Polaris Inc. (PII) on Q1 2023 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Polaris Inc. First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to J.C. Weigelt, Vice President, Investor Relations. Please go ahead. J.C. Weigelt: Thank you, Gary, and good morning or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2023 first quarter earnings call. We will reference a slide presentation today, which is accessible on our website at ir. polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer; and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the first quarter as well as our expectations for 2023. Then we'll take your questions. During the call, we will be discussing various topics, which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2022 10-K for additional details regarding risks and uncertainties. All references to first quarter 2023 actual results and 2023 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now I will turn it over to Mike Speetzen. Go ahead, Mike. Mike Speetzen: Thanks, J.C. Good morning, everyone, and thank you for joining us today. This may be a little premature here in Minnesota, but I hope your spring and writing season has opened up from what seemed to be a prolonged winter. Although I can't complain too much as it was helpful to our snowmobile business. I consistently reinforced with my team that the key to a successful year is a strong start, and our first quarter results reflect just that. Sales were up over 20%. Adjusted EBITDA margin expanded 172 basis points and adjusted EPS grew 55% versus last year. Sales growth was driven by strong mix and higher ship volumes favorable net price, which is price net of promotions. Increased share in off-road, on-road and marine as availability improved through the back half of last year and into Q1 and a great start in our commercial business. and the balance of the restocking benefit mainly in Off-Road that we discussed in January. While North American retail was down 5% versus last year, it increased 14% versus 2019. Our teams and dealers are seeing a return to more normal seasonality. The spring selling season, which continues for the next couple of months is going to be an important gauge for the remainder of the year. April is off to a good start despite a delayed spring for most of the country given poor weather conditions in early March. We saw gross profit and EBITDA margin expansion for the third consecutive quarter as we maintained our focus on process improvements and efficiencies that can drive us closer toward our long-term target of mid- to high teens EBITDA margins. We executed margin expansion despite factory inefficiencies as a result of late deliveries from suppliers. This gives me confidence in the margin improvement opportunity as we drive suppliers to more normalized delivery performance and continue to drive efficiencies in the factories. I shared in January that 2023 is going to be an exciting year, and we came out of the gate strong with the launch of the Ranger XP where we made the industry's best-selling side by an even better with more horsepower, stronger chassis redesigned ergonomics and added comfort. Initial reviews of this all-new Ranger are very strong, and we're excited for deliveries to start later in Q2. We also started production of our first all-electric Ranger XP Kinetic, which is now shipping to customers. Our Mighty G pontoon, Agari pontoon designed specifically with an electric motor option in mine, will be entering its first selling season and should do well given a very strong order book. On-Road has its most competitive portfolio of bikes and Slingshots ever with a fresh lineup of FTRs, the debut of the Indian Challenger Elite as well as our Scout and Indian Pursuit lineup. There's certainly a lot to be excited about this year, given what we've launched thus far, but we're not done. I'm incredibly excited about the launches we have planned for the rest of the year, so stay tuned. Overall, we're off to a strong start in 2023 and -- that said, we are closely monitoring external factors that could impact our customers, and we remain laser-focused on being agile and adaptable, should the demand environment change. Now let me share some thoughts related to customer trends that we're seeing. The demand story remains mixed and largely consistent with what we've been seeing over the past couple of quarters. In off-road, demand for our utility vehicles remains steady as the use case for these products is less affected by mild fluctuations in the macro environment. Recreation remains soft and we expect this to be the case as we progress through 2023 with share gains for us coming from new product launches. We continue to see higher demand for our premium products regardless of category, including Ranger North Star and RZR Pro R and Turbo R. SnowCheck for model year 2024 hit our target, making it the third best not-check in the past 20 years. And lastly, April retail is off to a very good start. For On-Road, we're just now entering the selling season and April has been very encouraging as spring has arrived, and our dealers have an extremely competitive lineup of Indian motorcycles and slingshots. In fact, we believe our lineup of bikes has never been more competitive than where we are today. In Marine, it was a later-than-anticipated start due to weather, but the boating season is upon us in many parts of the country and inventory is finally healthy. I was recently on the road visiting some of our marine dealers with our marine team, and they told us they've had a successful boat show season, but the customers seem to be taking longer to make a decision about buying a boat given improved inventory levels. Like our other segments, the high end of the marine market continues to perform well. In addition to customer trends, we also keep a close eye on credit and lending trends that we see with our customers. In general, the metrics we monitor remain consistent with past levels. If anything, we're reverting closer to prepandemic metrics. As normalization within our retail finance continues, the key metrics we follow are average FICO scores, approval rates and penetration, each of which has not deviated materially from data dating back to 2018. Our information comes from our partner banks that are available to our dealers to provide credit to customers. These partner banks finance about one quarter of retail purchases and the information we're sharing today comes from that piece of our business and our partnership with these key banks. As you've heard me say many times, our relationship with these banks are very important because we do not have a captive financing arm, we have minimized credit risk and exposure. These partner banks are well established, strong and well capitalized, and we are appreciative of our relationship with them and their willingness to work so closely with our dealer network to help make consumer financing available. They are truly allied in our strategy to provide the best customer experience. Lastly, these key partner banks are telling us they want more volume, and we're working with our dealers to make this happen. Regarding dealer inventory, I'm happy to say that we are in a much healthier position than we've been in a long time. We believe inventory is mostly at our targeted and optimal levels as we enter our prime selling season. We do have a few exceptions and are working to optimize dealer inventory across all categories. Year-over-year, the number looks staggering. But remember, we're coming from a point in 2022, and where dealers were starved of inventory given supply chain constraints and our inability to build and deliver enough product. Relative to 2019, inventory is down about 20%. We're getting numerous signals from dealers and our own data shows that we're returning closer to a more normal seasonal trend as inventory levels improve. When you look at the average North American retail for off-road vehicles, excluding snowmobiles for 2016 through 2019, the first quarter is typically our smallest quarter, and we anticipate this to be the case in 2023. Historical performance and seasonality show that we typically see a sizable jump in retail sequentially from Q1 as the riding season begins and weather improves. We expect this to be the case this year, and our April performance supports this assumption. The magnitude of the jump in Q2 is expected to be a bit more muted due to a strong start in Q1 as well as some of the macro headwinds. As the chart shows, history would suggest that we would see a sequentially similar third quarter followed by a dip into Q4. The bottom line is that our first quarter performance was in line with our expectations and April performance, is trending consistent with our expectations. Although challenges remain, our team remains focused on enhancing our internal processes and systems to improve efficiency and delivery. We continue to see ourselves in a strong position to gain share as the year progresses with healthy inventory at the dealers and a big year for innovation and product launches. We also remain vigilant as we assess consumer trends. While nothing has changed significantly compared to the past couple of quarters and our original expectations, our team