Category Archives: GEM

Polaris Posts Strong First Quarter 2014 Results

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Beauty shot of the new Sportsman ACE from Polaris.

The new Sportsman ACE from Polaris is one of the reasons for the company’s strong financial results for Q1 2014.

The following are some of the highpoints of the Polaris earnings call discussing their first quarter 2014 financial results with a focus on aspects relevant to the STOV market.

  • Polaris first quarter sales increased 19% to $888 million.
  • Net Income increased 7% to $80.9 million.
  • Management is raising their expectations for full year revenue and earnings to increases of 14%-16% and 17%-18% compared to 2013.
  • Off-Road Vehicle sales which includes UTVs and ATVs increased 11% and market share improved with good demand for the RZR XP 1000 and the new Sportsman ACE.
  • In North America management estimated that side-by-side sales retail grew upper single digits in an industry that grew similarly.
  • The new Sportsman ACE has gotten off to a good start.
  • PG&A momentum remains very strong with first quarter sales up 20%, parts accessories and apparel all grew strong double-digits led by strength in both ORV and Motorcycle related products.
  • First quarter Polaris commercial revenues increased by over 60% with sales to Bobcat Polaris national accounts and BRUTUS up notably year-over-year. Commercial segment has grown more slowly than expected by management but they will continue to put resources into this segment.
  • Small Vehicle first quarter revenue increased by 248% as all three brands, GEM, Goupil and Aixam grew year-over-year. The increase includes the addition of revenue from recently acquired Axiam, which also increased market share in Q1, and an increase of over 20% from the GEM product line.
  • International business had another strong quarter with sales increasing 44% led by nearly 50% and 60% growth in the EMEA and Asia Pacific regions respectively. Small Vehicles, PG&A and side-by-side sales all grew over 30%.
  • ORV is now expected to grow 9% to 11% in 2014.
  • Small Vehicles guidance is unchanged up 25% to 30% which includes the full year of the Aixam acquisition.
  • ACE orders in both North America and internationally have been better than expected with only minimal signs of cannibalization of either ATVs or side-by-sides.
  • There is broad based strength across many ORV products.
  • Management is seeing increased competitiveness and promotions in the side-by-side market.
  • Management is disappointed in Brutus sales into the commercial segment so far but expect to see improvement over the next 12 months as dedicated sales staff, partnership with Ariens and other efforts help them adjust to the longer B2B and B2G selling cycles in this segment.

Learn more:  Seekingalpha.com (earnings call transcript)

Comment:  The early signs that the ACE is not cannibalizing ATV and UTV sales is an indicator that Polaris is creating another vehicle category. More time will be needed to see how sales play out over the next 12 months to see if this theses remains true. It’s not only a question of cannibalization but how buyers are actually using the vehicles – what market segments, what applications, etc.

Polaris Reports Another Quarter of Strong Results

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The new RZR XP 1000 is the fastest-selling side-by-side in Polaris history.

The new RZR XP 1000 is the fastest-selling side-by-side in Polaris history.

Polaris reported another strong quarter of results for the Q4 2013 driven by off-road vehicles, motorcycles, PG&A and international sales. Overall, sales for the quarter were $1.08 billion, up 20% from the prior year period. Net income for the fourth quarter was up 23% to $108.7 million, yielding record earnings per share of $1.56, up 26%. Full year 2013 sales increased 18% to just under $3.8 billion. International and adjacent market businesses each grew 29% and 79%, respectively. Full year net income from continuing operations was $381 million. Some of the highlights of earnings report and conference call with a focus on small, task-oriented vehicles include:

