Polaris Reports Record Sales and Earnings; Second Quarter 2004 Earnings Per Share up 15 Percent on a 12 Percent Sales Increase
MINNEAPOLIS--July 15, 2004--Polaris Industries Inc. :Second Quarter Highlights:
-- 25th consecutive quarter of increased sales and earnings
-- Snowmobile sales grew 65%, ATV sales grew 7%, international sales grew 54%, and PG&A sales increased 11%
-- Improved earnings per share driven by higher sales, expanding gross margins of 80 basis points and a 59 percent increase in Financial Services income during the quarter
-- Repurchased 388,000 shares of common stock during the second quarter
-- Increasing and narrowing full year 2004 earnings guidance to $2.72 to $2.80 per diluted share, an 11% to 14% increase over 2003
Polaris Industries Inc. today reported record net income of $0.54 per diluted share for the second quarter ended June 30, 2004, a 15 percent increase over the prior year second quarter net income of $0.47 per diluted share. Higher sales volume primarily from snowmobiles, all-terrain vehicles (ATVs), parts, garments and accessories (PG&A) and International operations along with expanded gross margins and higher income from financial services contributed to the second quarter earnings increase. Reported net income for the second quarter 2004 was a record $24.4 million, a 16 percent increase over the prior year second quarter net income of $21.0 million. Sales for the second quarter 2004 totaled a record $422.3 million, up 12 percent from the prior year's second quarter sales of $377.1 million.
"We are anticipating balanced growth across the Company in 2004 and the second quarter continues that trend," said Tom Tiller, President and Chief Executive Officer. "All of our product lines experienced sales growth during the quarter which marks our 25th consecutive quarter of increased sales and earnings. Recent innovations and investments made in new product development have benefited the growth in sales and earnings during the second quarter. And later this month we expect to continue that trend with the largest new product launch in the history of the Company."
Six Month Results
For the six months ended June 30, 2004, Polaris reported a 16 percent increase in net income to $38.7 million and a 15 percent increase in earnings per share to $0.86 per diluted share compared to $33.4 million or $0.75 per diluted share in the first six months of 2003. Sales for the six months ended June 30, 2004 totaled $768.3 million, up 11 percent from $691.1 million in the comparable period of 2003.
(In millions except per share data)
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2nd Quarter ended Year to date ended
June 30, June 30,
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2004 2003 Change 2004 2003 Change
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Sales $422.3 $377.1 12% $768.3 $691.1 11%
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Operating income $37.0 $31.5 18% $59.2 $48.0 23%
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Net Income $24.4 $21.0 16% $38.7 $33.4 16%
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Earnings per share
(diluted) $0.54 $0.47 15% $0.86 $0.75 15%
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ATV (all-terrain vehicle) sales growth accelerated over the first quarter 2004, increasing seven percent in the second quarter 2004 compared to last year's second quarter. The RANGER line of utility vehicles sales increased sharply during the second quarter while sales of Polaris ATVs outside of North America continued to grow, increasing 55 percent during the second quarter 2004 compared to the second quarter of 2003. Demand for the new Sportsman 700 EFI (electronic fuel injection) ATV continued to gain momentum during the quarter.
Sales of Parts, Garments and Accessories increased 11 percent during the second quarter 2004 over the second quarter 2003. All product lines experienced growth in PG&A during the quarter with snowmobiles and Victory motorcycles experiencing double digit growth. The PG&A business will continue to focus on accelerating innovation for accessories, maintaining high order fill rates and driving towards industry leading product and service quality.
Sales of Victory motorcycles increased three percent during the second quarter 2004 from last year's second quarter. For the six month period ended June 30, 2004, sales of Victory motorcycles increased 20 percent from the comparable period in 2003. The Victory Vegas and Kingpin continue to gain momentum in the market place in addition to the overall Victory name gaining acceptance as a viable and successful brand in the motorcycle industry.
Polaris' Personal Watercraft (PWC) sales increased three percent during the second quarter 2004 compared to the second quarter 2003. Sales of the new MSX 150 and MSX 110 four stoke PWC models are gaining momentum in the market. Sales of PWC for the year-to-date period ended June 30, 2004 increased 16 percent from the comparable period in 2003.
