Fourth Quarter EPS Increased 38% to $1.24 with Sales Growth of 15%

Fourth Quarter Highlights:

  • Net income increased 38% to $88.1 million, or $1.24 per diluted share, with sales increasing 15% to $900.6 million, both fourth quarter records.
  • Off-Road Vehicle sales increased 22%, On-Road Vehicle sales increased 36% and PG&A sales increased 17% during the 2012 fourth quarter.
  • North American retail sales remained strong, increasing 13% in the fourth quarter compared to a year ago.
  • Gross profit margins expanded 210 basis points to 28.2% in the fourth quarter due to manufacturing realignment savings, lower product costs and higher selling prices.

Full Year Highlights:

  • Full year 2012 net income increased 37% to a record $312.3 million, or $4.40 per diluted share, with record sales of $3.2 billion, an increase of 21% from full year 2011.
  • Full year 2012 gross profit margins improved 90 basis points compared to full year 2011.
  • All product lines increased sales and retail market share for the full year 2012.

Polaris Industries Inc. reported record fourth quarter net income of $1.24 per diluted share for the quarter ended December 31, 2012, up 38 percent from the prior year’s fourth quarter net income of $0.90 per diluted share. Reported net income was $88.1 million for the fourth quarter of 2012, up 38 percent from the previous fourth quarter’s net income of $63.9 million. Sales for the fourth quarter 2012 totaled a record $900.6 million, an increase of 15 percent over last year’s fourth quarter sales of $782.0 million.

For the full year ended December 31, 2012, Polaris reported record net income of $4.40 per diluted share, a 38% increase compared to $3.20 per diluted share for the year ended December 31, 2011. Reported net income was $312.3 million for the full year 2012, up 37 percent from the previous year’s net income of $227.6 million. Sales for the full year 2012 totaled a record $3,209.8 million, an increase of 21 percent compared to sales of $2,656.9 million for the full year 2011.

“Our outstanding fourth quarter results concluded another successful year for Polaris, from both financial and strategic perspectives. In 2012, Polaris exceeded $3 billion in sales for the first time and operational improvements drove net income margin above 9.7%, even as we continued to invest in numerous diversification and growth opportunities,” commented Scott Wine, Polaris’ Chief Executive Officer.

“We expect 2013 to be another year of profitable growth and margin expansion, although we remain wary of the fragility of the global economy, particularly in Europe, where we project our business will be down slightly. Our product development and investment activity will remain high, as indicated by our decision to approve the construction of a new European plant that will provide significant future cost reduction and growth opportunities. Our aggressive posture will be balanced by consistent and prudent evaluation and preparation for risks that may arise. Operational flexibility and aggressive cost control are core strengths of Polaris, and we will leverage our excellence in executing those disciplines to overcome any obstacles to continued profitable growth.”

“Our strong performance in 2012 once again afforded us the opportunity to invest in key growth initiatives. Perhaps most exciting is the progress we made in support of the much anticipated Indian Motorcycle resurgence, which justifies and requires an unprecedented level of resources and investments. From designing and developing an all new engine and bikes, to building the team, distribution network and launch plans, we are executing a plan that will ensure we give Indian the best possible introduction to the market later this year.”

“Between the Indian launch and the much anticipated release of our jointly developed product with Bobcat, 2013 will be an exciting year for new vehicles. We are also enthusiastic about the potential KLIM, which we acquired in the fourth quarter, brings to our PG&A offering, providing both additional growth opportunities and attractive margin characteristics through its strong apparel brand. I believe our Polaris team is the best in Powersports, and together we will build on the strong finish to 2012 and play to win- again! – in 2013.”

2013 Business Outlook
Wine continued, “Disciplined execution of a set of well-defined strategic goals has guided us through several successful years, and we expect 2013 to be no different. We anticipate another record year, though we are keenly aware of the uncertainty surrounding the overall U.S. and European economic environment and increasing competitive pressure, most notably in our core Off-Road Vehicles business. We are prepared with countermeasures if economic conditions worsen and we are confident that our unparalleled product line of RANGER and RZR products, bolstered by a robust multi-year product pipeline of new ATV and side-by-side products, will emphatically answer these competitive threats, continuing our solid growth and market share gains. However, we cannot realize the promise of these products unless we efficiently bring them to market. Between the Max Velocity Program for Off-Road Vehicles and the Retail Flow Management process we are implementing for motorcycles, we foresee logistics becoming another vehicle driving us towards our sales and earnings goals.”

