Polaris(PII) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter sales increased by 10% on both GAAP and adjusted basis compared to the prior year [22] - Adjusted earnings per share rose to $2.85, a 71% increase for the quarter, driven by revenue growth and lower promotional costs [23][24] - Adjusted gross margins improved by approximately 260 basis points year-over-year, primarily due to lower promotional costs [24] - Operating expenses decreased by 4% in the quarter, benefiting from postponed nonessential expenditures [25] - Year-to-date operating cash flow reached $676 million, up 55% over the same period last year [39] Business Line Data and Key Metrics Changes - ORV/snowmobile segment sales increased by 12%, motorcycles by 11%, and boats by 30% during the third quarter [26] - Aftermarket sales remained flat, with TAP sales up 1% and other aftermarket sales down 1% [29] - International sales grew by 9%, driven by strong ORV, snow, motorcycles, and PG&A sales [30] Market Data and Key Metrics Changes - North American retail sales were up 15%, with potential for double that if production could have accelerated faster [10] - The off-road vehicle market share declined slightly due to availability issues, while motorcycles, boats, and snow gained market share [11] Company Strategy and Development Direction - The company is focusing on demand fulfillment rather than demand creation due to high consumer interest in powersports [7] - Plans to replenish dealer inventory in the fourth quarter and into the first half of 2021, with a ramp-up in factory output expected [13] - The partnership with Zero Motorcycles aims to disrupt the industry and accelerate electric vehicle sales [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about sustained consumer demand for Powersports into 2021 [42][44] - The company is prepared to manage potential impacts from the upcoming U.S. election [42] - Management noted that while retail demand is healthy, it may be spotty throughout the year [86] Other Important Information - The company has raised its full-year adjusted earnings per share guidance to a range of $7.15 to $7.30 [33] - Tariff costs for the full year are expected to total approximately $65 million, with ongoing monitoring of their impact [35] Q&A Session Summary Question: Clarification on retail sales doubling - Management confirmed that retail sales could have doubled from 15% to 30% if production had accelerated faster [47] Question: Future promotional strategy - Management indicated that with low inventory levels, there is less need for promotions, focusing instead on brand relevance [49][50] Question: Tariff impact and retail growth confidence - Management discussed the expected tariff costs and expressed confidence in retail growth despite potential headwinds [55][59] Question: Production ramp-up and margin impact - Management acknowledged that while production ramp-up would improve factory utilization, it may incur additional logistics costs [67][70] Question: Supply chain issues and competitor impact - Management noted that competitors with higher DSO faced similar supply chain challenges, but the company is focused on improving output [78] Question: Consumer demand and inventory restocking - Management stated that replenishing dealer inventory would take through the first half of the year, assuming retail demand remains stable [89] Question: Electric vehicle strategy with Zero Motorcycles - Management explained the rationale behind the partnership with Zero, emphasizing their technology and experience in the electric space [122] Question: Retail trends and competitive landscape for motorcycles - Management highlighted strong performance in the motorcycle segment, particularly for the Indian brand, amidst a favorable competitive environment [134]