Snowmobile sales increased 65 percent during the second quarter 2004 compared to the second quarter 2003 due to lower dealer carryover inventory levels and more normal snowfall this past riding season.
Gross profit, as a percentage of sales, was 21.4 percent for the second quarter 2004, an improvement from 20.6 percent in the comparable quarter of 2003. The gross profit margin improvement for the quarter was generated from production efficiency gains and ongoing cost reduction efforts, as well as a sales mix benefit during the quarter. These improvements were offset somewhat by a higher level of sales promotional expenses required in the second quarter 2004 compared to the second quarter in the prior year.
For the second quarter 2004, operating expenses increased 19 percent to $60.6 million or 14.4 percent of sales compared to $50.9 million or 13.5 percent of sales for the second quarter 2003. Operating expenses increased for the quarter primarily due to the continuation of initiatives taken to accelerate the design, development and introduction of new products, as well as distribution network improvements and added expense and currency fluctuations related to the growing international subsidiaries. Research and development expenses increased 37 percent for the quarter as the Company has accelerated investment in the design and development of new products. Sales and marketing expenses increased 18 percent as Polaris continues to work towards upgrading the distribution network of nearly 2,000 dealers in North America in the area of sales, service, and merchandising.
Income from financial services increased 59 percent to $7.3 million in the second quarter 2004, up from $4.6 million in the second quarter 2003 primarily due to increased profitability generated from the retail credit portfolio as consumers utilized available retail financing options in greater numbers. Company sponsored promotional programs more closely tied to retail financing have driven an increase in the retail credit portfolio over the past number of quarters. The credit quality of the retail credit portfolio has remained stable and credit losses continue to be in line with expectations.
Financial position and cash flow
Net cash provided by operating activities totaled $38.7 million for the six months ended June 30, 2004 compared to net cash used for operating activities of $9.9 million in the first half of 2003. A reduction in cash required to fund factory inventory levels in the first half of 2004 compared to the first half of 2003 was the primary reason for the significant increase in net cash provided by operating activities during the first half of 2004. The Company's debt to total capital ratio was five percent at June 30, 2004, compared to 16 percent a year ago.
Share buyback continues
During the second quarter 2004 the Company repurchased and retired nearly 388,000 shares of its common stock at a cost of $16.8 million. Since inception of the share repurchase program in 1996, approximately 19.4 million shares have been repurchased at an average price of $21.52 per share. Under the current authorization of the Board of Directors, approximately 3.6 million shares of Polaris stock are available for repurchase.
Full Year 2004 Guidance Increased
Mr. Tiller, addressing Polaris' expectations for the second half of the year said, "Given the balanced growth we are experiencing in all our businesses this year and our high expectations related to the new products to be introduced later this month, we are increasing our previously announced sales growth guidance to eight to ten percent sales growth for the full year 2004 and are increasing and narrowing our full year 2004 earnings per share guidance from the previously announced range of $2.65 to $2.77 to the current range of $2.72 to $2.80 per diluted share, an eleven to fourteen percent increase over 2003. I feel confident we can deliver another record year in sales and earnings in 2004, the 50th anniversary year for Polaris."
Conference Call to be Held
Today at 9:00 AM CDT Polaris Industries Inc. will host its quarterly earnings conference call. The conference call is accessible by dialing 800-374-6475 in the U.S. and Canada, or 706-634-4928 for International calls or via the Investor Relations page of the Company's web site, www.polarisindustries.com. If listening to the web cast, please allow sufficient time to register and download the latest version of Real Player audio software. The conference call will be available for one week after the call by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 for International calls and entering passcode 8217664, and for one month after the call on Polaris' web site.
50th Anniversary Celebration
2004 marks the 50th anniversary of Polaris Industries. A worldwide celebration will take place in St. Paul, Minnesota on July 24, 2004. Join us for "The Way Out Weekend" on July 24 at the Minnesota State Fairgrounds as we celebrate the past, preview the future, swing to headline entertainment and get interactive with exciting product displays. Visit polarisindustries.com or call 1-800-POLARIS for more information. We hope you can join us.
