Polaris recently announced Q2 2019 financial results. Sales for the quarter increased 18% year over year to $1,779 million. Off-Road Vehicle/Snowmobile segment sales increased 6% to $1,049 million with ORV increasing 4%.

Polaris Earnings Call Highlights

The following are some of the highlights from the earnings call as they relate to the small, task-oriented vehicle market.

• Polaris side-by-side retail sales for North America increased low single digits
• Polaris side-by-side sales were driven by full-size Ranger, General and RZR XP vehicles that tend to have higher margins
• ORV retail sales for the North American industry were up high single digits
• Tariff and trade costs are still expected to cost $80 to $90 million for the year although the company has been able to mitigate some of the costs
• Global Adjacent Markets segment sales increased 7% to $122 million driven by PG&A for the segment up 17%, strength across all products and strong international sales
• Management increased prices in the first quarter and that hurt sales of lower priced and lower margin products like value priced ATVs
• Average selling prices for ORVs were up 9% from price increases and higher priced product mix
• The side-by-side market remains competitive with companies aggressively using price promotions. As a result there was some weakness in RZR trail product sales.
• Management referred to the heavy use of promotions by competitors as “ridiculous”
• Management improved their guidance for the full year for the ORV/Snowmobile segment based on improved product mix for side-by-sides, PG&A sales and strong international sales

Learn more: Seekingalpha.com (earnings call transcript)

SVR’s Take

While the quarter was not super strong for ORVs, management managed to make progress despite a number of headwinds. They pushed through price increases, continued to suffer from tariff issues and had to battle strong promotional spending by competitors. In the face of these hurdles, Polaris demonstrated the strength of their brand and product lineup by increasing sales of higher priced and higher margin units across their product lines. Moving forward, the trade issues appear to be here to stay for awhile and the economy has shown signs of slowing. On the other hand, consumer spending has remained strong as well as unemployment low.

Strong Non-vehicle Programs Boost Polaris Performance

One of the reasons Polaris continues to perform well is their execution in programs beyond new vehicle development. For example, to mitigate tariff effects they re-negotiated supplier pricing, made supply chain adjustments and successfully lobbied for some tariff exclusions. They have also developed a strong PG&A program across most of their products. In addition, they have focused on cost and operational efficiencies on a focused and ongoing basis. Their RFM program keeps inventory low while providing dealers with a good product mix for meeting customer needs. They have recently started rolling out their Factory Choice program that allows for greater customer customization.

Marc Cesare, Smallvehicleresource.com