Despite cheap prices from competitors and a weak industry, Polaris Industries beat Wall Street expectations in the second quarter with robust sales of its side-by-side off-road vehicles and Indian motorcycles.
"We still have a lot of work to do," CEO Scott Wine said, "but we are seeing results from [the improvements] we are making to the fundamentals of our business as we establish the foundation of a renewed growth platform."
Wine said the company has a handle on the issues that led to recalls, which have plagued the company the past two years and improved internal procedures from engineering to dealer interactions.
Sales for the Medina-based maker of power-sports vehicles jumped 21 percent during the quarter to $1.37 billion despite slowing sales of single-seat all-terrain vehicles and Slingshot cycles, the company said on Thursday.
Product sales in Australia, Europe and Mexico were particularly strong. And Polaris' largest division — off-road vehicles and snowmobiles — saw a 5 percent sales bump to $845 million for the quarter ending June 30.
"Performance improved in many parts of our business during the quarter, particularly within our international and parts, garments and accessories businesses," Wine said during a conference call with analysts. "The power-sports industry remained very competitive and headwinds persist, but we were encouraged by the return to growth in our side-by-side business and continued strength and aggressive share gains for Indian Motorcycles."
Indian Motorcycle sales were up 17 percent because of new models and high demand for the company's customizable split-screen Ride Command infotainment systems.
Polaris increased the bottom range of its 2017 profit forecast, noting increased margins, an uptick in off-road vehicle sales and a stepped-up share buyback plan.
Profits for the quarter fell in large part because of costs associated with the wind down of the Victory motorcycle line, a facility closing in Iowa and the integration of the recently purchased TransAmerican Auto Parts (TAP).
Including Victory and TAP costs, total profits fell nearly 13 percent to $62 million, or 97 cents a share. Excluding Victory, TAP and factory realignment costs, adjusted profits were $1.16 per share, which beat analysts' expectations by 8 cents a share. Victory wind-down costs were nearly $9 million during the quarter that ended June 30.
The decision to exit the lackluster Victory brand and increase its fast-growing Indian Motorcycles business was made earlier this year as officials looked to drive growth in the face of massive product recalls. Polaris recalled more than 400,000 off-road vehicles over two years due to fire and other risks.
Earlier this week, Polaris recalled another 26,700 vehicles after receiving 30 customer complaints of fuel leaking into headlights, one fire and after finding a separate brake problem on RZR 570 four wheelers. No injuries were reported.
In reviewing the quarter, officials said they were pleased with results.
Polaris has seen increased legal, warranty and promotional costs as a result of its recalls, but those costs will be "substantially less" than last year, Chief Financial Officer Mike Speetzen told analysts.
Wine noted that the company has scrutinized products, rolled out companywide engineering inspections and worked with dealers to identify future possible problems and make timely repairs. The company's increased internal scrutiny caused additional recalls this year, he said.
Wine and Speetzen said they expect overall results will continue to improve during the second half of 2017 as oil and agricultural markets continue to improve and as the company rolls out its new 2018 line of products, which will debut next week in Las Vegas.
Polaris increased its sales and profits forecast for the year. Revenue, excluding Victory sales, should rise 12 to 14 percent compared with the prior 10 to 13 percent forecast. Adjusted earnings in 2017 should range from $4.35 to $4.50 per share, up from the prior forecast of $4.25 to $4.50 per share.
During the second quarter, revenue from TAP, which Polaris bought in November, rose 6 percent from 2016. That deal put Polaris into the retail business for the first time.
With TAP and several past deals that also focused on accessories and aftermarket vehicle products, aftermarket product sales reached $224.4 million during the quarter compared with $12.1 million in the 2016 second quarter.
The company's stock closed Thursday at $96.43 a share, up more than 4 percent.