Despite rising prices for fuel and raw materials, Polaris Industries beat expectations and posted record first-quarter sales for its off-road vehicles, thanks to new product introductions and efforts to build stronger relationships and training with dealers.
The Medina-based maker of off-road four-wheelers, motorcycles, snowmobiles and electric vehicles said Tuesday it recorded overall sales of $1.3 billion, up 12 percent from the same period a year ago. First-quarter net income was $56 million, or 85 cents a share, compared with a loss of $3 million, or 5 cents a share, in the year-ago quarter.
Still, on a bumpy stock market day, shares fell more than 9 percent to close at $109.56 Tuesday.
During a conference call with analysts, company officials said that in addition to managing rising material costs, Polaris is trying to hedge against trade tariffs placed on steel and aluminum imports and is bracing for the uncertainty of a potential trade war with China. It also is facing higher U.S. fuel prices.
Taken together, these factors will boost expenses by $15 million this year, they said. Potential tariffs against China could increase expenses by another $15 million.
While overall sales rose during the quarter, officials conceded that vehicle sales would have been higher had winter ended sooner across the northern and eastern United States. The company also announced that it is shutting its jointly owned Eicher Motors dealerships in India after failing to find a buyer for that business.
On the plus side, Polaris’ new efforts to strengthen relations with U.S. dealers and issue new products helped the quarter.
Results were “driven by innovation and improved dealer engagement,” said CEO Scott Wine. “Through the tireless efforts of our team and the efficacy of various quality and productivity initiatives, we overcame commodity and freight inflation and product-mix pressures in the first quarter to maintain our gross margin year over year, while leveraging operating expenses even as we continue to invest heavily in research and development. We are fully prepared to build upon this early success and deliver solid growth for the year.”
When adjusted for one-time expenses, Polaris’ income was $69 million, or $1.06 a share, well above the 88 cents a share expected by Wall Street analysts.
The company raised its guidance for the year, now saying sales will increase 4 to 6 percent, and adjusted net income will be in the $6.05 to $6.20 range, up from $4.85 in 2017.
During the first quarter, Polaris introduced three new four-wheeler models for adults, the Ranger Crew XP 1000 and RZR XP Turbo S and a RZR RS1. Wine said more are on the way.
During the last three years, Polaris suffered millions in warranty reserves, lawsuits and other costs as it struggled to identify potential overheating and fire risks on thousands of its RZR and Ranger vehicles. The U.S. Consumer Product Safety Commission and Polaris recalled hundreds of thousands of Polaris vehicles after several overheated, causing fires, injuries and at least one death.
During the last couple of years, Polaris hired hundreds of engineers and beefed up its inspection and safety procedures to solve potential defects and improve safety. Earlier this month, Polaris agreed to pay a record $27.25 million federal fine for failing to report product defects in a timely fashion.
Wine told analysts the recall issues should be over.
“In the last couple of years, we enhanced our capacity to identify and monitor and manage any issues. We have a really robust process in place,” Wine said. “We have addressed the known issues and worked through the known backlog. As new issues arise, we believe there will be fewer in nature and fewer vehicles involved because we will catch [issues] faster. Our results show it in 2018. We are glad to have that one done.”