June 12, 2012
Analyst Jimmy Baker in “ATV Maker Polaris Keeps The Pedal To The Metal” with Investors.com
By MARILYN MUCH, INVESTOR'S BUSINESS DAILY
Posted 05:09 PM ET
Workers at Polaris' plant in Roseau, Minn., prepare an engine for installation into a Ranger side-by-side vehicle. View Enlarged Image
Polaris Industries (PII) is operating full throttle as it reaps the benefits of innovative products, acquisitions and expansion into new markets.
Like the power-sports vehicles it sells, Polaris Industries is operating at full throttle.
The maker of snowmobiles, all-terrain vehicles and motorcycles saw its business kick into high gear in 2010 as it recovered from a yearlong slump. It's been gaining traction ever since, leaving many of its peers trailing in the dust.
Sales have climbed by double digits for nine straight quarters as Polaris has revved up its business with innovative products, acquisitions and expansion into new markets.
Polaris has gotten the biggest jolt from its side-by-side vehicles, a product category that's really caught fire.
Side-by-sides are multi-passenger, off-road all-terrain vehicles that can carry up to six passengers in addition to cargo.
Its recreational side-by-side offerings include the Ranger RZR 570, a 2012 model which, at 50 inches wide, is built for traveling through dirt trails. Polaris also makes Ranger utility side-by-sides for applications such as farming, ranching and construction.
Over the past few years Polaris has built up a wide portfolio of side-by-side products, a strategy that's helped fuel the company's growth overall, analysts say.
Side-by-sides have been the most significant contributor to the company's growth with substantially higher margins than the consolidated average of the rest of the business, says B. Riley & Co. analyst Jimmy Baker.
He pegs Polaris as No. 1 in side-by-side vehicles.
Polaris includes its core ATVs and side-by-side vehicles in its off-road vehicle segment.
In 2011, off-road-vehicle sales surged 32% vs. the prior year after a 35% pop in 2010.
"That's pretty phenomenal growth," said Robert W. Baird & Co. analyst Craig Kennison. "And that's just their shipments growing like that."
He estimates the off-road-vehicle segment's sales will grow 18% in 2012.
Off-road vehicles are also its biggest contributor to sales, at 69% of the total in both 2011 and 2010.
Polaris offers a highly differentiated product portfolio of side-by-side vehicles, a competitive edge that has helped drive its success in the market, says Baker. He figures the company has roughly as many different models of side-by-sides than the rest of the industry has combined.
It offers dedicated products for different applications. So ranchers can buy Ranger utility products customized to their needs, he adds, while buyers who want to explore the sand dunes of Southern California would opt for one of its high-performance RZR products.
Polaris really identified the attractiveness of this market early and became a leader," Baker said. "That leadership has only grown."
He pegs Polaris as No. 1 in side-by-side vehicles.
Deere & Co. (DE), Yamaha Motors and Arctic Cat (ACAT) are among Polaris' rivals for its side-by-side vehicles, the company says.
Side-by-sides helped propel Polaris' strong first-quarter performance. Earnings rose 27% to 85 cents a share, handily topping views. It was the 10th straight quarter of double-digit earnings growth. Sales rose 25% to $673.8 million, also ahead of forecasts.
Off-road-vehicle sales continue to thrive with revenue up 30% vs. the prior year to $504.6 million, reflecting strong market-share gains for ATVs and side-by-side vehicles.
The gains were driven by new product offerings, including the recently introduced Ranger RZR XP4 900 and increased sales from its military business.
Off-road-vehicle sales in North America rose in the mid-20% range, the company says. Sales were boosted by the new extreme-performing Ranger RZR XP4 900, which Polaris says is a new class of side-by-side vehicle.
On-road vehicles, comprised mainly of Victory motorcycles, rose 44% to $64.7 million.
Kennison says Polaris enjoys an edge over rivals.
"Polaris has a genuine and sustainable competitive advantage built around innovative products, superior operations and very strong distribution," he said.
Polaris is able to consistently come up with better products, he says, because it has "great engineers" developing them at its own R&D facility. On the operations front, it has a very lean cost structure and low fixed costs.
Polaris is also investing in growth. That includes the April 2011 acquisition of Indian Motorcycle Co., a buy that lifts its presence in the heavy motorcycle market, where Harley-Davidson (HOG) leads the pack.
Kennison says Polaris will relaunch the Indian brand in a more meaningful way.
"It has the potential to be huge," he said.
In June 2011, it bought the GEM line of small electric vehicles from Chrysler.
Polaris also has invested in global expansion in areas such as Asia and Europe, says Kennison.
Baker says Polaris continues to move on the fast track.
"My recent conversations with dealers lead me to believe the momentum is continuing in the second quarter, and I expect it to continue through the balance of the year," he said.
Analysts polled by Thomson Reuters expect full-year 2012 earnings to rise 27% to $4.05 a share. They see an 18% increase in 2013.