remains agile and committed to optimizing the business. Finally, we remain committed to delivering on our 5-year strategy and plan to provide a comprehensive update on our progress during our recently announced Institutional Investor and Analyst Day on July 30. I'll now turn it over to Bob, who will summarize our first quarter performance and provide additional details for the balance of 2023, including guidance and expectations. Bob? Bob Mack: Thanks, Mike, and good morning or afternoon to everyone on the call today. Our first quarter results kicked off what we believe is going to be a strong year for Polaris in regard to share capture, new product launches and margin expansion, all of which lead us forward on the path to achieve our 5-year targets. Sales grew 22%, driven by a number of factors, Mike mentioned earlier, including strong performance from our international business, which grew 16% year-over-year, overcoming a 5 percentage point drag from currency. On margins, we saw all segments expand gross profit margins over 125 basis points versus Q1 2022 with On-Road expanding an impressive 330 basis points as that segment continues to execute on its profitability plans. Turning to our off-road results. Sales rose 19% relative to last year to $1.6 billion. Whole goods increased increased 25% with share gains across the board. In snow, we recently concluded the '22/'23 season and gained about 1 point a share, which exceeded our expectations given the recalls we had early in the season. PG&A results within Off-Road were driven by stable retail accessories per unit. Retail trends were consistent with last quarter, while actual industry performance was down in the quarter. Our share gains were driven by outsized gains in ATVs and general side-by-sides. With healthier inventory across our entire off-road portfolio and our innovative offering of new products, we expect share gains to continue throughout the year. Outside of utility and recreation, we saw double-digit growth in commercial, which continues to have a strong backlog. Margin expansion drivers included higher net price and lower cost premiums offsetting higher warranty costs and finance interest. Switching to On-Road, our third straight quarter of share gains were driven by our strong product portfolio and healthy inventory. North American Indian Motorcycle retail was flat year-over-year, but up 11% relative to 2019. International sales were bolstered by strong Indian motorcycle sales in Australia. It's worth noting our European brands, Aixam and Goupil both had record revenue quarter and while they face meaningful headwinds, they continue to drive margin expansion. On-Road gross profit margin was up 331 basis points driven by favorable product mix and higher volumes. Moving to our Marine segment. inventory is healthy, and we are operating in an environment that feels like pre-pandemic times. Sales continue to be driven by consumer preference for more premium boats as well as the pricing actions we took last year. The most recent data we have shows we gained share in Marine during the first quarter. Dealers believe it was a successful boat show season, and while they are optimistic about the upcoming retail season we are seeing a return to seasonality in terms of the timing of boat registrations and pickups. Similar to Off-Road, we are currently seeing increased promotional activity which we believe can positively impact buying patterns as we enter the spring selling season. Gross was up margin was up 129 basis points with higher net pricing and favorable product mix being the primary drivers. Moving to our financial position. We continue to see our balance sheet as a competitive advantage. Cash generation in the first quarter were strong relative to previous years, and our net leverage ratio continues to be in a healthy spot at 1.6x. We believe we are set up well for a variety of scenarios in the broader market with our balance sheet and cash generation capabilities in 2023. Now let us move to guidance and our expectations for 2023. Before giving more details, you should know that our expectations today are the same as they were in January when we first provided 2023 guidance. Broadly speaking, what we are seeing across our segments today is in line with our original expectations. Our first quarter results reflect momentum in sales, share gains and margin expansion, which should help us achieve our full year goals. Regarding sales, there continues to be a long list of opportunities to achieve our guidance. Mix continues to be a positive and is expected to remain a contributor given the launch cadence we have planned for the remainder of the year. Today, our product launch calendar remains on track, and we expect a bigger contribution in the back half of the year from mix as those new category-defining products enter the channel. We expect to gain share throughout the year with the support of healthier inventory levels and new product launches. So even though we anticipate flattish retail industry for the year, we expect to do a bit better as a share gainer. As Mike mentioned earlier, dealer inventory is near optimal levels allowing us to realize the positive share impact we were expecting. We also spoke about robust growth in our commercial business and expect that to continue throughout the year, just as we saw in the first quarter. Our international and PG&A businesses are expected to be strong contributors to growth this year. Offsetting some of these sales drivers are continued headwinds from FX and the return of promotions. We are planning FX conservatively given the volatility in the markets, but should FX rates hold at their current levels, we expect to see a tailwind versus our plan. For margins, we expect modest margin expansion at the adjusted gross profit and EBITDA lines. Drivers continue to include volume and mix, along with our expectation that input costs will decline throughout the year. While most things are moving in the right direction, we are seeing input costs around steel and diesel rises. But at this point, they are not expected to have an impact on our financial plan for the year. It is important to understand that there are many things going right operationally and with our supply chain, but it takes time, and we expect this journey to continue throughout the year. Adjusted EPS from continuing operations is still expected to be in the range of down 3% to up 3% with most of the potential drop-through from margin expansion being consumed by a higher interest rate expense. For the second quarter, a couple of things to note. We are seeing seasonality return but not yet in line with historical patterns, which usually translates into a sizable sequential ramp in shipments and sales in the second quarter. We do not expect a material ramp in our second quarter sales sequentially this year due to the timing of snowmobile shipments, which carried over into our first quarter. Next, history reflects that approximately 40% of our annual EPS is derived in the first half of the year, and we expect this cadence to hold true this year. The negative hit from FX in the second quarter is expected to be in line with what we saw in the first quarter, if FX rates stay constant. To wrap up, Q1 results proved to be a strong start of the year. Our expectations for the year remain consistent with our initial thoughts. Although it is happening slower than we thought, we are seeing the supply chain improve. With our focus and investment on internal efficiencies and processes as well as continued progress in the supply chain, we believe there remains a real opportunity to drive margin expansion this year and beyond. We remain excited about the product launches we have for the remainder of the year and believe they can contribute to growth this year as well as future years. We are taking share and are committed to winning through our ability to deliver high-quality and innovative products to those that play and work outside. Our teams remain agile as we enter the 2023 selling season, and we are in a good spot with inventory. As we close out the first quarter, we are grateful to be in this position and excited about the initiatives we are focused on to help deliver our 5-year strategy. With that, I'll turn the call over to Gary to open the line up for questions. Operator: Our first question is from Fred Wightman with Wolfe Research. Please go ahead. Fred Wightman: I just wanted to touch base on the comments Bob made for 2Q and sort of the first half of the year. It sounds like that 40-60 split as far as first half, second half is still the right way to think about the year. But that would also sort of suggest 2Q numbers for The Street need to come down. So can you sort of walk through maybe where we missed things. It sounds like FX might be a little bit of a headwind, but just sort of the 2Q outlook and then sort of the implied stronger back half of the year given the macro environment? Bob Mack: Yes. Sure, Fred. So right, the 40-60 split is the right way to think about it. When we started the year and got into the year, we had expected to ship a bit more of the snow volume in late in December, more of it shipped and was really revenue recognized in January, February because of some of the