Polaris Q4 2015 Results Point To Slowing UTV Market

The base model General 1000 EPS is Indy Red with an MSRP of $15,999.

Despite a good start for the new General crossover utility vehicle, Polaris had a tough fourth quarter in 2015 as the UTV/side-by-side market showed weakness.

Polaris reported their worst year-over-year quarterly performance since 2009 with their recent Q4 2015 results. Fourth quarter sales were down 13% to $1.1 billion with net income of $110.7 million, down 18% as all businesses except Indian motorcycles and Slingshot fell short of expectations. Management expects a slowdown in the UTV/side-by-side market faces tough macroeconomic conditions in North American and abroad, as well as currency headwinds. The following are highlights of the earnings call as they relate to the UTV/side-by-side market.

  • Despite solid demand for the new GENERAL and improving interest in the RZR Turbo, Polaris lost side by side market share in the fourth quarter.
  • To keep dealer inventory low the company cut shipments of higher margin RZRs and Rangers.
  • Off-road vehicle dealer inventory including ATVs was down year-over-year for the first time in six years
  • Side-by-side dealer inventory was up slightly for the year
  • Management reported a “more cautious” consumer in the ORV channel
  • Polaris side-by-side revenue for 2015 grew “modestly”
  • 4th quarter side-by-side retail sales in North America declined mid-single digits as the industry grew slightly
  • The new GENERAL vehicles began shipping in December, and initial consumer and dealer response was positive
  • ORV sales in oil producing states declined 10% while other areas of the market increased mid-single digits
  • For the full year 2015, Polaris again grew side-by-side market share.
  • Side-by-side retail sales increased mid-single digits in a side-by-side industry that grew slightly slower
  • Camp RZR in Glamis, California had an all-time record attendance, over 17,000 strong, which was up 45%
  • Q4 North American work and transportation revenue decreased low 20s percent as difficult comparables included the Ariens partners launch
  • GEM sales declined due to the transition to a completely redesigned GEM product platform during the quarter
  • Initial GEM orders are solid and a strong 2016 is expected
  • Q4 European Work and Transportation revenue declined low single-digits percent due primarily to currency weakness and some softness in Goupil and Mega
  • Aixam sales grew high single digits and the European quadricycle industry grew in both fourth quarter and for full year 2015, up low single-digits with Aixam retail up slightly more increasing their leading market share
  • Vehicles sales in Q4 and 2015 to Department of Defense and GSA related accounts were hurt by stop gap funding measures, but 2016 backlog is “healthy”
  • The European ORV industry grew mid-single digits in the fourth quarter and for the year.
  • Polaris gained share in the fourth quarter, as retail was up mid-teens percent and for the full year retail increased mid-single digits.
  • Multix, the three-in-one personal transportation vehicle from the Polaris-Eicher joint venture in India is retailing vehicles.
  • Multix customers are satisfied although currently the retail ramp remains well below management expectations, but they expect to accelerate retail in 2016 with key product improvements and further distribution expansion.
  • Huntsville plant will start production in Q2 and will initially produce RANGER side-by-sides
  • Huntsville incorporates the company’s most advanced Lean flow and state of the art manufacturing technologies and improves throughput times by approximately 80% compared to existing facilities
  • Management expects continued macroeconomic headwinds with ongoing currency issues overseas, a slight slowdown in global economies and a low growth economy in North America
  • Total company sales are expected to be in the range of down 2% to up 3%
  • ORV market share is expected to be maintained while gains are expected in global adjacent markets
  • ORV/snowmobiles revenue is anticipated to be flat to down mid-single digits and global adjacent markets up mid-single digits
  • Management continues to forecast strong competition in the side-by-side market
  • Q1 for 2016 side-by-side revenues is expected to be down because of Canadian currency issues, a weaker retail environment and tough prior comparables

Learn more:  Seekingalpha.com (Earnings call transcript)

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