Recalls of vehicles like the Polaris RXR XP Turbo were a drag on the company’s financial performance for the quarter.

Polaris Industries announced their financial results for Q3 2016 with third quarter sales down 19% to $1.18 billion as impacts of massive vehicle recalls are still being felt. CEO Scott Wine stated that the company is prioritizing “…recall execution and quality validation and delay the launch of many of our model year 2017 Off-Road Vehicles.” The following are highlights from the earnings call as they relate to the small, task-oriented vehicle market.

• Off-road vehicle industry retail declined modestly (down low single digits%) for the quarter with oil/gas and agriculture segments remaining weak
• ORV and Snowmobile segment sales declined 23% in Q3 to $923.4 million driven by weak industry dynamics and delayed model year 2017 shipments as products were revalidated
• RZR retail dropped precipitously in the first two months of the quarter but improved significantly in the third month along with overall side-by-side retail driven by promotions and better product availability
• Management reports that RZR recalls have now passed the 50% penetration rate for both the RZR 900/RZR 1000 recall and the more recent Turbo recall and the majority of the recalls should be completed by year end
• Gross margins were negatively impacted by higher promotional and customer appreciation costs to bolster confidence and credibility with our Off-Road Vehicle owners
• The Ranger 1000 has shown good early signs for sales
• Management reports that RZR market share is nearly 2.5 times all competitors combined and Ranger share over 2 times the next largest competitor
• Global Adjacent Markets segment revenue increased 6% to $78.5 million in Q3 driven by the prior Taylor-Dunn acquisition
• Sales in the Defense business and Work and Transportation businesses were lower quarter-over-quarter due to delayed military orders and weak rental and B2B sales
• RFM inventory management system will be aggressively rolled out next year and should improve ORV dealer’s ability to replenish vehicles, manage inventory and make models available to customers
• Guidance for full year 2016:
  • ORV and Snowmobile sales are expected to be down high single digits to low double digits percent but should show some retail growth in Q4
  • Defense and Work and Transportation segment sales are expected to be up high single digits for the year

Learn more:  Seekingalpha.com (earnings call transcript)