Polaris(US:PII)2026-01-27 17:00Financial Data and Key Metrics Changes - Adjusted sales for Q4 2025 increased by 9%, with North American retail also up by 9%, excluding youth [8][14] - Adjusted EPS for Q4 was approximately $0.08, slightly ahead of the guidance provided in October [10] - Adjusted EBITDA margin contracted year-over-year due to $37 million in new tariffs and normalization of incentive compensation [15][24] Business Line Data and Key Metrics Changes - Off-road vehicle (ORV) sales rose by 11% in Q4, supported by higher shipments and a richer mix of vehicles [15] - Marine sales increased by 1%, with strong demand for entry-level Bennington models and redesigned flagship Bennington QX lineup [17] - On-road sales were up 4%, driven by positive mix within Aixam and Goupil, despite softness in Indian Motorcycle and Slingshot [17] Market Data and Key Metrics Changes - International sales grew by 9%, with all regions contributing, particularly driven by double-digit growth in parts, garments, and accessories (PG&A) [14] - Dealer inventory was down 9% in ORV, and more than 40% in snow, indicating a healthy inventory position [16] - The industry faced pressure from higher interest rates and macroeconomic uncertainty, but Polaris maintained a strong market position [17] Company Strategy and Development Direction - The company aims to reduce its exposure to China-based spending from approximately 14% to below 5% by year-end 2027, which will lower tariff expenses and create a more localized supply chain [6][32] - The separation of Indian Motorcycle is on track to close by the end of Q1 2026, expected to be accretive to EBITDA margins and adjusted EPS [8][19] - The company is focused on maintaining leadership in the powersports industry through innovation and strong dealer partnerships [26][30] Management's Comments on Operating Environment and Future Outlook - Management expressed pride in the team's ability to navigate a challenging year, achieving share gains and operational improvements despite tariff headwinds [4][10] - The company anticipates a flat retail environment in 2026, with utility growth expected to offset ongoing pressure in recreation [31] - Management remains cautious about the remainder of the snowmobile season due to variable weather conditions [12] Other Important Information - The company generated approximately $180 million in operating cash flow in Q4, translating into $120 million of free cash flow [18] - For 2026, the company expects total sales growth of 1%-3%, with adjusted EBITDA margin expansion of 80-120 basis points year-over-year [21][22] - The company is committed to maintaining its dividend aristocrat status, having completed its 30th consecutive year of dividend increases [19] Q&A Session Summary Question: Revenue lift in 2026 from wholesale and retail alignment - The revenue lift increased from $300 million to over $400 million due to a strong Q4, with a flow-through of around 40% expected [34][35] Question: Thoughts on 2026 free cash flow and working capital - The company expects about $160 million in operating cash flow and $120 million in free cash flow for 2026, with continued focus on working capital [44][46] Question: Financial leverage goals for the end of 2026 - The company aims to be under normal covenants in the 3.5 range by the second half of 2026, with long-term goals of achieving a leverage ratio of 1-2 [48][49] Question: Impact of tariffs and commodities on financials - The company anticipates a total of $215 million in tariffs for the year, with ongoing pressure from commodity prices [70] Question: Inventory levels across the industry - The company feels confident about its inventory position, having reduced aged inventory significantly and maintaining a healthy mix [78][80]