MINNEAPOLIS,
Jan 27, 2015 -- Polaris Industries Inc. reported record fourth quarter net
income of $1.98 per diluted share for the quarter ended December 31, 2014, an
increase of 27 percent compared to the prior year’s fourth quarter net income
of $1.56 per diluted share.
Net
income was $135.4 million for the fourth quarter of 2014, up 25 percent from
the previous fourth quarter’s net income of $108.7 million. Sales for the
fourth quarter of 2014 totaled a record $1,275.0 million, an increase of 18
percent over last year’s fourth quarter sales of $1,083.7 million.
For
the full year ended December 31, 2014, Polaris reported record net income from
continuing operations of $6.65 per diluted share, a 23 percent increase
compared to net income from continuing operations of $5.40 per diluted share
for the year ended December 31, 2013.
Net
income from continuing operations was $454.0 million for the full year 2014, up
19 percent from the previous year’s net income from continuing operations of
$381.1 million. Sales for the full year 2014 totaled a record $4,479.6 million,
an increase of 19 percent compared to sales of $3,777.1 million for the full
year 2013.
“2014
marks our fifth consecutive year of double digit sales and earnings growth, an
accomplishment which testifies to the innovative spirit and dedication of the
8,000 member global Polaris team. It is inspiring to see how they overcame
obstacles ranging from negative foreign exchange impacts and a weakening
European economy, to highly volatile oil and crop prices, to record a 19
percent increase in both sales and net income for the full year 2014.
During
the year, we added over thirty new vehicles to the Polaris armada, expanding
and strengthening our portfolio with our largest ever new product introduction,
while our strategic acquisitions and significant investments in our global
manufacturing infrastructure allow us to both create and meet the increasing
demand for our products,” explained Scott Wine, Polaris’ Chairman and Chief
Executive Officer.
“While
we expect to face similar headwinds in 2015, namely ongoing currency volatility
and a struggling European economy, I am confident that with the best team in
power sports and numerous catalysts for growth and margin expansion, we are
well positioned to surmount any challenges. Our ability to develop, produce,
and market visionary products, and to invest strategically and aggressively,
will continue driving Polaris to industry-leading growth and profitability in
2015 and beyond.”
2014
Product and Operations Highlights
Product
–
Introduced
over twenty new MY’14.5 and MY‘15 ORV models in 2014, including the all-new
RZR® XP 900 trail and RZR® XP4 900 trail, several new value models, and two
models in a newly defined category of single-seat, ride-in ATVs, the Polaris
ACE™ and strengthened our #1 market share position in ORVs
Introduced
nine new MY’15 snowmobiles in the all-new AXYS™ chassis platform for the
flatland rider – 38 lbs. lighter, 15% more power to weight, fastest in the ¼
mile shootout; MY’15 800 Switchback Pro-S won “2015 Snowmobile of the Year” by
SnowGoer Magazine
Added
two new models to the iconic Indian Motorcycle® brand: the 2015 Roadmaster®, a
luxury touring motorcycle, and the return of the Scout™, one of motorcycling’s
most famous and coveted mid-sized motorcycles; Polaris’ first mid-sized bike,
and added a new bagger to the Victory motorcycle line, the Victory Magnum™
Introduced
the revolutionary all-new three-wheeled motorcycle, Slingshot™, the Company’s
first roadster motorcycle
Polaris’
Quality improving: #1 in Net Promoter Score (NPS) for motorcycles,
Side-by-sides and ATVs
Added
over 400 new Polaris accessories contributing to a 21% increase in PG&A
sales in 2014
Acquired
Kolpin (April 2014) and Pro Armor (November 2014), adding two industry-leading
accessory companies to Polaris’ PG&A business
Announced
a strategic partnership with Ariens® Company, maker of outdoor power equipment
to further develop our work and transportation business
Held
first Camp RZR® in the Eastern United States for our recreational trail
customers – over 12,000 in attendance
Operations
–
Celebrated
the Company’s 60th Anniversary reflecting on the spirit of innovation, hard
work and passion the Polaris founders, Edgar and Allan Hetteen and David
Johnson, instilled in the Company six decades ago, beginning in 1954
Expanded
production capacity and capabilities at all manufacturing facilities in the
U.S. and Mexico
Completed
the construction of the manufacturing plant in Opole, Poland, the Company’s
first manufacturing operation outside North America with initial production
beginning late 2014
Appointed
an experienced Polaris leader, Matt Homan, to the newly established position of
President, Global Adjacent Markets to increase focus on achieving the stated
objective of creating a $2+ billion non-powersports portfolio
Added
1,800 new employees, including the hiring of Ken Pucel for the newly
established position of Executive Vice President of Operations, Engineering and
Lean, to drive towards a lean enterprise that gives competitive advantage in
quality, delivery and costs alongside the Company’s world-class innovation
engine
2015 Business Outlook
Full
year 2015 earnings per share is expected to be in the range of $7.22 to $7.42
per diluted share, an increase of 9 to 12 percent over the full year 2014
earnings per share. Net income for full year 2015 is expected to increase in
the range of 9 to 12 percent over full year 2014. Sales for full year 2015 are
expected to increase 9 to 12 percent over full year 2014 sales.