recalls we had it holds we add on product. So that sort of knocked the cadence off a little bit. So what you saw was heavier shipments in snow in Q1 with lower side by side, and then you'll see more side-by-side in Q2, but you won't see -- because of the snow shipments that will mask a little bit of that normal ramp-up. So I think as we look at it right now, the beat in Q1 really offsets part of what we would have normally seen in Q2. But it does take the hill to climb for the year down a bit, but that's really the dynamic that's at play. Mike Speetzen: The other thing Fred, to keep in mind is as I mentioned, the number of new products that we've got coming out and the timing of those deliveries really is more weighted into the back half. And aside from the XP, the other products are not what I would term as highly cannibalizing of our existing products. They really target new categories. And so that will obviously be a big part of that second half ramp-up in deliveries. Fred Wightman: Make sense. And then just to ask about the retail financing landscape. The slide that you guys provided was super helpful. But I'm wondering if you gave this for 1Q. I'm wondering as you moved throughout the quarter, did you see either FICO scores or approval rates or penetration sort of dip off in March? Or maybe if you could comment into April? Bob Mack: No. I mean it's -- the data has been really consistent and consistent with the past, and we've talked to all the banks about where they are with their lending standards, down payments and really, that's all remained very consistent across the board. So I think you'll continue to see our penetration rates return to kind of more normal 30-plus percent levels. if there's any slowdown in financing, it's more on the local bank side, and that's why we have these partners in place to be able to step up and fill that gap and they've all been very aggressive and are very interested in lending more money into the space. Mike Speetzen: Our promo, Fred, is largely aimed at doing rate buydowns to put things back into a more attractive category. And you got to step back and think about who our customers are, and we track that. They've done well over the past few years. Their income levels are up. When you hear about layoffs and things that are going on in the economy right now, they primarily tend to be centered around the tech areas which don't necessarily have a high correlation to our customer base. So at this point, the customers remain healthy. And as I talked about in my prepared remarks, once the weather opened up and we've heard this pretty consistently, from all of our businesses. We've seen customers and the activity really increasing. So we think the weather had a pronounced impact, and I think you're going to see those customers coming in, and that's why our retail finance partners are looking to to grab an even bigger piece of the business. Operator: The next question is from Joe Altobello with Raymond James. Please go ahead. Joe Altobello: I just want to get some more clarity on Fred's first question actually about your implied guide for Q2. So I understand why the delay snowmobile shipments from December to Jan, Feb would boost Q1. But I'm a little unclear as to why that would impact Q2. I mean were there other pull forwards that you experienced in this quarter? Bob Mack: No. What I was trying to say is that the snowmobile shipments, if you look at what would have been the normal seasonal ramp from Q1 to Q2, you'd see a bigger ramp. But Q1 was, to some degree, unusually high if you were thinking normal seasonality relative to history to sort of like a '19 compare because of those snow shipments. And so the sales ramp just looks lower. But the real dynamic is we'll ship more side-by-side and more off-road and motorcycles in Q2 you just won't see as big of a revenue pop because we had those snow units in Q1. Joe Altobello: Okay. But it also implies earnings are going to be down year-over-year in Q2 as well? Bob Mack: Yes. I mean, Q2 last year, everything last year was really driven by ability to ship. So our Q1 last year was significantly lower from a shipment standpoint than where we were in Q1 this year. So getting into riding season, we had a lot more inventory to try to make up and get in the channel in Q2, whereas this year, we're sitting a little bit better because we had better shipments in Q4 and Q1. So that's the dynamic there. We just don't have as much of an inventory hole to make up in Q2. Mike Speetzen: And you're dealing with and you're dealing with the effects of foreign exchange and interest rates on top of that, that just pronounced that earnings decline in the second quarter versus last year. . Joe Altobello: Got it. And just one last one on April retail. It sounds like you're pretty positive there. Maybe could you guys quantify for us what that might have looked like? Mike Speetzen: You know I'm not going to do that. But I will just tell you that we've been watching it. We obviously watch what retail is doing on a daily basis. We would do it even more frequently if we could. I know our business units do -- and as I mentioned earlier, the weather really did suppress things in the early part of March. And once we saw things improving, we saw retail momentum picking up, we've had a couple of dealer council meetings and that has confirmed that viewpoint. The dealers are playing back to us that once the weather improved, customers started coming back into the dealerships, I think the buying process is definitely a little bit different given that there's inventory availability and with higher interest rates, obviously, consumers are going to make sure that they're making the right decision. And I made the comment about what's going on in the Boat business right now. We're obviously financing plays a big part -- and it's not that they won't buy, but they're just taking their time. They've got more inventory to pick from, and we feel good about what we've seen so far through April. Operator: The next question is from Craig Kennison with Baird. Please go ahead. Craig Kennison: We get a lot of questions from investors about guidance and really the expectation for retail to be flat. We've got a potential recession, and we also have potential tighter credit, although you're not seeing it. What gives you confidence in that flat outlook? Is -- are we underestimating the product cycle -- or are we underestimating the impact of product availability and your ability to actually fulfill demand in a bigger way? Mike Speetzen: Yes. I would say it's a few things, Craig. I mean, one, the utility side of our business, which for Off-Road makes up about 60% of the volume, the demand there remains stable. In fact, on the commercial side, it's very strong. And so that gives me confidence as we get availability into the channel, we are seeing those products retail out or sell-through. And so there's obviously an element there that as long as that market continues to hold up and frankly, we're not seeing anything that tells us anything differently, that gives us confidence. The second is we talked about it. We're not expecting growth in our recreational category from the existing products. So we're anticipating things to continue to be a little slow there. just given that, that's a far more discretionary purchase and consumers are obviously impacted by what's going on. Even if credit is available, the cost of credit is obviously a strong consideration. But I do think the new product elements, both for recreational and utility that we have coming out later this year, probably are being a bit underestimated. They're largely not a cannibalizing product. So they're redefining segments or defining new segments. And we're really excited about what we believe that means for the business. When you add on top of that, we didn't talk about it, but we had considerable growth in our international markets, pretty much across the board, particularly strong in our Indian Motorcycle brand but even growth in off-road and growth in PG&A that comes as a result of organic but also with those new products, we are, at the same time, launching a number of PG&A options. So for example, when we launched the all-new RZR XP. They were close to 100 accessories that came out literally at the same moment that vehicle did. And so when you add all those factors together, we believe that puts us in a pretty good environment to at least execute on a flat retail environment. Bob Mack: The other thing to keep in mind is as you think about '22 retail, which is the comp everybody is looking at, '22 was still not a normal retail either year from either a cadence perspective or an inventory availability perspective. And it was a good bit lower than 2019. So we're not comparing -- if you think of 2019 as the last sort of normal cycle for this industry, the 22% comp relative -- full year comp relative to '19 is not a Herculean number. So we're already kind of down from where we were prepandemic, if you look at it from a unit standpoint versus '19? Craig Kennison: If I could just follow up. Are you able to track sort of the average retail selling price and given dealers have to be sharper on their pricing. Are you actually seeing maybe the monthly payment for