Polaris(US:PII)2026-01-27 17:02Financial Data and Key Metrics Changes - Adjusted sales for Q4 2025 increased by 9%, with North American retail also up by 9%, excluding youth [9][10] - Adjusted EPS for Q4 was approximately $0.08, slightly ahead of the guidance provided in October [11] - Adjusted EBITDA margin contracted year-over-year due to $37 million in new tariffs and normalization of incentive compensation [16][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 [16] - Marine sales increased by 1%, with strong demand for entry-level Bennington models and redesigned flagship Bennington QX lineup [18] - On-road sales were up 4%, driven by positive mix within Aixam and Goupil, despite softness in Indian Motorcycle and Slingshot [18] Market Data and Key Metrics Changes - International sales grew by 9%, with all regions contributing, driven by double-digit growth in parts, garments, and accessories (PG&A) [15] - Dealer inventory was down 9% in ORV, and more than 40% in snow, indicating a healthy inventory position [17] - The overall dealer inventory is at the lowest levels outside of the pandemic, with a healthy mix of current versus non-current inventory [14][17] Company Strategy and Development Direction - The company aims to reduce its exposure to China-based spend from approximately 14% to below 5% by year-end 2027, which will lower tariff expenses and create a more localized supply chain [7][31] - 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 [9][20] - The company is focused on maintaining leadership in the powersports industry through innovation and strong dealer partnerships [26][28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in 2025, including tariffs and macroeconomic pressures, but highlighted the company's ability to deliver on its commitments [4][24] - The company expects total sales growth of 1%-3% for 2026, with a more challenging year-over-year comparison due to the absence of Indian Motorcycle sales [21] - Management remains cautious about the recreational segment but anticipates utility growth to offset ongoing pressures [30] Other Important Information - The company generated approximately $180 million in operating cash flow for Q4, translating into $120 million of free cash flow [19] - The company has reduced finished goods and improved working capital, with a focus on maintaining investment-grade metrics [19][20] - The company is committed to its dividend policy, having completed its 30th consecutive year of dividend increases [20] Q&A Session Summary Question: Revenue lift in 2026 from wholesale and retail alignment - The revenue lift increased due to a strong Q4, with flow-through expected to be closer to 40% when excluding tariffs [34][36] Question: Cost savings beyond the $30 million absorption - Cost takeout is complicated due to the Indian Motorcycle separation, but there are expectations for slight GP declines driven by TSAs [38][40] Question: 2026 free cash flow expectations - The company anticipates about $160 million in operating cash flow and $120 million in free cash flow for 2026, with a focus on working capital [44][46] Question: Tariff impacts and future expectations - The company expects approximately $215 million in tariffs for the year, with ongoing efforts to mitigate these costs through supply chain localization [71][72] Question: Inventory levels across the industry - The company feels confident about its inventory position, having reduced aged inventory significantly and maintaining a healthy mix [80][81]