Q3 Polaris North American retail sales drop 24 percent
Polaris Inc. today released third quarter 2021 results with reported sales of $1.96 billion, up $5 million from reported sales of $1.955 billion for the third quarter of 2020.
The company reported third quarter 2021 net income of $115 million, or $1.84 per diluted share, compared with net income of $167 million, or $2.66 per diluted share, for the 2020 third quarter. Adjusted net income for the quarter ended Sept. 30, 2021 was $123 million, or $1.98 per diluted share compared to $179 million, or $2.85 per diluted share in the 2020 third quarter.
The company continues to experience substantial retail demand requiring little promotional assistance, which has been negatively impacted by ongoing supply chain constraints and components shortages leading to lower dealer inventory and shipments.
“Throughout the third quarter, the Polaris team displayed a high level of flexibility and demonstrated their commitment to delivering industry-leading products to our dealers and customers as quickly as possible,” CEO Mike Speetzen said. “Retail sales were impacted by the substantial deterioration of the supply chain permeating the global economy, but continued interest and demand from existing riders and new customers advanced our market position, further illustrating Polaris’ role as the global leader in powersports. Despite total company sales being flat for the quarter due to component shortages, we gained ORV share for the fourth straight quarter against the backdrop of a very difficult supply chain environment. We expect the supply chain will remain volatile into 2022, but with this team’s tenacity, our strong brands, future product plans, and focused execution, I am excited by what the future holds for Polaris.”
Gross profit decreased 13 percent to $466 million for the third quarter of 2021 from $535 million in the third quarter of 2020. Reported gross profit margin was 23.8 percent of sales for the third quarter of 2021, down 359 basis points compared to 27.3 percent of sales for the third quarter of 2020. The decrease in gross profit was driven primarily by higher input costs including logistics, components and commodity prices, as well as plant inefficiencies related to supply-chain constraints, partially offset by increased pricing and lower promotional costs. Adjusted gross profit for the third quarter 2021 was $468 million, or 23.9 percent of adjusted sales, compared to the third quarter of 2020 adjusted gross profit of $537 million, or 27.5 percent of sales. Adjusted gross profit for the third quarter of 2021 and 2020 excludes the negative impact of approximately $2 million of restructuring and realignment costs in each period.
Operating expenses increased 3 percent for the third quarter of 2021 to $322 million from $313 million in the same period in 2020. Operating expenses increased slightly primarily due to an increase in research and development.
Income from financial services was $11 million for the third quarter of 2021, down 38 percent compared with $18 million for the third quarter of 2020. The decrease was due to lower retail financing income resulting from lower retail sales and lower penetration rates at our retail financing providers and a decrease in wholesale financing income due to lower dealer inventory levels.
Interest expense was $11 million for the third quarter of 2021 compared to $17 million for the same period last year primarily due to lower debt levels.
Other (income) expense, net, decreased $3 million in the third quarter of 2021. Other (income) expense is the result of currency exchange rate movements and the corresponding effects on currency transactions related to the company’s international subsidiaries.
The provision for income taxes for the third quarter of 2021 was $30 million, or 20.5 percent of pretax income, compared with $52 million, or 23.7 percent of pretax income, for the third quarter of 2020. The decrease in the effective income tax rate is primarily due to favorable adjustments related to research and development credits recorded in the third quarter of 2021.
Product Segment Highlights (Reported)
Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1.208 billion for the third quarter of 2021, down 6 percent compared to $1.289 billion for the third quarter of 2020 driven by lower volumes due to supply chain constraints and related component shortages. PG&A sales for ORV and Snowmobiles combined increased 6 percent in the third quarter of 2021 compared to the third quarter last year. Gross profit decreased 31 percent to $260 million in the third quarter of 2021, compared to $378 million in the third quarter of 2020. Gross profit percentage decreased 777 basis points during the 2021 third quarter compared to the prior year due to higher input costs related to supply chain constraints more than offsetting increased pricing and lower promotional costs.