Off-Road Vehicle (“ORV”) sales
increased 19 percent from the fourth quarter 2013 to $781.5 million. This
increase reflects continued market share gains on strong demand for the
Company’s products for both ATVs and side-by-sides. Polaris North American ORV
unit retail sales were up low-double digits percent from the 2013 fourth quarter
with consumer purchases of side-by-side vehicles up double-digits percent and
ATV retail sales up high-single digits percent for the 2014 fourth quarter. The
Company’s new ACE™ platform accelerated its retail sales sequentially
throughout 2014. The Company estimates that North American industry ORV retail
sales increased high-single digits percent from the fourth quarter of 2013 with
side-by-sides increasing in the high-single digits percent range and ATVs up
mid-single digits percent. International ORV shipments increased 10 percent in
the 2014 fourth quarter compared to the same period last year. For the full
year 2014, Polaris ORV sales increased 15 percent compared to the prior full
year.
Snowmobile sales increased two
percent to $138.1 million for the fourth quarter of 2014 as compared to $134.9
million for the fourth quarter of 2013. Due to the early snowfall and colder
weather in North America, the snowmobile selling season started strong with
industry retail sales increasing in the high-single digits percent range for
the season-to-date period ended December 31, 2014. Polaris’ retail sales in
North America for the same period reflects the positive start to the snowmobile
season and consumers acceptance of the all-new AXYS™ platform featured on nine
new MY 2015 snowmobiles. Polaris retail sales increased in the high-teens
percent range for the April through December 2014 period. Sales of Polaris
snowmobiles outside North America, principally in the Scandinavian region and
Russia, decreased 25 percent and 28 percent for the fourth quarter and full
year 2014, respectively, when compared to the same periods a year ago,
reflecting poor snowfall in the Scandinavian region and ongoing Russian economic
uncertainty. For the full year 2014, Polaris snowmobile sales increased seven
percent compared to the same period in the prior year.
Motorcycle division sales,
increased 50 percent in the 2014 fourth quarter to $103.5 million compared to
$68.8 million in the fourth quarter of 2013. During the quarter, the Company
began retailing the two newest Indian motorcycles, the new 2015 Roadmaster™,
and the Company’s first mid-sized motorcycle, the highly regarded Indian®
Scout™, and began initial shipments late in the fourth quarter of the all-new
roadster, Slingshot™. Consumer retail demand for Polaris motorcycles was up
almost 40 percent with continued strong retail sales for Indian® motorcycles,
improved retail demand for Victory® motorcycles with retail sales up in the
mid-single digits percent range in North America, and initial retail sales of
Slingshot™.
Fourth quarter North American industry heavyweight cruiser and
touring motorcycle retail sales, 1400cc and above, were down low-single digits
percent compared to 2013, primarily due to the extremely cold weather in much
of North America during the 2014 fourth quarter and the expected headwind
resulting from strong 2013 fourth quarter industry retail sales. Sales of
Polaris motorcycles outside of North America increased seven percent in the
fourth quarter of 2014 as compared to a year ago. For the full year 2014,
Polaris motorcycle sales increased 59 percent compared to the prior year.
Sales
in the Small Vehicles division
decreased 11 percent to $41.2 million in the fourth quarter 2014 compared to
$46.3 million in the fourth quarter of 2013. While the Company’s GEM® business
experienced an increase in sales for the 2014 fourth quarter, both Goupil and
Aixam Mega realized lower sales during the 2014 fourth quarter, which was a
direct result of the weak European economy and unfavorable currency impacts.
For the full year 2014, Polaris small vehicles sales increased 28 percent
compared to the prior year.
Parts, Garments, and
Accessories
(“PG&A”) sales increased 21 percent during the fourth quarter of 2014 to
$210.7 million compared to $174.7 million in the same period last year. ORV and
motorcycles were the primary drivers of the growth in PG&A for the 2014
fourth quarter, as both experienced strong double-digit percent increases in
sales year over year. The 2014 fourth quarter sales increase includes the
incremental accessory sales from the Pro Armor® acquisition completed in
November 2014. Sales of PG&A to customers outside of North America
increased four percent during the 2014 fourth quarter compared to the same
period last year. For the full year 2014, Polaris PG&A sales increased 21
percent compared to the prior year.