a like-for-like unit tick down given maybe a more competitive price from dealers? Bob Mack: So you've got two dynamics at play there. Price obviously and interest rate. I would say that the increase in both promo across the whole industry as well as the dealers, to your point, maybe shepherding their pencils a little bit, taking a little bit less margin. Obviously, during the pandemic people were doing pretty much full op margins. That brings the finance rate down a little -- the finance amount down a little bit. I would expect most of that good news is offset by kind of the rates that have ticked up kind of quarter-by-quarter. So I don't know that that's having a huge impact yet. But if rates stabilize, that will start to maybe have a small impact. But we don't get -- the feedback from dealers is that the dollar per month isn't really the big driver. It's the headline shock of the rate when people are financing the products. They're just not used to seeing a rate that's kind of in the 7 plus range, and that's more the driver on people's hesitancy to buy. Mike Speetzen: Yes. And when we were out with the marine dealers, they were looking for some help from us, not necessarily financial help, but helping how do you articulate to consumers that, that headline rate may be higher, but the impact from a monthly payment standpoint really is not significantly impacted in -- so they're happen to think differently about how they're selling. The other thing I'd went out is the comments that we've made around the high end of the business, and that's true, whether it's on-road off-road or marine, that the customer remains very strong and -- our -- we don't talk about it really much anymore, but that presold order book obviously has come down from the heights that we had now that inventory is better. But it's still up pretty significantly relative to where it was before the pandemic. And really, that's centered around areas like the Ranger North Star, where we're still not at optimal inventory levels. And that just tells you that customers are still anxious to get that product, that's good for dealers because whether it's the Turbo R, the Pro R or the North Star Ranger, the amount of discounting that they have to do is minimal, and that tends to be a more affluent customer that maybe not as sensitive to the financing rate. So we feel pretty good about where those dynamics stand right now. Operator: The next question is from Robin Farley with UBS. Please go ahead. Robin Farley: Just to clarify a little bit. I know the April retail has already asked about. I wonder if you could just indicate though, whether when you say it's strong. Is it positive year-over-year? Or did you just mean that you were continuing to grow share? And just thinking about that in the context of your expectation for retail to be flat for the year. It seems like Q1 was going to be the quarter that would have been up modestly. And so is there a quarter later this year then -- I don't know if it would be Q2 here or Q3, where you're now expecting to see that kind of that retail up year-over-year? Mike Speetzen: Yes. So I would say this. April is tracking with our expectations. It is up versus last year. And obviously, that's 1 of 3 months that we've got to execute on. So at this stage, we feel pretty good about it. I think we're going to probably steer clear of trying to make commentary around the quarters on retail. The first quarter, the difference between what happened in our expectations. Really, there are a couple of things. One, as you well know, -- we had a fair number of our recreational products on shipment holds or retail holds. We did clear those. But as it happened later in the quarter, I'm sure that there was some of that, that was still caught up and getting the work done on them. And then the second point that I made earlier is we're still not where we need to be from a Ranger inventory standpoint. And so we know when we get that product in at retail, and we know that, that's an area where we fell short of some of our expectations, and it was purely around having that product at the dealers. So a lot of timing effects that go in there. But I think the key message is weather cleared up product availability both correlate to improving retail, and we've seen that continue to improve, not only relative to our expectations but also sequentially as we came out of the first quarter. Robin Farley: No, that's very helpful color around Q1. Just a quick follow-up on the commentary about your retail financing partners. Just given what's going on in the broader environment, there's concern about how much credit would be available for consumer financing. Do you have an annual contract with your retail finance partners? Is there like a particular time of year when the terms of that get revisited where if they had a change in view about how aggressive they want to lend in different parts of the consumer space where those new terms would come into play? Bob Mack: Yes, Robin, it's Bob. There are -- I mean, there are 4 partners and the contracts are all multiyear Obviously, they expire and renew at different points. But part of the benefit of having those 4 partners is that not only are they competing with the credit unions for business, but they're competing with each other. And so I think that, that helps us keep strong credit availability and solid approval terms and the appropriate level of aggressiveness with the finance group. And we meet with them all monthly team meets with a more frequently than that, but I speak with them monthly. And we feel good about where they are. They're not signaling any lack of commitment to the market. They're not changing their credit standards. Our FICO scores have remained very consistent. Our average consumer earns well over $100,000, and their income is up 16% versus 2019. So it's a pretty strong consumer group to finance in the banks like the business. Mike Speetzen: Robin, we've talked about it before. The thing I like about the setup we have, which we've obviously expanded from what we used to have with really only 2 partners -- is there are thresholds in the contracts that incentivize performance as well as the separation, as you've heard me say in the past, of church and state, so that we're not pushing them to go down a path that puts their balance sheet in a compromised position and they're not playing it too conservative. We think it puts us in a very balanced middle of the road. And I think that's why you see them picking up their penetration rates and it provides a really good opportunity for our customers. Operator: The next question is from James Hardiman with Citi. Please go ahead. James Hardiman: I had a question on the quarter and then maybe a question on the outlook. I guess, as I think about the retail performance and then the reported sales performance. I was hoping you could maybe bridge that gap, particularly on ORV or off-road, right? ORV retail was down 10 reported whole goods sales were up 25%. Obviously, that's pretty big death. It's not apples-to-apples. It never is, but maybe sort of walk us through the big contributors to that, maybe start with the ASP number. I think you mentioned snowmobiles probably helped increase that gap as well. And then there was obviously some channel fill. I'm assuming a good chunk of that call it, $150 million was ORVs. But I just want to make sure I'm not sort of missing any of the key components with regard to that sort of gap. Bob Mack: Sure. This is Bob. I'll take that broad question and a couple of pieces here. So if you think about the quarter, and you think about retail relative to ship, we made up some ground really on the ATV side. We started shipping -- we're just starting to ship now, the new range or the new razors but we did make some progress on Pro R and Turbo R are get some more inventory out there in those high-demand vehicles in the quarter. And as Mike said, we didn't make the progress we had hoped to make. And so for Ranger, shipments and retail were relatively close, made up a little bit of group, but not a lot. So it's -- part of it is getting better channel inventory out there, getting that out there ahead of the season, primarily on ATVs, and like I said, a little bit on Ranger. The snow was a piece of it. AFPs are another chunk. We had the -- this is the quarter where we had most of the carryover from last year. So our last price increase -- major price increase was in early Q2 of last year. So we do have more carryover on the pricing side. So are up double digits in off-road and mid-single digits in on-road and marine. James Hardiman: And then maybe help us navigate and you touched on it, Bob, like the comparisons are maybe all over the place. if we just did the math, ORVs were up 6% versus '19. I think if we were to hold that relationship on a year-over-year basis, they would be up a lot in the second quarter. I know you're not sort of guiding retail, but you guys know I know love a good slide. Slide 6, I think it is, where you talk about sort of Q2 retail versus historical average. What is that telling us exactly? I think it's telling us that maybe you don't expect Q2 retail to be above '19, but I just want to sort of understand, make sure I'm picking up while you guys