  • Off-Road Vehicles division which includes UTVs and ATVs increased in revenue in Q4 16% driven by strength in side-by-sides, particularly RZRs, Defense and Commercial.
  • For calendar year 2013, ORV completed another strong year with revenue up 13%.
  • Polaris gained market share again in the fourth quarter and for the full year 2013
  • Polaris is #1 in the North American ATV industry, with 2013 retail sales up mid-single digits in an industry that was essentially flat.
  • All Model Year ’14 new product introductions are selling extremely well and seasonality is now approaching.
  • The new RZR XP 1000 is the fastest-selling side-by-side in company history and the XP 4 is built on that RZR XP sales momentum.
  • Polaris ORV commercial revenues increased by over 120% in 2013.
  • Both Bobcat and Brutus retail improved notably in the fourth quarter but management still sees significant missed opportunities in Polaris in dealer execution and customer development opportunities. To drive improvement in 2014, they added a dedicated infield commercial sales force to assist dealers in landing local B2B and B2G business and also initiated a partnership with Ariens.
  • The Defense division, which sells mostly off-road ATVs and UTVs has momentum with a strong 4th quarter and an ongoing winning streak for recent contracts.
  • Small vehicles, were up 25% to 30%, which includes a full year of Aixam acquisition.
  • PG&A sales also rose 33%. Growth came from every category, with Accessories up 30%, Parts up 24% and apparel up over 150%, led by an outstanding first year from KLIM.
  • 2013 industry conditions remained tepid with ORV industry down upper single digits.
  • Polaris side-by-side retail sales growth moderated just a bit in the fourth quarter, but increased low double digits for 2013, outpacing the side-by-side industry which grew an estimated 10% for the year.
  • ORV is expected to grow in the high single-digits percentage range in 2014.
  • Management anticipates aggressive competition in the side-by-side market, with increased promotions possibly being more of a challenged than new products.
  • The new Sportsman ACE is expected to add incremental revenues with a small amount of cannibalization of existing ORV sales.
  • Management is very happy with how the numerous product introductions have been received in the market.

Learn more: Seekingalpha.com (earnings call transcript)

Comment:  Polaris continues to churn out new models and in general execute very well. It will be interesting to see how well the Sportsman ACE will sell, to whom and whether or not it will create a new category of vehicles. Management’s comments indicate that the side-by-side market may be slowing a little in the coming year. This could create a more competitive environment in the market as the pie will be growing at a slower pace than in the past few years and manufacturers recently added new offerings to go after key segments.

Mini-truck Sales Slow In India

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According to a recent report mini-truck sales have slowed in India in 2013. This segment includes vehicles with a payload of under one ton like the Tata Ace. Combined with pick-ups that fall under a gross vehicle weight of 3.5 tons, they make up what is referred to as the Small Commercial Vehicle market. This market had been growing quite well in recent years as a hub and spoke model of distribution has been widely implemented. The vehicles in this segment are often used in the last mile of this distribution scheme. However, analysts believe this market has become saturated in the larger metropolitan areas. Mini-truck sales have dipped below pick-up sales which also slowed toward the end of the year.  Learn more:  TheHindu.com

Comment:  Polaris is making an effort to grow sales in the Indian market through a strategic partnership. While their focus appears to be more on the off-road vehicles and snowmobiles, they also starting to sell the GEM which in some configurations would be appropriate for this application.

Polaris Q3 2013 Earning Results Summary

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Polaris Ranger and RZR lines helped drive 3Q ORV sales

Polaris Industries once again had a strong quarter as sales surpassed $1 billion for the first time in the company’s history. The following are some highlights from the earnings call with a focus on the side-by-side market and small vehicle business.