Full year 2013 earnings are expected to be in the range of $4.85 to $5.05 per diluted share, which represents an increase of 10 to 15 percent compared to full year 2012 earnings. Net income for full year 2013 is also expected to increase in the range of 10 to 15 percent over full year 2012. Sales for full year 2013 are expected to increase seven to ten percent over full year 2012 sales, with sales increases projected in Off-Road Vehicles, On-Road Vehicles and PG&A.

Fourth Quarter Performance Summary (in thousands except per share data)
Three Months ended December 31, Twelve Months ended December 31,
Product line sales 2012 2011 Change 2012 2011 Change
Off-Road Vehicles $ 567,103 $ 465,768 22% $ 2,225,833 $ 1,822,334 22%
Snowmobiles 154,563 169,181 (9%) 282,968 280,046 1%
On-Road Vehicles 47,383 34,879 36% 240,172 146,328 64%
Parts, Garments & Accessories 131,598 112,141 17% 460,809 408,241 13%
Total Sales $ 900,647 $ 781,969 +15% $ 3,209,782 $ 2,656,949 +21%
Gross profit $ 253,800 $ 204,308 +24% $ 925,297 $ 740,583 +25%
Gross profit as a % of sales 28.2 % 26.1 % +210 bpts 28.8 % 27.9 % +90 bpts
Operating expenses $ 129,218 $ 118,131 +9% $ 480,792 $ 414,751 +16%
Operating expenses as a % of sales 14.3 % 15.1 % -80 bpts 15.0 % 15.6 % -60 bpts
Operating Income $ 134,877 $ 93,130 +45% $ 478,425 $ 349,924 +37%
Operating Income as a % of sales 15.0 % 11.9 % +310 bpts 14.9 % 13.2 % +170 bpts
Net Income $ 88,064 $ 63,899 +38% $ 312,310 $ 227,575 +37%
Net income as a % of sales 9.8 % 8.2 % +160 bpts 9.7 % 8.6 % +110 bpts
Diluted Net Income per share $ 1.24 $ 0.90 +38% $ 4.40 $ 3.20 +38%

Off-Road Vehicle (“ORV”) sales increased 22 percent from the fourth quarter 2011 to $567.1 million. This increase reflects continued North American market share gains for both ATVs and side-by-side vehicles as we continue to expand upon our industry leading ORV market share position. Polaris North American ORV unit retail sales were up mid-teens percent from the fourth quarter last year, with consumer purchases of side-by-side vehicles climbing more than 20 percent, and ATV retail sales up high-single digits percent. The Company estimates North American industry ORV retail sales in the fourth quarter 2012 rose mid-single digits percent from the fourth quarter of 2011. While our international businesses continued to gain market share, sales of ORVs outside of North America decreased nine percent in the fourth quarter, primarily due to weaker demand in Europe. For the full year 2012, Polaris ORV sales increased 22 percent compared to that of the prior year.

Snowmobile sales decreased nine percent to $154.6 million for the fourth quarter of 2012 as compared to $169.2 million for the fourth quarter of 2011. This decrease is due to the Company’s decision to escalate early season snowmobile shipments into the 2012 third quarter so as to better coincide with the start of the consumer retail snowmobile selling period. Polaris season-to-date market share through December 2012 has increased in an industry that is down less than five percent season-to-date in North America. Sales of snowmobiles outside of North America, principally in the Scandinavian region and in Russia, increased 15 percent in the fourth quarter of 2012 as compared to a year ago. For the full year 2012, sales of Polaris snowmobiles increased one percent compared to the prior year.

Sales of the On-Road Vehicles division, comprised primarily of Victory motorcycles but also including Indian motorcycles and our GEM and Goupil electric vehicles, increased 36 percent in the 2012 fourth quarter to $47.4 million. Consumer demand for Victory motorcycles was strong in each of our global markets, as we continued to gain market share and expand distribution in these areas. Fourth quarter and full year North American industry heavyweight cruiser and touring motorcycle retail sales were up slightly over 2011. Victory North American consumer unit retail sales increased in the fourth quarter and increased over ten times the industry percentage growth rate for the full year 2012. Sales of On-Road Vehicles to customers outside of North America increased over 50 percent during the 2012 fourth quarter. For the full year 2012, Polaris On-Road Vehicle sales increased 64 percent compared to the prior year.

Parts, Garments, and Accessories (“PG&A”) sales increased 17 percent during the fourth quarter 2012 compared to the same period last year. All product lines and product categories experienced increased sales. Sales of PG&A to customers outside of North America increased 16 percent during the 2012 fourth quarter compared to the same period last year. During the fourth quarter, the Company acquired KLIM, a privately owned, Rigby, Idaho-based company which designs, develops and distributes industry-leading KLIM brand of technical riding gear for both snowmobiles and motorcycles. For the full year 2012, Polaris PG&A sales increased 13 percent compared to the prior year.

