Polaris Industries Inc. said sizable recall costs and industrywide changes in demand for vehicles led to a 29.4 percent drop in second-quarter profits and a lowering of its full-year forecast.
The Medina-based maker of all-terrain vehicles, snowmobiles and motorcycles said Wednesday it earned $71.2 million, or $1.09 a share. That beat analysts' estimates of $1.05 a share.
Sales, which rose 1 percent to $1.13 billion, also beat estimates.
Polaris' motorcycle sales soared 23 percent during the quarter, while sales for Polaris' largest product line — off-road vehicles — and its snowmobiles fell 6 percent. Off-road profit plunged 17 percent during the quarter.
Polaris has traditionally been a Wall Street darling and defied industry trends that have seen lackluster demand for power sports vehicles of late.
However, it has incurred costs related to a recall of 160,000 side-by-side vehicles this spring and another 43,000 off-road vehicles last month, all due to concerns about fire hazards. Company officials also noted a "product mix" problem that impacted margins. Sales during the quarter were also hurt by the continued slowdown in oil and agricultural markets, officials said Wednesday.
For the full year, Polaris lowered and narrowed its prior full-year guidance saying 2016 earnings will reach $6 to $6.30 per share. It previously forecast $6.20 to $6.80 per share. Sales are now expected to either fall 2 percent or remain flat for the year.
While the news was not great, investors were pleased that results were better than Wall Street expected. Polaris stock rose $7.93, or 9 percent, to close at $95.03 per share Wednesday. The stock is down from its year-ago perch of $143 per share.
During a conference call with analysts, CEO Scott Wine said that Polaris expects that the fallout from the recall has been fully factored into future forecasts. The company said it paid $30 million on product warranty and legal issue related to the recalls during the first quarter and another $25 million during the second quarter.
The company's struggles come during a time when industry sales are down for both four-wheel off-road vehicles and for motorcycles. Competitors such as Arctic Cat and others have taken the opportunity to introduce a host of new products at the same time Polaris is scrambling to protect its brand reputation.
UBS Investment Bank Analyst Robin Farley noted that Polaris' retail sales of off-road four-wheelers declined at a higher rate than the overall industry during the quarter.