Fast-rising costs overtake Polaris in Q4, but 2021 sales set a record

Polaris Inc.'s fourth-quarter profit fell 56% amid flat sales and soaring costs, which rose faster than it could lift prices on its vehicles.

But that still beat analysts' expectations and capped a year of record results for the Medina-based maker of off-road vehicles, snowmobiles, motorcycles and boats.

Executives on Tuesday said that, with new products still ramping up, they expect the momentum to continue. They forecast revenue growth of 12 to 15% and adjusted profit growth of 12% for this year.

"With interest in powersports continuing to grow and new customers increasingly entering our industry, we expect 2022 to be another record year for Polaris," Mike Speetzen, Polaris' chief executive officer, said in a statement.

Polaris said it earned $87 million, or $1.40 a share, on sales of $2.17 billion in the last three months of 2021. A year earlier, it earned $199 million, or $3.15 a share, on sales of $2.16 billion.

Adjusted for one-time events, Polaris' profit was $2.16 a share, down from $3.34 a share a year earlier.

Polaris had a tough quarterly comparison because sales at the end of 2020 jumped 24% at a time when people, weary of working from home and flush with cash, spent heavily on outdoor equipment and activities.

The sales momentum that started in late 2020 continued into the first half of 2021 for Polaris. For the full year, revenue increased 17% to a record $8.2 billion. Its profit nearly quadrupled to $493.9 milion, or $7.88 a share.

Speetzen attributed the sales increase to 33 new product introductions through the year that have capitalized on people's increased interest in powersports and outdoor recreation.

Among those new introductions was its first electric side-by-side all-terrain vehicle, which is aimed at ranchers, farmers, large landowners and hunters. Called the Ranger XP Kinetic, Polaris sold out within two hours.

As the year ended, product inventory continued to be below optimum levels as the company continued to deal with supply chain challenges and increased consumer demand.

Polaris said its gross profit margin was 20.5% in the fourth quarter, down from $25.5% a year ago. It contended with higher component and commodity prices, as well as shipping and other logistical cost increases. Executives said those were partially offset by higher prices on its products and lower promotional costs.

The company raised prices in November to offset increased costs, and those changes are starting to show up at dealers.

Polaris' chief financial officer, Bob Mack, told analysts they are prepared to take more price actions this year. But he said he believes cost increases faced by the company have peaked and will begin to moderate in the second half of 2022.

Regarding rising interest rates, Speetzen is anticipating that the Fed will raise interest rates this year, but he said the impact on consumers will be minimal.

"Interest rates are historically low," he said. "Start doing the math on moving interest rates a quarter-point or half-point, you're talking a matter of $10, $15 [more] on a payment."

Polaris shares closed at $109.20 a share, down less than 1% in trading Tuesday. In the past 52 weeks, its shares have ranged between $100 and about $148.