are putting down here? Mike Speetzen: Well, I mean, what we were trying to get across on that slide was probably -- I mean, that trend for retail is a composite. So it was less about a specific comparison point. And I think really, the point was trying to demonstrate where we're at in terms of dealer inventory channel fill, which as you rightly pointed out, we've largely completed that, although we have pockets where we still have inventory that's probably lower than where we would like it to be, and we'll keep working that. But we're -- the point around returning to more seasonal, but we're not saying completely returning to seasonality because we have those pockets where inventory isn't where we'd like it to be. But on the other side of that, we're not ignoring the broader macro environment as we've talked about, our Rec business is definitely under pressure just given it's a more discretionary purchase. So Again, I don't want to steer into talking about quarterly retail because it doesn't take much to have movement between quarters and then we spend an awful lot of time trying to help people understand that. I think Q1 is a prime example that I think will help us as we get into Q2, given some of the delays we had. But at the same time, we've got another couple of months to go. And there's a lot yet to play out from a broader economic perspective. James Hardiman: But just to clarify, if we were to sort of do the math of if you maintain plus 6% versus 2019. That's probably going to get us to the wrong answer or maybe not. Bob Mack: Well, if you use the math of plus 6% to 2019 and carry that through the rest of the year, it would definitely get you to the wrong answer since percent, we're going to be flat and 2019 was a good bit '22. So I don't think you can say that seasonality in '22 will be the same as it was in '19. Not to say that there's -- that, that can't happen, but to Mike's point, the year is setting up a little different, and it's still in certain segments of the market, it's still impacted by product availability, and that's going to take a while to continue to work through that. So -- and there's a dynamic as Mike was, I think, also pointing out that you're seeing a higher level of utility sales relative to rec sales in 2023, relative to '22 and '19. And that season is a little bit different. Ray tends to do really well in the spring as people get ready for riding. And we're not anticipating rec to have a great year given just the macro environment. So that utility versus remix has that impact as well. Operator: The next question is from Noah Zatzkin with KeyBanc. Please go ahead. Noah Zatzkin: I guess first, hoping you could provide some color on the elevated production costs you called out and where that hit within ORV? And then somewhat relatedly, as it relates to the redesigned RZR XP product. I think you had mentioned more favorable margin dynamics related to kind of the modular approach. Just wondering if there are benefits to be thinking about this year related to that product. Mike Speetzen: Well, I'll let Bob can get into more specifics. But in general, the way I would characterize what happened in Q1 is we largely got the units out that we were targeting. The issue is how we executed that resulted in a lot of inefficiencies. So we were still building product into rework, nowhere near the same magnitude that we've had historically because suppliers are still delivering late. Now last year and the year before, when we said a supplier was delivering late, we were talking about weeks, months, sometimes quarters. Now we're talking about days and weeks, so what that means is we're still able to get the product out, but we're not doing it in an incredibly efficient manner. And the teams are still working with that. We're narrowing it down. The number of suppliers that are late continues to come down. And as that happens, it improves our ability to get efficiency in the plant. And that really is largely what drove it, and that's going to show up obviously in our gross margin performance within the off-road vehicle business. As we look forward, it's tough to say how and when those will play out. We did add that to the list of assumptions that are essentially embedded in our guidance. And obviously, we're going to continue to work that as aggressively as we can. Steve Menneto and his team are laser-focused on making sure that we're driving efficiencies in Huntsville and Monterrey as quickly as we can. It's largely dependent on how suppliers deliver to us. So we're working backwards to make sure that suppliers have everything they need to be able to deliver on time. Bob Mack: Yes. I think in addition to the sort of operational inefficiencies, Mike just talked about, what we saw in the quarter, steel had been trending in a positive direction as we kind of exited Q4, there's been a bump in steel prices. Probably won't be long term, but that any benefit from steel that we were expecting in Q1 and Q2 is sort of taken up by change in the curve. But again, we think that will trend back towards normal. Same thing with diesel. It's coming down a little. It's forecasted to start coming down. We haven't seen it but it's come down slower than we had anticipated. There was a little bit of benefit on the ocean freight side. Those rates turned a bit favorable in the quarter. So some puts and takes on the rest of the cost side. But overall, it's just a little more negative than we had expected, but nothing that's going to change our full year guidance. And then on the new RZR, so that vehicle benefits to some degree from some of the modularity work we're doing. But that project was started it would have been nearly probably 4 years ago. So it's not getting the full benefit. I wouldn't consider that to be the first product we've launched with our new philosophy. But given what Mike talked about the 100 new PG&A items and multiple models across that, having a good, better, best sort of range of product in the market, which we hadn't historically had. We do expect to see some margin benefit from it. Operator: The next question is from David MacGregor with Longbow Research. Please go ahead. David MacGregor: I wanted to ask about the On-Road segment. And clearly, there's been a tremendous amount of progress made here over the past few years. But 21.4% gross margin, up 300 basis points. How much more upside is there to margins? And maybe the more important question is just how sustainable are these margins given we think is going on, the mix, everything else? Mike Speetzen: Well, I'd say a couple of things. One, we've talked about, obviously, this segment includes Indian Motorcycles, Slingshot, but also a couple of the businesses that we have over in France, Axiam and Goupil, which -- both of which have strong margin performance. So there's an element of that margin performance that those businesses continue to execute on. I wouldn't suggest that they're going to move meaningfully one way or the other. The real opportunity for us is around Indian and Slingshot. And as we've talked about the path to profitability for both of those brands is continued focus with Mike Dougherty and his team. They've made really strong progress over the past couple of years. And we expect that to be an opportunity as we go forward. And when you think about the size of those businesses and the growth opportunity for both, there's meaningful improvement that we think we can make there. It's going to play out over time. And as we've talked about in the past, we probably hadn't done a really good job with either Slingshot or Indian, these are essentially brand-new businesses that we started from scratch and it takes time to get to profitability. The team is laser-focused on that, whether that's driving efficiencies and engineering now that we've got all the products that we essentially need out. So that takes your initial platform investment down or continuing to drive globalization. We've got a meaningful presence in Vietnam. We look like we're going to continue to expand that for in-region motorcycle delivery. We've got a presence in Europe. Europe is our fastest-growing market for Indian and we've got assembly operations in Opole, Poland. So all those things help as we continue to grow the business, and we're really confident in our ability to continue to expand those margins. David MacGregor: Yes. It's impressive. Congratulations on the progress there. Second question, you just talked about today about the commercial business and the contribution to growth. I guess it's been a while since we really talked about that. Can you just remind us in terms of the size and the profit contribution from that business? Mike Speetzen: Yes, we don't necessarily get into the size. Bob knows this business well. He used to have operating responsibility for it before we made all the changes over the past few years. It's just -- it's turned out to be a great segment for the Ranger portfolio. You've seen a press release that United Rentals came out and has bought ordered a bunch of the new Ranger XP kinetics. We continue to have a strong relationship with them and with several other operators in the space, and we have some really strong partner programs that help us as well. And with the