ORV wholegoodsales for the third quarter of 2021 decreased 6 percent. Polaris North American ORV retail sales decreased mid-20s percent for the quarter with side-by-side vehicles down mid-20s percent and ATV vehicles down about 20 percent. The North American ORV industry was down high-20s percent compared to the third quarter last year.
Snowmobile wholegood sales in the third quarter of 2021 were $28 million compared to $70 million in the third quarter last year. Snowmobile sales were impacted by the timing of shipments for the company’s pre-season snowmobile orders year-over-year and supply-chain disruptions.
Motorcycles segment sales, including PG&A, totaled $194 million, up 16 percent compared to the third quarter of 2020, driven by increased sales of Slingshot, Indian Motorcycles, and related PG&A. Gross profit for the third quarter of 2021 was $18 million, or 9.2 percent of sales, compared to $16 million, or 9.3 percent of sales, in the third quarter of 2020. The slight decrease in gross profit margin was driven by increased input costs from supply chain constraints partially offset by favorable product mix, increased pricing and lower promotions costs.
North American consumer retail sales for Indian Motorcycles decreased 12 percent during the third quarter of 2021 in a mid-to-heavy-weight two-wheel motorcycle industry that was down mid-single digits percent. North American consumer retail sales for Polaris’ motorcycle segment, including both Indian Motorcycle and Slingshot, decreased mid-teens percent during the third quarter of 2021. North American consumer retail sales for the motorcycle industry including both two-wheel and three-wheel decreased mid-single digits percent during the third quarter of 2021. Indian and Slingshot market share losses were driven by a lack of product availability during the quarter driven by supply chain challenges.
Global Adjacent Markets segment sales, including PG&A, increased 37 percent to $147 million in the 2021 third quarter compared to $107 million in the 2020 third quarter driven by increases in demand in North America and EMEA. Gross profit increased 30 percent to $41 million or 27.9 percent of sales in the third quarter of 2021, compared to $32 million, or 29.7 percent of sales in the third quarter of 2020. Gross profit percentage decreased during the quarter primarily due to higher input costs related to supply chain constraints, offset somewhat by lower promotional and warranty costs.
Aftermarket segment sales of $227 million in the 2021 third quarter decreased 4 percent compared to $237 million in the 2020 third quarter. Transamerican Auto Parts (TAP) sales of $182 million in the third quarter of 2021 decreased 6 percent compared to $194 million in the third quarter of 2020. The company’s other aftermarket brands sales were up 4 percent compared to the third quarter of 2020. Gross profit decreased 6 percent to $60 million, or 26.5 percent of sales in the third quarter of 2021, compared to $64 million, or 26.9 percent of sales in the third quarter of 2020. Gross profit percentage declined during the quarter due to lower sales volumes and increased input costs, partially offset by increased pricing.
Boats segment sales increased 18 percent to $184 million in the 2021 third quarter compared to $155 million in the 2020 third quarter, driven by sales growth in the Bennington and Godfrey brands. Gross profit increased 24 percent to $41 million, or 22.4 percent of sales in the third quarter of 2021, compared to $33 million, or 21.5 percent of sales in the third quarter of 2020 due to increased pricing and positive product mix partially offset by higher input costs related to supply chain constraints.
Supplemental Segment Data
Parts, Garments, and Accessories (“PG&A”) sales increased 8 percent for the 2021 third quarter with all categories and business segments growing sales during the quarter.
International sales to customers outside of North America, including PG&A, totaled $246 million for the third quarter of 2021, up 21 percent from the same period in 2020. All regions and categories realized strong sales increases year over year.
2021 Business Outlook
Given the impact of supply chain constraints on production and shipments through the first nine months of the year and the expectations that those disruptions will not subside by year end, the company is lowering its expected full year 2021 earnings guidance and now expects adjusted net income to finish around $9.00 per diluted share, compared with adjusted net income of $7.74 per diluted share for 2020. Full year 2021 sales guidance is now expected to be approximately $8.15 billion, up about 16 percent year-over-year.
Divestiture of Business
The company expects to divest its Global Electric Motorcar (GEM) and Taylor-Dunn businesses by year-end. Full year 2020 total revenue was less than $100 million for both businesses, combined.