  • Quarterly sales increased 25% to $1.1 billion
  • Third quarter net income from continuing operations rose 24% to $116.9 million
  • Off-Road Vehicles (ORV) which includes side-by-sides and ATVs posted a 23% gain and PG&A jumped 37%
  • Year to date ORV sales increased 12%
  • Polaris North American side-by-side retail sales improved low teens percent, and the side-by-side industry was estimated to have grown in the low double digits.
  • Key drivers included higher demand for the Ranger line, RZR XP 1000 and the new XP 4.
  •  The Polaris ORV Commercial business was up double digits in the third quarter, led by the new Brutus product rollout and sales to Bobcat. However sales were slower than expected and more marketing resources are being put into the effort as dealers have to adapt to the business to business sales process.
  • Small vehicle revenue increased over $21 million and 188% for the third quarter, due primarily to the Aixam purchase. Year-to-date, revenue was up 136%.
  • For the GEM line  retail sales are up over 50% through the third quarter and year to date as the dealer network and B2B sales efforts gained traction. The company just introduced the new eM1400 electric utility vehicle as well.
  • Aixam had a good quarter expanding share of the European quadricycle market share lead in the third quarter and year-to-date as retail sales remained roughly flat while the overall market declined upper single digits.
  • Goupil revenue grew nicely year-over-year, and year-to-date, customer orders are up double digits.  
  • In Europe the ORV industry remains relatively weak, with third quarter and year-to-date sales down about 12%. Polaris is building on its market share leadership position, with third quarter retail sales about flat and year-to-date retail sales down low single digits.
Looking forward:
  • Management increased the full year sales guidance to up 15% to 16% over 2012.
  • Sales of Off-Road Vehicles are expected to increase in the 11% to 12% range, up from prior guidance, with retail sales of side-by-side vehicles and ATVs continuing to outpace the overall market in both North America and internationally.
  • Competition has increased in the ORV market.
  • Management expects ORV market share to increase in 2013 but at a slower rate than recent years.
  •  For small vehicles, sales are expected to increase over 150% for the full year 2013.
  •  Monterrey, Mexico plant will deliver well over half of Polaris’s side-by-side volume in 2014.
  • In India the Eicher partnership is moving ahead with a plant under construction in Jaipur, India for a late 2014 launch of a new vehicle solution for that market.
  • More resources will be put into the Brutus sales efforts as the longer purchase cycle in the business to business market has tempered sales expectations. Efforts will likely focus on “…some of our most capable and committed subset of our existing Polaris ORV channel.”

Learn more: Seekingalpha.com (earnings call transcript)

GEM Introduces New Electric UTV: GEM eM1400

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The new GEM eM1400 marks a departure from the traditional GEM models.

GEM has added a totally new member to their product lineup, the GEM eM1400. The all electric utility vehicle is a more heavy duty utility vehicle than the rest of the product line and, significantly, is not an LSV. It has an MSRP of $9,999. I spoke with GEM as well as GEM dealer about the vehicle to get some more information.

In part, the vehicle is a response to demand for an electric utility vehicle that does not have to be used on public roads and therefore does not need to be LSV compliant. This may be up to half of the GEMs sold today. The main differentiating features of the eM1400 are the 1,400 lb payload, 1,250 lb towing capacity, 8.5 inch ground clearance and the fully independent suspension. GEM claims the ride will be significantly better than other UTVs in its class. While not using the same parts as suspensions from the Polaris Ranger line of UTVs it does borrow the “same architecture and design philosophy”.

The main competitors for this vehicle currently in the market are the e-Gator and the electric Toro Workman UTV, the Carryall models from Club Car, electric UTVs from E-Z-GO and Cushman as well as gas powered alternatives. This entry into the market is definitely pushing GEM into more direct competition with these other brands.

While GEM has a strong presence on college campuses for transport and general maintenance, according to the dealer I spoke with, the demand for such a heavy payload in this market segment is limited. Combined with it not being LSV compliant, sales to this segment will probably be lower than other GEM models. On the other hand, I believe it might have more appeal to grounds crews on college campuses where a more rugged and heavy duty UTV is needed. GEM management sees the vehicle as having a much wider appeal than just the university market, basically anywhere a rugged, electric UTV is needed from landscaping to plants to golf courses. The dealer noted that use in industrial settings is most likely where the demand for the payload capacity will be. Users who mount special equipment like compressors or welders will be prospects.