amount of infrastructure and commercial development that's underway in the contracts, the order backlog looks great for this year, and we're confident this business will continue to grow for at least the next couple of years. Operator: The next question is from Jamie Katz with Morningstar. Please go ahead. Jaime Katz: I have just one quick one. One of your competitors talks quite a bit about new entrants and brand switchers and how that has supported growth for the top line. So can you guys give us a little insight into what you're seeing from your customer base, how that's evolving and what your ability is currently to sort of attract new entrants to the space or brand switchers. Mike Speetzen: Yes. I think we continue to see -- it's obviously not at the levels that we had in the pandemic when new customers were in the, call it, the low to mid-70s. But new customers still represent about 60% of the incoming volume. And so we know that word-of-mouth family members, friends taking folks out on our vehicles is a big selling point, and we continue to leverage that. But we've done a lot. In fact, the management team and I were out at one of our ventures locations in Arizona in the last month. And it was just incredible to see the volume of people going through that particular location. It was staggering. And we're now starting to activate upon that. So building a stronger relationship with those customers to either migrate them to a Polaris Adventures Select, which is more of a subscription program or into buying a vehicle. And so we think that, that's a really good opportunity to continue to open the aperture and bring new people in. We've done a lot around educating, making sure with a lot of new people coming into the category, making sure they understand how to use the vehicles, how to safely use the vehicles, how to load them on a trailer, all the different aspects associated with that. So we've tried to make that ownership experience much better than it has been. And frankly, we've done a lot of work with our dealers to really get them to up their game in terms of how they interact with the customer. We invested heavily in our website, which we just rolled out at the beginning of the year to make it an easier experience for customers to get on and get through the basics. Someone new to the category trying to figure out what vehicle they need. Is it a 2-seat or a 4-seat? Those are all pretty challenging things, and we want to help them get that work through before they have to walk into a dealer, which can be an even more intimidating experience. We Think we've done a really good job of doing that. And then the last point I'd say is making sure we have vehicles that cover the spectrum. Not everybody is going to come in at the high end of the segment. So we've done a lot of work to make better, more accessible, lower-cost entry-level vehicles. And then the launch of Polaris Exchange was a big move. I mean we are the single largest source of used vehicles. And we know that, that becomes an important tool for dealers to have those used vehicles to bring people that are new into the category that may not want to spend the money you need to spend on a new RZR XP or Pro R, but getting out of used Turbo S or Pro XP may be a good way for them to enter the brand. And now with the introduction of Polaris Exchange, that really gives the dealers a tool to get out that inventory, and it does it in a more efficient way where we're controlling it versus just sending those vehicles off to an auction. Jaime Katz: And then actually, I have one follow-up. I think there is some debt coming due later this year. Can you guys talk about whether you're thinking about renewing that, paying it down? Or does that sort of depend on what the capital allocation opportunities are? Bob Mack: Yes. So the $500 million 360 core term loan comes due late in the fourth quarter. We have rerolled that the last couple of times it's come due. Certainly, I believe that option will be available if we choose to take it. But we'll look at that as we get through the year and decide where do we think the best use of the capital is to either pay that off or to refinance it and use the money for CapEx, share buyback or targeted M&A. But that will unfold as the year progresses. Operator: The next question is from Gerrick Johnson with BMO Capital Markets. Please go ahead. Gerrick Johnson: This morning, I'd like to ask Bob. Can you quantify the floorplan interest impact? What was that contra as a percent of gross sales how did it look compared to last year? What was the change there? And maybe the same for discounts and promotions, how they impacted gross net? Bob Mack: Yes. So in terms of the finance side of -- the retail finance side impact last year versus this year was pretty minimal. On the wholesale side the total was, again, I'd say a few million -- about $5 million. Gerrick Johnson: Okay. Bob Mack: $5 million greater Gerrick Johnson: Okay. All right. Great. And since we're always talking about the snowmobile shift, maybe could you quantify what the amount was that shifted from 4Q to 1Q? Would make our math a little easier. Bob Mack: I would think about it in terms of a few thousand sleds. Operator: The next question is from Sabahat Khan with RBC. Please go ahead. Sabahat Khan: You talked a little bit about the boats earlier. I was just hoping you could provide a little more comment on just kind of the share situation in the pontoons. And just generally speaking, how do you expect that market to evolve over the course of 2023. Do you think it is as much or less or more dependent on the macro backdrop, some perspective on maybe boats in general and specifically the pontoon side. Mike Speetzen: Yes. I mean, look, I think we expect that there's probably going to be some challenges. I mean the opportunity for us was really getting inventory back up at the appropriate levels. Obviously, the SSI data, you can digest that, but pontoons were down in the 30% range. On a relative basis, I feel really good about where we're at. I mean, the work that's been done to bring Godfrey up over the last couple of years and be on a pretty consistent trajectory to gain share. The work that's been done there is now being applied to Bennington, and we saw that coming through in the March data, although there's obviously a number of states that haven't reported. We did see Bennington back in a share gain position, which was really encouraging. So we're going to run the business relative to what's going on from a broader market perspective. But I think whether it's just pontoons or even including the deck boat brand Hurricane, we're in a really good position to gain share this year, right? We've lost share over the last couple of years in the Bennington brand. It's been largely at the lower end of the market. The high end of the market for us has been very strong and very strong from a share standpoint. So the opportunity is really for us to go reinvigorate some of those lower-end boats and be in a more competitive position, and we feel like we've got that laid out pretty well. Sabahat Khan: Okay. Great. And then just one quick one. This graph on the right side of Slide 6. I just want to understand kind of the detail of the dealer inventory here in units. It looks like it's back about in line with kind of pre-pandemic levels. But I guess is this adjusted for sort of days inventory, I may not be reading it, right? But just thinking a higher level of sales post-pandemic, is it just dealers are thinking a lower absolute level of inventory makes sense at this point? Or how should we think about inventory in days? Mike Speetzen: Yes. I mean it's tough because each of the business is in a different spot. I mean, as I mentioned, our RANGER business is still below where we think an optimal level would be. But the point that we made in the prepared remarks about the fact that relative to 2019, which is really probably the best baseline that we've got before the impact of the pandemic that inventory level is down about 20%. And broadly speaking, we see that as probably closer to optimal, meaning we don't believe we're going to have to carry near as much as we have in the past. And that's a generic statement because there's going to be some areas where you've got to carry a pretty similar level of inventory. But with the ability to deliver product quickly and as I mentioned around some of the presold stats, there's still going to be a desire as people walk in to want to put more of a customized touch to the vehicle. And through our factory choice offerings and with a more stable supply environment, we should be able to do that for consumers and be able to get vehicles in their hands on a relatively quicker basis than we have historically. So I think long-winded way to say that the inventory levels are going to be lower than where they were before the pandemic, and we think we're probably closer to where we should be right now. Sabahat Khan: All right. Great. If I could maybe squeeze just quick one and just a bigger picture one. Obviously, your press release out yesterday on kind of a new electric offering. As you think about the development of that entire side of your business, is that macro dependent? Is that something