International sales totaled $138.9 million for the 2012 fourth quarter, up six percent over the same period in 2011. The rise in fourth quarter sales resulted from a 19 percent combined increase in sales to customers in the Asia/Pacific and Latin American regions, along with higher sales of snowmobiles and Victory motorcycles and incremental sales from the Goupil acquisition. This was largely offset by lower ORV sales, primarily in Europe, due to sluggish economic conditions.

Gross profit for the fourth quarter of 2012 was 28.2 percent of sales, a 210 basis point increase over the fourth quarter 2011. Gross profit dollars increased 24 percent to $253.8 million for the fourth quarter of 2012, compared to $204.3 million for the fourth quarter of 2011. The increase in both the gross profit percentage and gross profit dollars is primarily due to cost savings from product cost reduction efforts, production efficiencies on increased volumes, higher selling prices and ongoing cost saving from the manufacturing realignment project, partially offset by higher sales promotions. For the full year 2012, gross profit as a percentage of sales increased 90 basis points to 28.8 percent.

Operating expenses for the fourth quarter of 2012 increased nine percent to $129.2 million, compared to $118.1 million during the fourth quarter of 2011. Operating expenses as a percentage of sales decreased to 14.3 percent of sales versus 15.1 percent of sales during the fourth quarter 2011. Operating expenses in absolute dollars for the fourth quarter of 2012 increased primarily due to higher selling and marketing expenses as we prepare for the Indian motorcycle launch and implement the new go-to-market program for motorcycles and ongoing infrastructure investments for growth initiatives. For the 2012 full year, operating expenses, as a percent of sales, decreased 60 basis points to 15.0 percent.

Income from financial services increased 48 percent to $10.3 million during fourth quarter 2012 as compared to $7.0 million in the fourth quarter of 2011. These results were primarily a consequence of increased profitability generated from retail credit portfolios with Sheffield, GE, and Capital One, and higher income from dealer inventory financing through the Polaris Acceptance joint venture. For the 2012 full year, income from financial services was $33.9 million, a 41 percent increase compared to $24.1 million for the full year 2011.

Non-operating other income was $1.2 million in the fourth quarter of 2012, compared to $4.6 million in the fourth quarter of 2011. The decrease in profitability resulted from foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries. For the 2012 full year, non-operating other income was $7.5 million as compared to $0.7 million for the full year 2011.

The Income tax provision for the fourth quarter 2012 was recorded at a rate of 34.5 percent of pretax income compared to 33.8 percent of pretax income for the fourth quarter 2011. For the 2012 full year, the income tax provision was recorded at a rate of 34.9 percent of pretax income compared to 34.3 percent for the full year 2011. The income tax provision rate is higher in the 2012 periods due to the renewal of the federal research and development income tax credit being deferred into calendar year 2013 by the U.S. Congress.

Financial Position and Cash Flow
Net cash provided by operating activities increased 38 percent to $416.1 million for the year-to-date period ended December 31, 2012 compared to $302.5 million for the same period in 2011. The increase in net cash provided by operating activities for the 2012 period was due primarily to the increase in net income and improved working capital. Total debt at the 2012 year end was $107.2 million, and the Company’s debt-to-total capital ratio was 13 percent at December 31, 2012, compared to 18 percent at the same period in 2011. Cash and cash equivalents were $417.0 million at December 31, 2012, an increase of 28 percent compared to $325.3 million for the same period in 2011.

Conference Call and Webcast Presentation
Today at 9:00 AM (CT) Polaris Industries Inc. will host a conference call and webcast to discuss Polaris’ 2012 fourth quarter earnings results released this morning. The call will be hosted by Scott Wine, CEO, Bennett Morgan, President and COO, and Mike Malone, Vice President―Finance and CFO. A slide presentation and link to the audio webcast will be posted on the Investor Relations page of the Polaris web site atwww.polaris.com/irhome.

To listen to the conference call by phone, dial 877-706-7543 in the U.S. and Canada, or 973-200-3967 internationally. The Conference ID is # 48223930.

A replay of the conference call will be available approximately two hours after the call for a one-week period by accessing the same link on our website, or by dialing 855-859-2056 in the U.S. and Canada, or 404-537-3406 internationally.

POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
For Three Months For Twelve Months
Ended December 31, Ended December 31,
2012 2011 2012 2011
Sales $ 900,647 $ 781,969 $ 3,209,782 $ 2,656,949
Cost of sales 646,847 577,661 2,284,485 1,916,366
Gross profit 253,800 204,308 925,297 740,583
Operating expenses
Selling and marketing 57,468 48,985 210,367 178,725
Research and development 33,327 31,383 127,361 105,631
General and administrative 38,423 37,763 143,064 130,395
Total operating expenses 129,218 118,131 480,792 414,751
Income from financial services 10,295 6,953 33,920 24,092
Operating income 134,877 93,130 478,425 349,924
Non-operating expense (income):
Interest expense 1,489 1,221 5,932 3,987
Equity in loss of other affiliates 179 179
Other income, net (1,173 ) (4,610 ) (7,529 ) (689 )
Income before income taxes 134,382 96,519 479,843 346,626
Provision for income taxes 46,318 32,620 167,533 119,051
Net Income $ 88,064 $ 63,899 $ 312,310 $ 227,575
Basic net income per share $ 1.27 $ 0.93 $ 4.54 $ 3.31
Diluted net income per share $ 1.24 $ 0.90 $ 4.40 $ 3.20
Weighted average shares outstanding:
Basic 69,112 68,885 68,849 68,792
Diluted 71,152 71,062 71,005 71,057

 

POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
Subject to Reclassification December 31, 2012 December 31, 2011
Assets
Current Assets:
Cash and cash equivalents $ 417,015 $ 325,336
Trade receivables, net 119,769 115,302
Inventories, net 344,996 298,042
Prepaid expenses and other 34,039 33,969
Income taxes receivable 15,730 24,723
Deferred tax assets 86,292 77,665
Total current assets 1,017,841 875,037
Property and equipment, net 253,369 213,778
Investment in finance affiliate 56,988 42,251
Investment in other affiliates 12,817 5,000
Deferred tax assets 22,389 10,601
Goodwill and other intangible assets, net 107,216 77,718
Other long-term assets 15,872 3,639
Total Assets $ 1,486,492 $ 1,228,024
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of capitalized lease obligations $ 2,887 $ 2,653
Accounts payable 169,036 146,743
Accrued expenses:
Compensation 139,140 165,347
Warranties 47,723 44,355
Sales promotions and incentives 107,008 81,228
Dealer holdback 86,733 76,512
Other 73,529 68,856
Income taxes payable 4,973 639
Total current liabilities 631,029 586,333
Long-term income taxes payable 7,063 7,837
Capital lease obligations 4,292 4,600
Long-term debt 100,000 100,000
Other long-term liabilities 53,578 29,198
Total liabilities 795,962 727,968
Shareholders’ Equity:
Total shareholders’ equity 690,530 500,056
Total Liabilities and Shareholders’ Equity $ 1,486,492 $ 1,228,024

 

 

POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Subject to Reclassification For the Year
Ended December 31,
2012 2011
Operating Activities:
Net income $ 312,310 $ 227,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 70,580 66,390
Noncash compensation 35,420 20,548
Noncash income from financial services (3,899 ) (4,444 )
Noncash expense from other affiliates 179 133
Deferred income taxes (20,281 ) (16,946 )
Tax effect of share-based compensation exercises (29,892 ) (23,120 )
Changes in current operating items:
Trade receivables 2,413 (23,115 )
Inventories (36,029 ) (49,973 )
Accounts payable 21,371 27,232
Accrued expenses 39,269 80,668
Income taxes payable/receivable 42,500 (1,343 )
Prepaid expenses and others, net (17,826 ) (1,075 )
Net cash provided by operating activities 416,115 302,530
Investing Activities:
Purchase of property and equipment (103,083 ) (84,484 )
Investment in finance affiliate, net (10,838 ) (638 )
Investment in other affiliates (7,996 ) (5,000 )
Proceeds from sale of investments 876
Acquisition of businesses, net of cash acquired (41,135 ) (51,899 )
Net cash used for investing activities (163,052 ) (141,145 )
Financing Activities:
Borrowings under senior notes/capital lease obligations 2,437 100,000
Repayments under credit agreement/capital lease obligations (7,478 ) (202,333 )
Repurchase and retirement of common shares (127,524 ) (132,372 )
Cash dividends to shareholders (101,534 ) (61,585 )
Tax effect of proceeds from share-based compensation exercises 29,892 23,120
Proceeds from stock issuances under employee plans 41,690 45,654
Net cash used for financing activities (162,517 ) (227,516 )
Impact of currency translation on cash balances 1,133 (2,460 )
Net decrease in cash and cash equivalents 91,679 (68,591 )
Cash and cash equivalents at beginning of period 325,336 393,927
Cash and cash equivalents at end of period $ 417,015 $ 325,336

Image courtesy Polaris

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