Polaris Industries has regularly defied economic downturns to produce growth where peers such as fellow Minnesota manufacturer Arctic Cat lagged.
Yet on Thursday, the Medina-based company announced a second consecutive quarter of profit declines — with first-quarter earnings falling 47 percent, caused by sagging demand for off-road vehicles and rising costs associated with product recalls. Polaris' sudden shift of fortune had analysts during a conference call questioning executives about cost controls, profit margins and measures taken to tamp down inventory and to buck up vehicle sales.
"There were a number of positive developments during the quarter that allowed us to cover substantial recall costs and still hit our commitments," said CEO Scott Wine. "But we will not sugar coat the fact that we saw declines in sales and earnings per share for the second consecutive quarter."
The maker of ATVs, snowmobiles and motorcycles reported that first-quarter profits plunged 47 percent, prompting officials to maintain a cautious forecast for 2016. Like the fourth quarter of last year, the only division to see a significant sales increase in the first quarter was motorcycles.
Polaris reported $30 million in additional expenses in the quarter related to product recalls, liability and warranty issues, plus severance and acquisition costs.
Wine told analysts Thursday that Polaris has now recalled about 160,000 vehicles made since 2013. That includes the 133,000 off-road vehicles recalled Tuesday in conjunction with the Consumer Product Safety Commission. The vehicles in question pose a fire hazard that has been connected to 19 injuries and the death of a 15-year-old girl.
Wine apologized for the inconvenience of the recall but said that the company is first committed to safety.
"Our leading concern is to figure out what went wrong and to make it right," he said. "It is our foremost priority to get this right for our customers and shareholders."
Several analysts said the recall costs were higher than they had expected.
The expense comes as Polaris' biggest product segment — off-road four-wheelers — saw sales fall 12 percent during the quarter. The company attributes the decline to reduced orders from oil production companies in North America and from consumers who had gone ga-ga for the company's "side-by-side" vehicles for eight years straight.
The 18 percent increase in motorcycle sales and the 2 percent jump in snowmobile sales were not enough to compensate for the sales loss of off-road vehicles.
In the end, total revenue for the quarter fell 5 percent to $983 million compared with the same period a year ago. First-quarter profits fell to $46.9 million, or 71 cents a share, down 47 percent from a year ago, while operating expenses rose 20 percent.
Still, results met analysts' profit expectations and exceeded their revenue expectations by $17 million for the quarter.
Polaris shares initially fell early Thursday but recovered during the day to close up $1.56 to $97.79 on a day when the markets were down.
UBS Investment analyst Robin Farley said Polaris' off-road-vehicle sales decline was "slight" on a retail basis. It was also better than the fourth quarter and "tied mostly to uncertainty of how this week's recall affecting 160,000 side-by-side units will affect both production and demand."
Company officials noted successes introducing a new "general" off-road vehicle product, reducing dealer inventory and making significant administrative cost cuts.
Polaris maintained its prior full-year outlook but warned investors that sales are expected to decline 2 to 3 percent in 2016.
Profits, however, are still expected to reach $6.20 to $6.80 a share.
Wine noted that the company and industry are dealing with "persistent unpredictability" for the remainder of 2016.
Wine and Chief Financial Officer Mike Speetzen added that Polaris is engaging in "an all-out assault" on company costs and is "rededicating" itself to long-term growth.
Polaris has spent large sums of money in recent years marketing new products and launching new motorcycle models. It has also spent millions expanding vehicle plants, offices or research facilities in Wyoming and Plymouth, Minn., Wisconsin, Iowa and Alabama. The company has also expanded overseas, building new plants in Poland and new partnerships in India.
Dee DePass• 612-673-7725