you only continue if the macro holds in? Or is that something because of the longer-term opportunity you'll continue to invest in regardless of what happens with the macro backdrop here over the next, call it, 1 to 2 years? Mike Speetzen: Yes, I'd say my answer to this is not just specific to EV. It's strategy. I mean making sure that we're investing in the long term for this business is absolutely essential. And given the ambiguity Bob, myself and our business unit leaders are being very cautious about where we're adding costs into the business. But we're not compromising on making sure that we're pushing the strategic agenda forward, which obviously includes the investments we've got around electric. But there's a lot of other great things from a technology as well as product development standpoint that are going on. And the key for us is making sure that we're managing the business in a very surgical manner so that we're not starting and stopping and then we keep our strategy execution on a pretty consistent cadence. Operator: The next question is from Xian Siew with BNP Paribas. Please go ahead. Xian Siew: Maybe just another way to think about the revalue. You mentioned approaching typical seasonality, last year, in 2Q, you mentioned ORV retail was up about 13% quarter-on-quarter, and maybe that was still held back by some limited availability -- so I guess thinking about this 2Q should -- the ramp should be steeper than last year, I guess. Is that kind of how we should think about it? Bob Mack: The ramp -- so last year, Q1 was relatively muted. We had poor -- relatively muted from both a retail -- retail was okay and shipment was tight. You really got to think about when we say it's returning to seasonality, it's not fully back to seasonality. So comparing '22 to '21, it doesn't really tell you very much because it's purely related to what we shipped kind of in the quarter ahead in the early part of that quarter, and that was all over the map from '20 through '22. So normally, Q2 would be significantly higher than Q1 because we'd be shipping rec product and the rec side of ATV, RZR, that stuff into the channel for seasonality and then it would retail in Q2 as the season starts to open. We think that's going to be a little more muted this year just given the switch between utility and rec given that rec is relatively more pressured with the current macro environment. So that changes it a little bit. We had good retail as compared to '19, which would have been kind of a more normal season in Q1. So it's -- we're being cautious as we look at Q2, just not knowing if that was pull forward or if it's a sign of a better retail to come. So I think the ramp will not be -- I wouldn't think it would be steeper if that's how you're looking at it. Xian Siew: Okay. Got it. And then maybe on gross margin, if you can think about it by segment, so Off-Road maybe down a bit quarter-on-quarter, but it sounds like either there's just some of these inefficiencies. So maybe a little bit more muted in Off-Road, meanwhile, On-Road was quite strong. So should we be thinking like On-Road is up and Off-Road maybe flat to down? Or how do we think about the composition of the gross margin guide? Bob Mack: Yes. I think the one thing to keep in mind when you think about kind of Q1 versus Q4, Q1 was while better -- while Q1 '23 was much better than Q1 '22, it was also much lower than Q4. So part of the difference in volumes, Q4 to Q1 was really the -- just the difference in the size of the quarter. And the mix was a bit different as well. Like we said, it had a bit more snow in it, snow tends to be lower margins. So I think On-Road, Q1, Q2 last year, when we had this black paint problem. So shipments were relatively low. So those shipments will improve in Q2. Those margins, though, are lower than Off-Road. So if you think about that, that's a negative from an overall standpoint, but those margins will be -- the On-Road margins will be better. And Off-Road, we think will continue to improve through the course of the year. It will just be a little bit lumpy as we work through all the different supply chain challenges and sort of operational inefficiencies caused by those that Mike was talking about. Operator: The next question is from Scott Stember with ROTH MKM. Please go ahead. Scott Stember: Just looking at the PG&A business and particularly Off-Road, flat versus up 25% on wholegoods. In the past, a few quarters ago, maybe there were some questions asked about what could be a canary in a coal mine for retail trends and just the consumer not having as much money in their pocket to buy these units. But what do you explain the fall off, does it have anything to do with a shift away from recreation products? Bob Mack: No, it's primary. So retail in the quarter -- retail in Q1 was below 22%. So that's part of it. PG&A tends to float with retail as opposed to a wholesale ship. We're also seeing on the PG&A side, really on the accessory side, we're seeing a little bit of slowing of inventory shipments as dealers rightsize their inventory. Their DSOs are kind of trending back towards normal. They've been a bit elevated as we went through the pandemic just because of the lumpiness of shipments and back orders and dealers wanting to make sure they have the PG&A to attach to the units when they showed up. So as we work through that, our back orders have come down. We've seen dealers start to refocus a little bit on their DSO. We think that will -- mostly played out through the quarter but probably had a little bit of negative impact on shipments. What we have seen is retail, the attachment rates to the units that retailed in the quarter were solid and actually trended up a bit. So we're not seeing what we would think would be sort of a canary in the coal mine, as you said, related to accessories and then parts and related work orders, all those kinds of things were all relatively solid. So not seeing anything there either. So we think that's a bit of a 1-quarter trend as the dealers sort of rightsized what they had for accessory inventory. And we expect that to return to normal growth and we expect PG&A to actually outgrow wholegoods for the year. Mike Speetzen: And Scott, obviously, with our RIDE COMMAND penetration, we're able to get out and at least look at the right activity for those vehicles, which we do know is up year-over-year. And as we've talked to dealers, the volume in their service shops has stayed consistent. The difference is they just don't have the backlog. They were weeks and weeks out from being able to get to somebody's vehicle. And they're -- again, it's like everything else, it's starting to return to a more normal pattern. And I think that's really probably more reflective of the fact that this whole work-from-home movement has proved to not play out as a lot of people thought 2 years ago, and people are back to work. But I would say the riding activity continues to be good and probably reflects more of a normalized pattern. Scott Stember: Got it. And then last question on the Marine side. The pontoon industry down high 20s, and you're talking about how, I guess, the high end that market is performing well. And the first question is, is that segment of the market actually up and the other question is what is the divergence between the low end and the high end? It seems pretty high. Bob Mack: Yes. I mean we're not going to get into market share by categories, but we continue to see strong demand and backlog in the higher-end products. As we went through '22, we were very focused on that. So we really weren't shipping a lot of our kind of smaller and more entry series boats. We've got a lot of those out into the channel in kind of late Q4 and in Q1. So we expect that the season starts to kick off, we'll see that end of the market pick up. I think Marine is going to have -- from a just overall growth of the industry, I don't know everyone is expecting it to be a bit of a down year but I think we've got a good opportunity to take back share in that low end of the -- or the kind of more smaller-boat-entry-price-category end of the market where we just weren't shipping product the last couple of years through the course of the pandemic. So we don't view that as a negative. We think that will give us an opportunity to take some share back. And we'll see how that plays out. Operator: Your next question is from Brandon Rolle with D.A. Davidson. Please go ahead. Brandon Rolle: I just had a quick question on market share. Would you be able to comment on your North American ORV market share exiting 1Q, where you expect it to be at the end of '23? And maybe the market share growth opportunity in 2024 and beyond, especially given some of your competitors are increasing capacity and maybe improving their inventory availability in the coming years? Mike Speetzen: Yes. I guess what I would -- obviously, I don't want get into all the specifics, but they're increasing capacity, so are we, we have been. I don'tPII Ratings Summary
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Polaris Industries Receives Bullish Price Target from KeyBanc
- KeyBanc analyst Noah Zatzkin sets a bullish price target of $105 for Polaris Industries, indicating a potential upside of about 35%.
