in 2013.

It was a great year for our industry in terms of product innovation from both Polaris and many of our competitors, and we expect more of the same in 2014, although new products are likely to be slightly down.

IBD: What about Polaris' new products' pace?

Wine: We put 4% of our revenue back into R&D every year. We can't afford to slow down in new product innovation, and we expect our efforts to generate another very good year on that front.

IBD: Do you expect the high level of competitive pressure you saw in 2013 to accelerate in 2014?

Wine: I don't think the level of new product introductions will be as high in 2014 as in 2013. But the competitive pressure will stay high, especially in the side-by-side market, as companies try to get a return on the investments they have made and seek to gain market share in the fastest-growing product segment in power-sports.

We saw a significant increase in promotions in 2013 as our competition sought to move products that we believe are inferior.

IBD: Are there aspects of the average Polaris customer that have changed -- domestically, globally and demographically?

Wine: This is one of the secrets to our success. Especially with our Ranger and RZR (side-by-side vehicles), we are bringing many new people into the industry.

A good example is on the higher end in the 50- to 60-year-old age range. We are getting a lot of people who find that our Ranger products can help them get a lot of work done -- from farmers and ranchers to many multiacre homeowners who have hauling, plowing or other work to be done around the house. It's a great product for the older demographic.

Many younger people who used to ride dirt bikes find that our RZR product gives them the same adrenaline rush and opportunity for fun in a safer and equally thrilling environment.

With our movement into the on-road space with our Global Electric Motorcars (GEM) and Goupil vehicles and our military business, we're expanding the reach of our product offerings to new and different customers.

In 2013 our small vehicles business -- GEM, Goupil and Aixam Mega together -- was Polaris' fastest growing revenue line. Part of that was due to acquisitions, but our GEM business had the highest organic retail growth of any Polaris product line.

IBD: You're building your first manufacturing plant -- for off-road vehicles -- in Europe? Why invest in Europe right now?

Wine: We're building our first European plant in Opole, Poland. Even if there's no growth, we expect significant savings because of the logistics costs and tax penalties of shipping products from the U.S.

But we also believe that by designing more products specifically for the European customer and being able to deliver them faster to our dealers that we can accelerate growth. We expect them to be making their first products in the later part of 2014, with high volume shipments beginning in early 2015.

IBD: You've said you see another year of record performance for Polaris in 2014. What are some of the factors driving that?

Wine: We will have a full year of our Indian (brand) motorcycle revenue with a growing dealers network. We have significant innovation again in our off-road vehicle business and we plan to launch our Slingshot three-wheel vehicle. Slingshot has not been officially introduced, but we did acknowledge plans to bring it to market after it got picked up by some analysts when we filed for patent and trademark registration.

IBD: What are your prospects for the motorcycle industry and for your Indian and Victory brands?

Wine: We are very bullish on our motorcycle business. We love our ability to compete with two brands. We had a good year for Victory (in 2013) and the launch of Indian. We're going to work hard to make sure that continues in 2014.

(The launch of Indian) built awareness that Polaris is a serious competitor in the motorcycle industry. It highlights that Victory is a great bike at a lower price point than an Indian or a Harley and it brings awareness to our beautiful, alternative styling on a motorcycle made in the U.S.A.

IBD: How did you do with the relaunch of the Indian brand last year and how do you see this year unfolding with the relaunch?

Wine: Indian has been incredibly well-received and we're gaining market share. We ended the year with 140 dealers signed up in North America. But less than half of those had met all our requirements to have their doors open and selling bikes. So we gained share with not a very big dealer network.

We have about another 70 dealers outside of North America. We will continue to add dealers globally in 2014, and we expect most of our 140 retail dealers in North America will be open to sell bikes before the spring selling season gets underway.

IBD: Are you gaining traction against Harley-Davidson?

Wine: We are very well positioned as we enter 2014. Ultimately whether they're gaining share or losing share, that's going to define our traction.

IBD: What are your thoughts about the outlook for the U.S. and European economies in 2014?

Wine: I am not optimistic on the global economy right now. I believe we'll probably see better growth in the U.S. than we had in 2013. But we're likely going to have sub-3% GDP growth. I believe the opportunities for GDP growth are quite limited in Europe. We have seen some recent improvements in Southern European countries such as France, Spain and even Italy, but not much, just some slight improvement.

My below-consensus expectations for the U.S. result from the overbearing regulatory environment that remains in place, the lack of growth policies coming out of Washington, and the likelihood of higher interest rates.

IBD: How do you see the overall U.S. consumer spending environment on discretionary big-ticket items in 2014?

Wine: The consumer could be a little bit constrained in the year ahead. We've got an improving economy, albeit slowly. But in many cases higher taxes, higher interest rates and higher health care costs could impact discretionary spending.

I realize some people will benefit from the Affordable Care Act. But if you look at the average Polaris customer, they're not likely to receive any type of reduction in their health care costs, and may in fact see an increase. That's yet another hit to their discretionary spending dollars.

I'm just pointing out that despite a slightly better economic environment, consumer spending is not going to have a major jump. I don't think it's going to go down in our industry. What we've seen over the last several years is that great products and strong brands continue to attract consumers even in difficult economic times.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: ACAT , HOG , PII

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