Polaris will start building the GEM eM1400 in early November and they should be in the market by the end of November. The company is already taking orders from dealers. According to management, there may be some GEM dealers, like the legacy Chrysler dealers and those focused on the LSV market that may choose not to carry the new model. At the same time there is also the possibility that some Polaris dealers may have interest in carrying this GEM model. How that is handled by the company will depend on dealer interest.

The dealer I spoke with also remarked that if you add accessories including a cab, which is needed in some areas, the price could easily reach $13,000 which is pretty pricey. He also noted that GEM is known for their LSV compliance, 72 volt system, maintenance-free batteries, aluminum frame and unique styling and the eM1400 has none of those features. It might thus detract from the GEM image or falsely attract prospects who assume it has the normal GEM features. I would say he has point here, the eM1400 is clearly a departure from the traditional GEM product line. On the other hand, this vehicle could move the GEM brand more strongly into additional market segments. If done well the new vehicle could help reposition the brand more broadly as an electric small, task-oriented vehicle brand as opposed to the more limited positioning as an electric LSV brand. This would be relevant for markets outside the US as well.

Lastly, the dealer noted that some of the new GEM dealers come from a powersports background and are not as experienced in selling to commercial or institutional purchasers which usually require more direct outreach from the dealer as opposed to waiting for customers to walk through the door. I think this point is valid and it remains to be seen if newer GEM dealers can adapt their sales approach. The more successful dealers I know in this market are the ones that actively go out and demo vehicles for potential customers. This means having the time, people and equipment to make appointments, haul vehicles around the sales territory and demo the vehicles on site for potential customers.

The press release from GEM follows:

The long-awaited GEM® innovation is finally here! All electric-powered and purpose-built to last, the GEM eM1400 is the ultimate work vehicle. It delivers more power, more payload, and an exceptional ride backed by Polaris’ 60 years of performance and innovation.

Perfect for applications in industrial, commercial, government and education markets, the GEM eM1400 balances performance and versatility to tackle the work your customers need. Classified as a LEV (Low Emission Vehicle), this is the perfect vehicle for hauling cargo across your property or jobsite.

Key features of the GEM eM1400 include:

  • 1400 lb payload
  • 7 HP AC motor
  • 1,250 lb towing capacity
  • Range of up to 45 miles, top speed of 19 mph
  • Rugged, ergonomic design
  • Independent front and rear suspension
  • Lock & Ride®, Lock & Work™ configurability options

Learn more:  Polaris.com

Polaris Reports Another Strong Quarter for Q2 2013

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Polaris Ranger XP 900 helped drive overall sales in the second quarter of 2013

Polaris Industries just announced their Q2 2013 financial results and reported another quarter of strong earnings and market share gains. The following are the highlights of the earnings call with analysts with a focus on the STOV segments.

  • Sales for the second quarter increased 12%, to a record $844.8 million driven by share gains and double-digit retail growth in North America
  • Polaris captured market share in ATVs and side-by-sides which also drove significant gains in PG&A business
  • Second quarter net income rose 15% to $80 million yielding record earnings per share of $1.13, a15% improvement over the prior year period.
  • PG&A sales increased 33% for the quarter
  • ORV segment which includes ATVs and UTVs  performed well fueled by the RANGER 900 XP and supported by RZR products.
  • Revenue for ORV was up 7%, which is less than retail as inventory was reduced in preparation for new model launches.
  • Gained North American market share in both ATVs and side-by-sides.
  • North American side-by-side retail sales strengthened in the second quarter, up double-digits percent driven by growth in both RANGER and RZR categories. In fact, both brands had their largest unit retail quarters in their history.
  • Management estimates the North American side-by-side industry also improved, growing just under 10% in the second quarter and is now up upper-single digits year-to-date.
  • Initial Brutus shipments began into over 400 Polaris commercial dealers.
  • In the military segment Polaris remains the clear #1 in ultralight tactical vehicle space with the new MRZR is selling well globally
  • Due primarily to the Aixam purchase and contributions from GEM and Goupil, small vehicle revenues increased $22 million and 190% for the second quarter. Year-to-date, sales are up 109%.
  • GEM business is improving with second quarter retail sales were up in excess of 50%. Management reports better operations for GEM and improved traction in the B2B market place, particularly in the People Mover sub-segment.
  • Goupil also had a strong second quarter with orders up over 30% and notable cost and productivity improvements in operations, driving gross margin improvements.
  • ORV PG&A sales increased 25% and small vehicles 165%.  “The attachment rate that we’ve seen on the Ranger 900 XP with the new integrated cab system is phenomenal.”
  • In Europe – Polaris’ Q2 ORV retail grew and year-to-date, is about flat in an ORV industry that remains down double digits. Polaris maintains their leading position.

