Despite troubling tariffs, a combination of strong sales and lower taxes helped Polaris Industries deliver a solid second quarter Wednesday, prompting the company to narrow upward the earnings forecast for all of 2018.
The Medina-based maker of off-road four-wheelers, motorcycles, snowmobiles and boats reported sales increased 10 percent to $1.5 billion during the quarter ended June 30. Net income jumped 49 percent to $93 million or $1.43 per share.
CEO Scott Wine said in a conference call with analysts on Wednesday that the global trade tariff situation is "the biggest threat" Polaris faces and that the company is relocating some of its Indian Motorcycle production from Spirit Lake, Iowa, to an existing plant in Poland.
The move is one of a host of strategies the company is considering to combat the impact of U.S. trade tariffs enacted by President Donald Trump on imported steel and aluminum. The U.S. action has resulted in retaliatory trade tariffs invoked by trading partners on metals, plus a host of other goods that Polaris relies on to make its vehicles and boats.
The portion of manufacturing heading to Poland will only affect Indian bike products aimed at European sales. The move was in process but now has the added benefit of helping Polaris compact the "very real" and "negative" impact of the trade tariffs, Wine said.
Wine said that the company will eventually run out of options to combat the effect of the spreading global trade wars. The company has been forced to raise some prices and surcharges to fight rising raw-material costs, he said.
The trade issues come when Polaris and the off-road vehicle market as a whole are seeing an upswing in demand. Excluding one-time items — such as expenses related to the wind-down of the Victory motorcycle line — the company's adjusted earnings for the second quarter were $1.77 per share. That handily beat analysts' average expectation for $1.62.
Officials noted that the sales of off-road vehicle sales, accessories and "adjacent market" products — a category that includes electric and military vehicles — rose about 17 percent. The motorcycle industry as a whole is weak right now, and that showed in Polaris' sales in the category, which fell 13 percent.
The tax-code changes enacted by Trump and Congress resulted in Polaris' income taxes for the second quarter falling to $20 million from $30 million in the same period a year ago.
Even with the trade threat, Polaris raised its full-year guidance Wednesday. It now expects sales to rise 11 percent to 12 percent over 2017, with the help from the recent $805 million purchase of Boat Holdings LLC. Boat Holdings is expected to add about $260 million to $270 million to sales in the second half of the year, CFO Mike Speetzen told analysts during a conference call Wednesday.
Polaris also increased the lower end of its net income forecast and now expects for 2018 adjusted net income of $6.48 to $6.58 per share.
Polaris shares fell 8 percent, or $9.88 a share, to close Wednesday at $110.11.