Polaris(PII) - 2024 Q3 - Quarterly Results

Third Quarter 2024 Earnings Results Polaris experienced a significant downturn in Q3 2024, with sales and earnings per share declining sharply due to challenging market conditions Financial and Operational Highlights Polaris reported a 23% sales decline to $1.72 billion in Q3 2024, with significant drops in EPS and market share, leading to lowered full-year guidance Q3 2024 Key Performance Indicators vs. Q3 2023 | Metric | Q3 2024 Value | Year-over-Year Change | | :--- | :--- | :--- | | Sales | $1,722 million | -23% | | Reported Diluted EPS | $0.49 | -81% | | Adjusted Diluted EPS | $0.73 | -73% | | Powersports Retail Sales | N/A | -7% | - Key factors negatively impacting sales were lower volume, product mix, and increased promotional activity[1] - Market share experienced a modest decline in off-road vehicles (ORV), motorcycles, and pontoons during the quarter[1] CEO Commentary The CEO emphasized managing dealer inventory and driving cost efficiencies amidst a challenging retail environment expected to persist into 2025 - The company is prioritizing the health of its dealer network by anchoring production and shipment plans to a goal of lowering dealer inventory by 15% to 20% by the end of 2024[3] - Management anticipates a challenging retail environment to persist through the remainder of 2024 and into the next year[3] - The company is focused on driving cost efficiencies in manufacturing and operations to emerge stronger and achieve long-term growth and margin expansion[3] Overall Performance Summary Worldwide sales decreased 23% to $1.72 billion in Q3 2024, with net income plummeting 82% and gross profit margin contracting by 204 basis points Q3 2024 Financial Performance (Reported vs. Adjusted) | Metric | Reported Value | YoY Change | Adjusted Value | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Worldwide Sales | $1,722M | -23% | $1,722M | -23% | | Net Income | $28M | -82% | $41M | -74% | | Diluted EPS | $0.49 | -81% | $0.73 | -73% | | Gross Profit Margin | 20.6% | -204 bps | 20.8% | -184 bps | - North American sales decreased 26% to $1,473 million, representing 85% of total company sales, while International sales decreased 5% to $250 million[4] - Operating expenses as a percentage of sales increased by 355 basis points to 18.1% compared to Q3 2023[5] Segment Highlights All segments experienced significant sales declines in Q3 2024, with Marine seeing the steepest drop at 36% and the largest gross profit margin contraction Q3 2024 Segment Sales and Gross Profit Margin Performance | Segment | Sales (in millions) | YoY Change | Gross Profit Margin | Change (bps) | | :--- | :--- | :--- | :--- | :--- | | Off Road | $1,400.0 | (24)% | 21.2% | -183 bps | | On Road | $236.5 | (13)% | 16.9% | -446 bps | | Marine | $85.9 | (36)% | 12.2% | -587 bps | Off Road Off Road segment sales declined 24% to $1.4 billion due to lower volume, negative mix, and increased promotional spending, impacting gross profit margin - Sales decline was driven by lower volume, mix, and higher promotional spend, with PG&A (Parts, Garments & Accessories) sales decreasing by 18%[6] - Polaris North America ORV unit retail sales were down 3%, while the estimated North America industry ORV unit retail sales were down low-single digits percent[6] On Road On Road segment sales decreased 13% to $236.5 million due to lower volumes, with gross profit margin contracting 446 basis points from negative product mix - Sales were primarily driven down by lower volumes, with PG&A sales decreasing by 7%[7] - North America unit retail sales for Indian Motorcycle were down low-double digits, while the comparable industry was down high-single digits[7] Marine Marine segment sales plummeted 36% to $85.9 million due to lower volumes, resulting in a sharp 587 basis point decline in gross profit margin - Sales results were driven by lower volumes[7] - Gross profit margin performance was impacted by a decrease in sales volumes and negative mix[7] 2024 Business Outlook Polaris lowered its full-year 2024 guidance, now expecting sales to be down approximately 20% and adjusted diluted EPS to decline approximately 65% Updated Full-Year 2024 Guidance vs. Prior Guidance | Metric | Updated 2024 Outlook (vs. 2023) | Prior 2024 Outlook (vs. 2023) | | :--- | :--- | :--- | | Sales | Down approx. 20% | Down 17% to 20% | | Adjusted Diluted EPS | Down approx. 65% | Down 56% to 62% | Financial Statements and Reconciliations This section presents the consolidated financial statements and detailed reconciliations of GAAP to non-GAAP financial measures Consolidated Statements of Income Q3 2024 income statement shows sales of $1.72 billion and net income of $27.7 million, both significantly lower than the prior year Q3 2024 vs Q3 2023 Income Statement Highlights (In Millions) | Account | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Sales | $1,722.4 | $2,248.9 | | Gross Profit | $354.6 | $508.8 | | Operating Income | $66.1 | $201.1 | | Net Income Attributable to Polaris Inc. | $27.7 | $151.7 | Consolidated Balance Sheets As of September 30, 2024, total assets were $5.63 billion, with inventories decreasing to $2.00 billion and total liabilities also declining Balance Sheet Highlights (In Millions) | Account | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,728.2 | $3,043.3 | | Inventories, net | $1,998.9 | $2,051.7 | | Total Assets | $5,629.7 | $5,733.0 | | Total Current Liabilities | $2,252.7 | $2,438.3 | | Total Liabilities | $4,274.8 | $4,386.6 | | Total Equity | $1,345.5 | $1,335.2 | Consolidated Statements of Cash Flows Net cash from operating activities for the nine months ended September 30, 2024, sharply decreased to $61.9 million from $376.0 million in 2023 Cash Flow Highlights for Nine Months Ended Sept 30 (In Millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61.9 | $376.0 | | Net cash used for investing activities | ($218.2) | ($345.9) | | Net cash provided by (used for) financing activities | $82.8 | ($61.4) | | Net decrease in cash | ($76.5) | ($29.2) | Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP to non-GAAP figures, detailing adjustments for restructuring, acquisition costs, and intangible amortization impacting net income and EPS Q3 2024 GAAP to Non-GAAP Reconciliation (In Millions, Except EPS) | Metric | GAAP | Adjustments | Non-GAAP (Adjusted) | | :--- | :--- | :--- | :--- | | Gross Profit | $354.6 | $3.2 | $357.8 | | Net Income | $27.7 | $13.5 | $41.2 | | Diluted EPS | $0.49 | $0.24 | $0.73 | - For Q3 2024, the company recorded non-GAAP adjustments totaling $12.0 million for restructuring and acquisition-related costs[19] - The company also made a non-GAAP adjustment for $4.4 million of intangible amortization related to historical acquisitions in Q3 2024[20]