Looking ahead:

  • Future Sales of Off-Road Vehicles are expected to increase in the 8% to 10% range with retail sales of side-by-side vehicles and ATVs outpacing the overall market in North America and internationally
  • ORV market share is expected to continue to increase in 2013
  • For small vehicles, which includes the GEM and Goupil businesses, along with the recently acquired Aixam Mega, sales are expected to increase well over 100% for the full year 2013.
  • Both GEM and Goupil are expected to increase sales for the full year over last year total company sales increase in the range of 13% to 15% for the full year 2013.
  • Management is not feeling pricing pressure in the UTV market as they are confident that the Polaris brand/product can garner a price premium
  • Process improvement in small vehicle operations are improving quality and delivery as well as reducing costs. Management feels they are positioned very well in this space for strong growth.
  • The Bobcat dealer network has lagged Polaris in the commercial utility segment and the sell through of the Brutus vehicles will be slower than consumer vehicles because of the slower commercial vehicle buying cycle.
  • Management was even more upbeat than usually about the 2014 models that will be announced at the dealer meeting in a few days.

Learn more:  Seekingalpha.com (Earnings call transcript)

Comment:  Polaris management continues to execute on their strategic plans very well. They are setting the industry standard for inventory management, operational efficiency and product development and innovation. In an increasingly competitive market it will be interesting to see what features and innovations their new models will have.

Homeland Security: A Good STOV Market

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US Border Patrol to purchase Kawasaki Mules

A couple of news items I came across indicate that homeland security continues to be a good market for STOVs. One involves the Army purchase of a couple of GEM LSVs. While obviously not a large purchase, these type of small volume purchases occur on a regular basis at various bases. At one time the Army had made plans for purchasing a large volume of LSVs, in the thousands, and had started that initiative before other priorities apparently squeezed out spending for them. Nonetheless, reducing petroleum use remains an important goal for the armed forces and replacing some vehicles with LSVs helps towards that goal. It is also possible that if more funds become available then larger volume purchases may start up again.

The other news item involved STOVs in action closer to actual battlefields. The U.S. Customs and Border Protection (CBP) is planning to purchase six 4×4 Mule UTVs for their operations in Afghanistan using a reverse bidding process. The demanding terrain in both Afghanistan and Iraq has lead to significant purchases of off-road vehicles of both the UTV and ATV variety. Among the groups using the vehicles are Special Operations forces. While the drawdown of troops in those theaters of operation will likely decrease the demand for those vehicles, they have proven valuable in difficult terrain and are likely to be continued to be used in other operational areas.  Learn more:  FBO.gov  and GSNmagazine.com

GE Capital to Provide Financing for GEM

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Commercial customers can now finance GEM models like the el XD through GE Capital

GE Capital’s Equipment Finance business has entered into an agreement to provide financing for GEM’s commercial purchases. GE Capital already provides financing for other product lines sold by Polaris. The agreement with GEM is for three years. The majority of sales for the GEM product line are for commercial customers such as municipalities, universities and resorts. According to GEM management adding a leasing option is an important option for their commercial base. Learn more:  Marketwatch.com

Comment:  Although LSVs/NEVs were originally targeted towards the consumer market, the majority of GEM’s sales through the years have been to commercial customers. SVR predicts this segment will continue to be a strong growth area for LSVs. Historically commercial customers have been more likely to look for leasing options than private customers in the STOV market. For some commercial purchasers they can more easily lease vehicles using funds from their operating budgets than purchase them from a capital budget.