- Polaris's partnership with the Michigan Economic Development Corporation (MEDC) to launch an electric off-road vehicle charging network highlights its commitment to innovation and environmental stewardship.
- The company's strategic investments in sustainability and electric mobility, despite a recent downturn in stock price, present a potential long-term value to investors.
Noah Zatzkin of KeyBanc has recently set a bullish price target of $105 for Polaris Industries (NYSE:PII), suggesting a significant potential upside of about 35% from its current trading price of $77.79. This optimistic outlook was shared in a report by StreetInsider, where Polaris was also given an Overweight rating by the analyst. Polaris Inc., known for its innovative approach in the recreational vehicle industry, particularly in off-road vehicles, has been making headlines with its strategic moves towards electrification and sustainability.
The company's latest venture, in partnership with the Michigan Economic Development Corporation (MEDC), involves the launch of an electric off-road vehicle charging network in Michigan's Upper Peninsula. This initiative, which was celebrated on the same day as the analyst's bullish report, marks a significant step forward in Polaris's commitment to innovation and environmental stewardship. By introducing the all-electric RANGER XP Kinetic and establishing a charging network that supports around 100 miles of scenic trails, Polaris is not only enhancing the outdoor recreational experience but also positioning itself as a leader in the electric vehicle (EV) space within the recreational industry.
This move could be a key driver behind KeyBanc's positive outlook on Polaris. The development of the electric charging network, supported by a Mobility Public-Private Partnership & Programming (MP4) grant, showcases Polaris's ability to leverage partnerships and grants to innovate and expand its offerings. Such initiatives not only cater to the growing demand for sustainable recreational options but also potentially open up new revenue streams for the company.
Despite the recent downturn in Polaris's stock price, which saw a decrease of 1.05 or approximately -1.33% to close at 77.79, the company's strategic investments in sustainability and electric mobility could provide long-term value to investors. The stock's current position near its 52-week low, contrasted with its high of 138.49, might present a buying opportunity for those who believe in the company's growth trajectory as it expands its electric vehicle offerings and charging infrastructure.
Polaris's market capitalization of approximately 4.4 billion, coupled with its innovative approach to expanding the outdoor recreational experience through electrification, underpins KeyBanc's optimistic price target. As the company continues to navigate the challenges and opportunities of the EV market, its efforts to lead in sustainability and innovation could very well justify the anticipated upside in its stock price.
Cyngn Inc. and Polaris Inc. Strategic Partnership in Powersports Industry
Cyngn Inc. Partners with Polaris Inc.: A Strategic Move in the Powersports Industry
Cyngn Inc. (CYN:NASDAQ) has embarked on a strategic partnership with Polaris Inc. (PII:NYSE), a move that signifies a major step forward for the company in the powersports industry. Announced on April 9, 2024, this collaboration leverages Polaris's strong market presence and its impressive $8.9 billion sales figure from 2023. This partnership is not just a testament to Cyngn's strategic business moves but also an opportunity to tap into the vast experience and market penetration of Polaris, a Fortune 500 company known for its leadership in the powersports sector.
Polaris Inc.'s financial performance in the current quarter shows a mixed bag of results that could impact the dynamics of this partnership. Despite a modest revenue growth of 1.79%, Polaris has encountered challenges, including a 9.08% decrease in gross profit growth and a significant 31.84% drop in net income growth. These figures suggest that while Polaris continues to grow its sales, it is facing difficulties in maintaining profitability and managing its costs effectively. This scenario could have implications for Cyngn, as the financial health of Polaris directly influences the potential success of their collaboration.
On the operational front, Polaris has seen a downturn in operating income growth by 36.90%, alongside a decrease in asset growth by 3.78%. These figures indicate that Polaris is experiencing challenges in its operational efficiency and asset management. However, it's not all gloomy; Polaris has shown remarkable resilience in its cash flow management. A staggering 727.78% increase in free cash flow growth and an even more impressive 1988.26% surge in operating cash flow growth highlight Polaris's strong capability in generating cash from its operations. This financial flexibility could be a significant boon for Cyngn, as it suggests that Polaris has the liquidity to invest in joint ventures and collaborations.
Moreover, the modest 6.81% increase in book value per share growth for Polaris indicates a stable enhancement in the company's shareholder value over time. This metric is crucial as it reflects the underlying value of the company, which could reassure Cyngn of the financial stability and growth potential of Polaris. The partnership between Cyngn and Polaris, therefore, stands on a foundation where despite facing certain financial and operational challenges, Polaris's strong cash flow generation and stable shareholder value growth present a promising outlook for this collaboration.
In summary, the partnership between Cyngn Inc. and Polaris Inc. is set against a backdrop of Polaris's mixed financial performance. While there are challenges in profitability and operational efficiency, Polaris's exceptional cash flow growth and stable shareholder value offer a solid base for this strategic collaboration. For Cyngn, leveraging Polaris's market presence, industry expertise, and financial resilience could be key to navigating the powersports industry's competitive landscape successfully.
