Off-road vehicle kingpin Polaris Industries is getting more
serious about cranking up its business on the road, where
At a recent annual mega-biker festival -- the Sturgis
Motorcycle Rally in South Dakota --Polaris (
) introduced its newest Indian Motorcycle model, the Scout.
At just less than $11,000 retail, the low-seated Scout -- a
famous Indian brand from 1920 to 1949 -- competes
withHarley-Davidson 's (
) entry-level Sportster.
It was the fifth model in Polaris' Indian-branded motorcycle
line, which just a week earlier saw the debut of a high-end
touring bike called the Roadmaster.
At nearly $27,000, the Roadmaster is comparable to Harley's
popular Road Glide.
New Growth Avenue
Polaris acquired the 113-year-old Indian biker brand in 2011
and has spent the years since on re-launching new and improved
Indian models, starting with three last year.
"It's a new avenue of growth for Polaris," said Tim Conder, an
analyst with Wells Fargo Securities.
While Polaris might be David to Harley's Goliath in
motorcycles, Conder says that innovations from Polaris and Harley
will allow both companies to grow the motorcycle market and take
share from other competitors.
Polaris' revitalized motorcycle business also includes the
Victory brand, which Polaris started from scratch in 1998.
A soon-to-launch three-wheeler known as the Slingshot will be
a niche on-road bike to appeal to younger powersports
Despite the big move into road cycles, Polaris is "still about
off-road vehicles," Conder said.
About two-thirds of the company's revenue comes from off-road
vehicles. They include all-terrain and side-by-side products such
as the RZR Sport and Ranger utility lines.
Polaris has the No. 1 market share in both side-by-sides and
"We created the sport-recreation market," Chief Executive
Scott Wine said in a phone interview, noting that Polaris created
the first RZR side-by-side sports vehicle in 2007.
The company began making side-by-side utility vehicles in
1998. Its all-terrain vehicles got rolling in 1985.
The firm's original snowmobile business, a separate unit,
began in 1954. It's why Polaris is celebrating its 60th
anniversary this year.
Snowmobiles account for only a small percentage of the
company's current revenue, however.
"It's a mature industry," Conder said.
As for the rest of the company's off-road vehicles, Polaris
recently launched 18 new products, including a model that steers
"They continue to gain share from their competitors in
off-road because they continue to lead with innovation," Conder
said. "They're gaining share against everybody."
Harley doesn't compete in the off-road segment, but plenty of
Japanese companies do, as well asArctic Cat (
Polaris' off-road vehicle sales in the second quarter rose 13%
from a year earlier to $710.5 million, led by North American
share gains in side-by-side models.
Total revenue climbed 20% to a little over $1 billion, while
earnings grew 26% to $1.42 per share.
Polaris' motorcycle division -- which saw Q2 revenue more than
double to $103.1 million -- delivered faster growth than the
off-road segment. But the motorcycle category still lost money
due to investments in the Indian brand.
Wine says that Polaris has invested close to $100 million in
Indian, not only to buy the company but also to make engineering
changes and other upgrades, and to market the bikes.
He expects Indian to turn its first profit in the fourth
quarter and to log its first profitable year in 2015.
"(Wall Street) is familiar with (Polaris) as a side-by-side
story; we believe motorcycles will help fuel the next leg of
growth," analyst Trey Grooms of financial-services firm Stephens
noted in a recent research note that began coverage with an
Polaris said that Q2 demand for Indian motorcycles was
"robust" as additional dealers began selling the bikes and
awareness of the brand's revival continued to gain steam in the
"Keep in mind that the Indian brand only started rolling out
in the last six to nine months, and in Q2 it had opened only in a
little more than half the U.S. dealers it has signed so far," UBS
analyst Robin Farley said in an email.
Indian Motorcycle was founded in 1901 in Springfield, Mass.,
two years earlier than Harley. Polaris bought the brand for an
undisclosed sum from a private-equity and investment group.
Meanwhile, Harley has lost market share in two of the last
three quarters, Farley says. But the decline is apparently due to
temporary internal issues rather than just Indian share
Still, Indian "gained more than what Harley lost in U.S.
retail sales," Farley said.
Indian's market share vs. Harley is still small. CEO Wine says
Harley has 52% of the overall motorcycle market in North America
to Polaris' 3% for both Victory and Indian.
In heavyweight motorcycles alone, Harley's share is around
80%, Wine says. That compares to 7% for Victory and 8% for
Victory sales in Q2 were down modestly due to a crankcase
problem that caused the recall of 872 bikes.
"Victory is decent, but it's not Harley. It's not Indian. It's
)," Conder said. "It doesn't have the brand history or the
background of those brands."
Indian "will help Polaris further accelerate its motorcycle
growth," Conder said.
No One-Trick Pony
The Scout is expected to help fuel that growth as its low
price and modest size yet mighty engine are expected to draw
newcomers to the biker world.
The Scout is "not just a one-trick pony," Farley noted. For
one thing, it comes with an engine that's not used on other
"Companies don't make new engines for one bike model. All that
engineering work means we can expect more bike models in the
future in this category," Farley wrote in a client note.
Sales of Polaris' small vehicles are also growing at a fast
clip. They rose 29% in Q2 to $43.5 million. Wine describes the
electric and diesel vehicles as "alternative means of
transportation" for personal and commercial uses.
Meanwhile, Polaris' sales in parts, garments and accessories
increased 20% to $159.7 million. "It's our most profitable
business," Wine said. "We see a lot of opportunity for continued
growth in that space."
The company also has high hopes for international sales, now
less than 20% of revenue.
"My long-term goal is to have a third of our sales outside
North America," Wine said.
Europe makes up the largest portion of overseas sales, but the
strongest growth is coming from Asia-Pacific and Latin