Snowmobile and ATV maker Polaris Industries announced Thursday that it will sell or shut its Osceola, Wis., plant by 2012 and open a new facility in Mexico by the first half of 2011.
About 515 Osceola employees were told the news during a meeting with company officials inside the plant Thursday afternoon.
"I am sure there was no expectation of this announcement being made," said company spokeswoman Marlys Knutson. "I am sure there was shock."
Polaris, like most manufacturers during the Great Recession, has cut jobs and expenses over the past three years as orders plummeted. The recreational vehicle industry was particularly hard hit as consumers stopped spending on all but the basics. But more recently the Medina-based manufacturer has been reporting increased sales, production and heightened earning projections.
Osceola residents were reportedly reeling from the news. Polaris, which opened the plant there in 1991, is a major employer in the city of 2,600. "It's definitely a big deal to the town," said Police Officer Samantha Byram. "There are a lot of jobs."
The company, with $1.6 billion in annual sales, said it will upgrade existing plants in Roseau, Minn., the company's birthplace and where it manufactures ATVs and snowmobiles, and Spirit Lake, Iowa, where it manufactures ATVs and Victory Motorcycles, as well as build the new plant in Mexico. Osceola's work, which includes making engines, seats and other components as well as welding and painting of vehicles, will be divided among the three facilities, which the company is touting as "manufacturing centers of excellence."
"While this was a difficult decision for us, given the impact on our employees at the Osceola facility, we believe the creation of these manufacturing centers of excellence will strengthen our company over the long term and enable us to maintain our lead in a competitive market," said CEO Scott Wine in statement.
Wine added that the company is constantly looking for overseas opportunities while "concurrently evaluating our cost structure to improve our long-term competitive positioning," components he called key to Polaris' growth strategy.
The Mexico plant will also have full manufacturing capabilities and serve as a critical distribution point, since sales in the southern part of the United States have blossomed over the past few years. Having the company's third plant exist closer to its customers made more sense than having it in Wisconsin, Knutson said.
ATV and side-by-side ATV sales now "represent more than two-thirds of the company's sales," Knutson said. She added that the new plant in Mexico should help improve the company's on-time delivery to customers and provide significant savings in logistical and production costs.
The changes are expected to cost more than $43 million but save Polaris more than $30 million a year. The company will record pretax transition charges of $20 million to $25 million and incur $35 million in capital expenditures over the next few years. About a third of the planned transition charges (up to $8.3 million) will come from the closing of the Osceola plant and related severance payments to workers.
The realignment comes as Polaris is touting growth despite the economy's prolonged downturn.
Last month, Polaris beat its internal earnings estimates and raised its 2010 outlook for the second quarter and full year. The stock jumped 8 percent to a 52-week high of $64.86 a share. Revenue rose 16 percent during the most recent quarter, to $361 million. The quarter's earnings reached $19.8 million or 59 cents a share, compared with 26 cents a year earlier.
The restructuring, announced after the market closed Thursday, will also not affect the company's full-year earnings estimate of $3.48 to $3.60 a share, officials said.
The stock closed Thursday at 56.62, down 76 cents. There was no movement in after-market trading.
Dee DePass • 612-673-7725