Polaris (PII) Q4 2007 earnings summary

Executive summary

• 2007 brought a recovery from a disappointing 2006: sales and diluted EPS increased, market share grew across product lines, and operational improvements lowered dealer and factory inventories.

• Growth in side-by-side vehicles, snowmobiles and PG&A offset flat motorcycle sales and weakness in core North American ATVs; lower financial-services income and higher factory inventory remained concerns.

Financial highlights

• FY 2007 sales were $1.780 billion, up 7% YoY; gross profit rose 9% to $393.0 million.

• Operating income increased to $176.0 million from $168.1 million; net income from continuing operations was $112.6 million versus $112.8 million.

• Continuing-operations diluted EPS rose 14% to $3.10, aided by a 12% reduction in average diluted shares; reported net income was $111.7 million, or $3.07 per diluted share.

• Net cash from continuing operating activities increased 40% to $213.2 million, primarily on lower factory inventory and higher accrued expenses.

Outlook and guidance

• FY 2008 capital expenditures, including tooling and R&D equipment, were forecast at $65–70 million.

• Management expected income from HSBC and GE Bank retail credit agreements to fall to $5–10 million in 2008, versus $28.2 million in 2007, amid less favorable HSBC terms and tighter underwriting.

• Existing cash, expected operating cash flow and available borrowing capacity were expected to fund 2008 operations, regular dividends, repurchases and capital expenditures.