Highlights from the Polaris Earnings Call – Q1 2013

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The following are the highlights of the Polaris earnings call for their first quarter 2013 earnings report as it relates to the STOV market.

  • Total sales for the first quarter increased 11% to a record $754.9 million
  • First quarter net income increased 26% to $75.5 million
  • Gross profit margins were up a modest 10 basis points to 29%
  • Full year sales expected to be up 12% to 15% over 2012.
  • Polaris’ first quarter Off-Road Vehicle (ORV) revenue increased 7% driven by side-by-side sales.
  • In the first quarter consumer demand for the RANGER 900XP outpaced all other ORVs in the industry.
  • Polaris gained market share in both ATVs and side-by-sides.
  • ATVs down low single digits and for industry as well
  • Polaris side-by-side retail grew mid-single digits in an industry estimated to grow low single digits.
  • The new RZR XP 900 Jagged X has been a hit with consumers
  • Major strategic initiatives included launch of Brutus commercial line, acquisition of Aixam and start of plant construction in Poland
  • Brutus line will be sold through dedicated new Polaris commercial channel that already includes 400 dealers
  • Initial orders for both the Brutus product and the attachment have been better than are than expected.
  • Small vehicle business consisting of GEM and Goupil grew double digits
  • GEM and Goupil both had good quarters, as GEM retail more than doubled in its best first quarter since 2008, while Goupil retail orders were up about 20%, significantly outperforming the European economy.

Looking Forward

  • Sales of Off-Road Vehicles are expected to increase in the 8% to 10% range, with retail sales of side-by-side vehicles and ATVs outpacing the overall market in North America and internationally.
  • Management expects to increase ORV market share in 2013 although at a more moderate rate than the past 3 years.
  • Management optimistic about new model introductions for model year 2014
  • Poland facility to be online in the 2nd half 2014 mainly for producing ATVs for the European market with some side-by-side capability as well.
  • Management expects to realize sourcing and engineering synergies between Goupil, Aixam and Gem
  • Goal is to decrease the delivery time of for side-by-side products to dealers from 6 weeks down to 4 weeks

Learn more:  Seekingalpha.com (earnings call transcript)

What’s Cooking on the STOV

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Highlighting some of the many applications for small, task-oriented vehicles:

School Safety Vehicle – Vinemont schools in Alabama purchased a Polaris UTV for safety patrols and driver education classes. For safety patrols the vehicle can access campus areas that their existing patrol cars cannot.  The UTV will also be used in their DUI related sessions of their driver education program. Students will use special goggles that simulate driving while intoxicated while attempting to navigate a set driving course under instructor supervision. Learn more:  Cullmantimes.com

Airport Patrols & Maintenance:  Lambert St. Louis International Airport purchased four electric-powered GEMs to be used in their parking operations for patrols and maintenance. The vehicles will be covering two terminal garages and four long-term lots. The GEMs replaced full-size pick-up trucks. The replacement of pickup trucks is an ongoing trend we are seeing particularly in corporate/college campuses and park settings. Learn more:  Bizjournals.com

Scotland Business Park Switches to Electric Utility Refuse Vehicle:  Hillington Park, a business park in Scotland, is replacing a diesel powered van with a new Alke ATX200E battery-powered utility truck. The vehicle will be used for refuse collection on the campus that is home to 300 companies and 6,700 workers. The new purchase also fits in with their award winning environmental management of the business park.

I thought this example demonstrated a number of aspects of the STOV market. First the STOV market is global. As the STOV market continues to grow it is likely that companies will look for export markets for their vehicles. Second a significant portion of the electric powered segment of the STOV market is driven by “green” or sustainability issues. Third displacement of ICE vehicles is a continuing trend that drives sales for STOVs. Learn more:  Fleetnews.uk.co