International sales to customers outside
of North America totaled $198.0 million for the 2014 fourth quarter, down three
percent from the same period in 2013. The Company experienced sales growth in
its Latin American and Asia Pacific business with combined sales increasing
nine percent. While the Company’s Europe, Middle East and Africa (EMEA)
business reported sales five percent lower, year over year, for the 2014 fourth
quarter due to the weak economic environment in Europe, Polaris gained market
share in both ORVs and motorcycles during the quarter. For the full year 2014,
Polaris’ International sales increased 16 percent compared to the prior year.
Gross
profit for the fourth quarter of 2014 was 28.8 percent of sales, a 43 basis
point decrease from the fourth quarter 2013. Lower product costs and higher
pricing realized during the 2014 fourth quarter were more than offset by
negative currency movements. Gross profit dollars increased 16 percent to
$367.6 million for the fourth quarter of 2014, compared to $317.1 million for
the fourth quarter of 2013. For the full year 2014, gross profit as a
percentage of sales decreased 23 basis points to 29.4 percent, in line with
Company expectations.
Operating
expenses for the fourth quarter of 2014 increased 10 percent to $176.9 million
compared to $160.7 million for the fourth quarter of 2013. Operating expenses,
as a percentage of sales, declined 95 basis points, to 13.9 percent compared to
14.8 percent of sales in the 2013 fourth quarter. The decline in operating
expenses, as a percent of sales, for the 2014 fourth quarter was due to lower
long-term incentive compensation expenses and favorable currency impacts,
partially offset by higher marketing and advertising expenses related to the
launch of various new model year 2015 products including the continued roll-out
of Indian® motorcycles. For the 2014 full year, operating expenses, as a
percent of sales, decreased 72 basis points to 14.9 percent.
Income
from financial services increased 53 percent to $19.4 million during the fourth
quarter of 2014 as compared to $12.7 million in the fourth quarter of 2013.
These results were primarily due to higher income from Polaris Acceptance’s
dealer inventory financing as well as to the increased profitability of the
retail credit portfolio. For the 2014 full year, income from financial services
was $61.7 million, a 34 percent increase compared to $45.9 million for the full
year 2013.
Equity
in loss of other affiliates was $1.2 million for the fourth quarter 2014, which
represents the Company’s portion of the start-up costs related to the
Polaris/Eicher joint venture in India established in 2012. For the 2014 full
year, equity in loss of other affiliates was $4.1 million compared to $2.4
million for the full year 2013.
Non-operating
other expense (income), which primarily relates to foreign currency exchange
rate movements and the corresponding effects on foreign currency transactions
related to the Company’s foreign subsidiaries, was $3.7 million of expense in
the fourth quarter of 2014, compared to $1.1 million of expense in the fourth
quarter of 2013. For the 2014 full year, non-operating other expense was $0.0
million compared to $5.1 million of income for the full year 2013.
The
provision for income taxes for the fourth quarter of 2014 was $67.1 million or
33.1 percent of pretax income compared to $56.7 million or 34.3 percent of
pretax income for the fourth quarter 2013. The income tax provision for the
fourth quarter of 2014 was positively impacted by the United States Congress
extending the research and development income tax credit for calendar year 2014
during the quarter, offset somewhat by lower income generated from the
Company’s international operations, which generally have lower income tax
rates.
The
weighted average diluted shares outstanding for the fourth quarter of 2014
decreased one percent to 68.5 million shares compared to 69.5 million shares in
the fourth quarter of last year. The decrease in the weighted average diluted
shares outstanding is primarily due to the Company’s purchase of 3.96 million
shares of Polaris stock previously held by FHI Heavy Industries Ltd. (“Fuji”)
in November 2013. For the 2014 full year, the weighted average diluted shares
outstanding was 68.2 million shares compared to 70.5 million shares for the
full year 2013.
Loss
from Discontinued Operations in 2013
In
the third quarter of 2013 Polaris recorded a loss from discontinued operations
of $3.8 million net of tax, or $0.05 per diluted share, resulting from a jury
verdict in connection with a personal watercraft accident. Reported net income
for the full year of 2013, including both continuing and discontinued
operations, was $377.3 million, or $5.35 per diluted share. The Company ceased
manufacturing marine products in September 2004 and substantially completed the
exit of the business in 2007.
Financial
Position and Cash Flow
Net
cash provided by operating activities from continuing operations increased six
percent to $529.3 million for the year ended December 31, 2014 compared to
$499.2 million for the same period in 2013. Higher net income for the full year
2014 was offset primarily by higher factory inventory to support the new
manufacturing plant in Poland and increased demand for Polaris products, and
higher deferred income tax assets. Total debt, including capital lease
obligations, at December 31, 2014 was $226.1 million and the Company’s
debt-to-total capital ratio was 21 percent compared to 35 percent at December
31, 2013. Cash and cash equivalents were $137.6 million at December 31, 2014, a
49 percent increase from a year ago.
