Anyone who has ever cranked up an off-road vehicle and gone
hauling through wide open spaces knows how addictive the
experience can be.
It's not just the screaming of the motor or the jolt of
adrenaline you get when you hit the accelerator and go roaring
off. It's the fact that you can go where you want, as fast as you
want, without having to worry about traffic lanes or patrolmen or
drivers whose sole purpose in life seems to be figuring out new
ways to annoy you on the road.
Those are just a few of the reasons off-road vehicles comprise
a multibillion-dollar market in the U.S., and why companies
likePolaris Industries (
) keep pumping out robust growth.
Polaris makes all-terrain vehicles (ATVs), snowmobiles and
motorcycles, as well as parts, garments and accessories. It sells
through a network of 2,000 dealers in North America, five
subsidiaries and 40 distributors in more than 120 countries
The company's brands include RZR and Ranger ATVs, Indian and
Victory motorcycles, and Polaris Rush snowmobiles.
The popularity of Polaris' vehicles and gear have helped the
company run off 11 straight quarters of double-digit sales and
earnings growth despite a challenging macro environment.
"While (industry) trends have been negative, we have seen
sales trends improve and think pent-up demand should benefit the
company," Citigroup analyst Gregory Badishkanian noted in a
third-quarter earnings report.
He expects Polaris' revenue growth to outpace overall U.S.
industry growth next year "due to strong new-product launches and
exposure to faster-growing segments (international and utility)
not tracked by industry data."
Polaris has delivered 10 straight quarters of 20%-or-better
sales growth, though that growth has decelerated in five of the
past six quarters.
During the third quarter, the company's sales rose 21% vs. the
prior year to $879.9 million. That was the lowest rate of growth
since March 2010, but still easily topped consensus analyst
estimates for $830.5 million.
Polaris reported gains across all product categories during
the quarter, led by strong sales of its side-by-side off-road
vehicles. These are multipassenger, off-road all-terrain vehicles
that can carry up to six passengers in addition to cargo.
The company also racked up solid gains in sales of heavyweight
highway-cruising motorcycles. Polaris management noted that North
America Victory retail sales grew more than 25% during the
"That is up from the low double-digit pace in Q2 and is
significantly better than the total heavyweight (motorcycle)
market, which declined single digits in the quarter," said Edward
Aaron, analyst at RBC Capital Markets.
Polaris posted earnings of $1.33 a share during the third
quarter, up from 95 cents the prior year and 13 cents above Wall
"The revenue and earnings growth was due to strong demand ...
as well as market-share gains for its Ranger and RZR side-by-side
off-road vehicles, continued product innovation, manufacturing
realignment and cost management programs," Zacks Equity Research
said in a report.
Sales of parts, garments and accessories also moved higher as
Polaris rapidly expanded its product lineup for the 2013 model
year. Meanwhile, international revenue continued to post gains
amid improved sales in the Asia-Pacific and Latin American
To help meet rising demand, Polaris also boosted its product
inventory during the quarter. Total dealer inventories grew 23%
in North America. Off-road vehicle (ORV) inventories were up 18%,
motorcycle inventories were up 37% and snowmobile inventories
were up 39%.
"Management views the inventory growth in ORV and motorcycle
as necessary in light of growing demand and an expanding product
line," RBC's Aaron said. "Snowmobile inventory is clearly high,
but this is partly a timing issue. We expect dealer inventories
to show continued, albeit moderating, year-over-year growth over
the next few quarters."
Polaris' third-quarter results would have been even better if
not for "a few holes" in certain markets and product categories,
"Areas of scrutiny included decelerating North America retail
sales, indications of increasing promotional activity, a weak
European off-road vehicle (market) and lower-than-expected growth
contribution from adjacency businesses," he said.
Aaron also says Polaris has been rapidly building cash
reserves and is likely to use some of that cash for buyouts.
"Management indicated that it will likely draw down its cash
balance to execute M&A, and that the pipeline of acquisition
targets is currently robust," he said. "The company is also
actively looking to build assembly capacity in Eastern
Polaris should continue to deliver solid profit growth in
coming quarters. Analysts polled by Thomson Reuters expect
full-year earnings to rise 37% in 2012 and 18% in 2013.
The company's stock price has been on a strong run as well.
Shares are up more than 50% since the beginning of the year and
hit a record high of 89.83 in October. The stock currently trades