About Polaris
Information about the complete line of Polaris products is available from authorized Polaris dealers or from the Polaris homepage at www.polarisindustries.com.
With annual 2003 sales of $1.6 billion, Polaris designs, engineers, manufactures and markets snowmobiles, all-terrain vehicles (ATVs), personal watercraft, Victory motorcycles and the Polaris RANGER for recreational and utility use.
Polaris is the recognized leader in the snowmobile industry; one of the largest manufacturers of ATVs in the world; and a leading manufacturer of personal watercraft. Victory motorcycles, established in 1998 and representing the first all-new American-made motorcycle from a major company in nearly 60 years, is rapidly making impressive in-roads into the motorcycle cruiser marketplace. Polaris also enhances the riding experience with a complete line of Pure Polaris apparel, accessories and parts, available at Polaris dealerships. Consumers can also purchase apparel and vehicle accessories anytime at www.polarisindustries.com.
Polaris Industries Inc. trades on the New York Stock Exchange and Pacific Stock Exchange under the symbol "PII," and the Company is included in the S&P Small-Cap 600 stock price index.
Except for historical information contained herein, the matters set forth in this news release, including management's expectations regarding 2004 sales, shipments, net income and cash flow, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks and uncertainties include such factors as product offerings, promotional activities and pricing strategies by competitors; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
and Other Selected Financial Information
(In Thousands, Except Per Share Data)
UNAUDITED
For Three Months For Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Sales $422,345 $377,135 $768,321 $691,060
Cost of Sales 332,009 299,362 601,309 548,680
--------- --------- --------- ---------
Gross profit 90,336 77,773 167,012 142,380
Operating expenses
Selling and
marketing 24,835 20,980 54,419 46,241
Research and
development 16,499 12,067 30,989 23,382
General and
administrative 19,276 17,840 37,769 33,694
--------- --------- --------- ---------
Total
operating
expenses 60,610 50,887 123,177 103,317
Income from financial
services 7,252 4,565 15,388 8,938
--------- --------- --------- ---------
Operating
Income 36,978 31,451 59,223 48,001
Non-operating Expense
(Income):
Interest expense 623 845 1,147 1,442
Other income,
net (17) (492) 354 (2,953)
--------- --------- --------- ---------
Income
before
income
taxes 36,372 31,098 57,722 49,512
Provision for Income
Taxes 12,003 10,106 19,048 16,091
--------- --------- --------- ---------
Net Income $24,369 $20,992 $38,674 $33,421
========= ========= ========= =========
Net Income Per Share
Basic $0.58 $0.49 $0.91 $0.78
========= ========= ========= =========
Diluted $0.54 $0.47 $0.86 $0.75
========= ========= ========= =========
Weighted average
shares outstanding:
Basic 42,181 42,830 42,376 43,070
========= ========= ========= =========
Diluted 44,968 44,544 45,108 44,761
========= ========= ========= =========
Selected Balance
Sheet Data
---------------- June 30,
2004 2003
--------- ---------
Cash and cash
equivalents $38,836 $11,825
Trade receivables
(net) $68,009 $46,050
Inventories (net) $200,843 $229,471
Total assets $663,294 $622,043
Accounts payable $88,118 $101,399
Borrowings under
credit agreement $18,001 $47,014
Shareholders' equity $317,084 $251,869
Business Unit
Information Second Quarter For the Six Months
------------- Ended June 30, Ended June 30,
% %
2004 2003 chg 2004 2003 chg
Snowmobiles $48,751 $29,610 65% $62,073 $37,742 64%
All-Terrain Vehicles 266,710 248,277 7% 504,564 479,361 5%
Personal Watercraft 27,717 26,834 3% 44,696 38,465 16%
Victory Motorcycles 17,856 17,274 3% 38,709 32,147 20%
Parts, Garments &
Accessories 61,311 55,140 11% 118,279 103,345 14%
--------- --------- ---- --------- -------------
Total Sales $422,345 $377,135 12% $768,321 $691,060 11%
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