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Polaris sees challenging quarter, with profits down 48%

NHRoadking

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Polaris sees challenging quarter, with profits down 48%​



Profit margins were down as the company dealt with supply-chain disruptions that had it chasing presold orders and inflation.
By Catherine Roberts Star Tribune

APRIL 26, 2022 — 7:25AM
merlin_58342393.jpg


ELIZABETH FLORES, STAR TRIBUNE
Edwin Colon Perez worked his shift at the Polaris manufacturing plant in Roseau in 2020.


Polaris Industries' costs for parts and materials increased $100 million in the first quarter.
Despite paying more, the Medina-based company still could not get everything it needed, company officials said Tuesday. Issues with its bearings supplier affected production at Roseau, Minn. Ongoing problems with computer chips, wire harnesses and shocks held up vehicles that were otherwise ready to ship.
Steel was up 130% over the same quarter in 2021, said Chief Financial Officer Bob Mack in an earnings call with analysts. Aluminum cost 140% more.
The manufacturer of all-terrain vehicles, snowmobiles, motorcycles and boats raised prices more than 10% toward the end of last year. While the price increases covered higher costs, the profit margin did take a 4% hit.
Overall, net income of $70 million, or $1.14 a share, was down 48% over a strong first quarter last year. Sales were nearly flat at $1.96 billion.
Neither profits nor revenue met analysts' expectations, and Polaris shares took a hit, ending Tuesday down nearly 8%.
polarisspiritlake.jpg


PROVIDED BY POLARIS
Workers at Polaris plants such as Spirit Lake, Iowa, can’t keep up with the demand for off-road vehicles.




While the first quarter was bumpier than expected, Chief Executive Officer Mike Speetzen and Mack said another single-digit price increase enacted April 1, plus some better forecasting by suppliers, should allow growth in the second half of the year.
Polaris expects full-year sales to increase 12 to 15% and annual earnings per share to increase 11 to 14%.
Further, the company is making some long-term changes to help with a supply chain that could change again. For example, Speetzen said engineers when possible are redesigning vehicles to work around hard-to-get parts.
"As we work to remediate the current situation, we are refocusing our lens that we look at the supply-chain environment through," he said in an earnings call with analysts. "Specifically we're taking a longer term view and suspect that the supply chain will not likely see substantial improvements in the near term."

The inflation in the first quarter — for example, a 120% cost increase between shipping containers from Asia and then by truck in the U.S. — should subside over time, Mack said.



The good news, Speetzen said, is that demand has remained steady — and high. Seventy percent of vehicles produced in the first quarter were preordered, and the cancellation rate despite delays was low.

That means the company should have a cushion should the economy see further downturns. It would take two quarters or more to catch up with the preorders and get higher inventory into dealerships, he said.

It helps that typical Polaris customers have a higher than average income and have not been affected as much by pandemic downturns, he said.

The customer profile also should help mitigate any effects from higher interest rates because of the higher income levels and credit scores.
With dealer inventories low, there are few promotions right now, helping the bottom line.

In addition, Speetzen said in a release on its earnings that Polaris is making "strategic investments in both innovation and operations" to help replenish inventory.
In March, the company broke ground on a $22 million, 28,000-square-foot robotic liquid paint facility as it continues to expand facilities in Roseau. It also announced a 165,000-square-foot expansion of its parts and accessories distribution center near Dayton, Ohio.
The company lost some market share during the quarter, but Mack said looking over a 12-month cycle its share is pretty even. The current shift quarter to quarter depends on when different companies can get vehicles to dealers.

Motorcycle sales took the biggest hit in the quarter. North American sales for Indian Motorcycles were down 30%, while the motorcycle industry as a whole saw sales only dip about 10%.
 

live2beel

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At what point will most people be priced out of a new sled?:unsure: With marginal winters and crazy pricing, something has to give. 2024 Boost with all the goodies will probably have a MSRP of 26k+. Crazy times for sure.
 

JH@CM

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"Corporate greed," isn't exactly materializing in the facts presented here. All the haters can hate, but I'm honestly appreciative as a Polaris consumer that the prices didn't increase MORE for MY23.
 
C
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Well, they could start by using standard sized bearings for things like driveshafts.

I can go down the street and get the same id/od but the width is Polaris specific. Make it 3mm wider and it's now an industrial standard size.

Of course that means they won't sell their $40 bearing when I can get it for $8 at an industrial supply house.


Lots of stuff they design without any concern over sourcing readily available parts because they're used to being catered to with contract runs. Specialty stuff is the first thing to drop when **** gets hectic.
 

NHRoadking

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Well, they could start by using standard sized bearings for things like driveshafts.

I can go down the street and get the same id/od but the width is Polaris specific. Make it 3mm wider and it's now an industrial standard size.

Of course that means they won't sell their $40 bearing when I can get it for $8 at an industrial supply house.


Lots of stuff they design without any concern over sourcing readily available parts because they're used to being catered to with contract runs. Specialty stuff is the first thing to drop when **** gets hectic.


Somebody at Polaris must have done the math and realized that speccing lower quality components works profit- wise versus warranty claims for failures caused by those components.
 

JH@CM

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Somebody at Polaris must have done the math and realized that speccing lower quality components works profit- wise versus warranty claims for failures caused by those components.
Our product is the best! That's why we cut our warranty period in half! You'll love the new technology!
 

Reg2view

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Sled PG&A is 50% of the sled gross profit for the three sled OEMs. The pricing of consumer parts/kits is high by design. The primary reason Poo and AC purchased garment and accessory cos was simply adding gross margin $$$. BRP took an inhouse path, but kills it with their deep accessories line.

There is a disruption point where OEM sled price will seriously drop demand, fuel costs, interest rates, and low snow don't help. We may be getting close or there now. While it may be good for used sleds, they will eventually dry up, and they'll get hit with fuel cost pressure, too. This fall will be a good test for used sled prices, post-covid, higher energy costs. Used sled prices have softened this spring, but I think they will come back strong this fall, especially for sleds under $10k USD. OEMs are in vise - scarce labor, raw materials and freight carriers, much higher input costs, and softening demand. Disruption like covid, but very, very different. Other side of the coin. It will be years before we hear drill baby, drill, again - that's being optimistic. Industry will always thrive with snow and cheap fuel.
 

meathooker

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At what point will most people be priced out of a new sled?:unsure: With marginal winters and crazy pricing, something has to give. 2024 Boost with all the goodies will probably have a MSRP of 26k+. Crazy times for sure.
We’re already there. Those of us fortunate enough to be able afford to ride are the minority.
 
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