Polaris (PII) Q4 2008 earnings summary

Executive summary

• FY08 sales reached a record $1,948.3M, up 9% YoY; diluted EPS from continuing operations was a record $3.50, up 13%.

• Side-by-side vehicles, PG&A and international growth offset lower core ATV and Victory motorcycle shipments; ORV held the #1 market-share position in North America and Europe.

Financial highlights

• Revenue rose to $1,948.3M from $1,780.0M; reported net income was $117.4M versus $111.7M, and reported diluted EPS was $3.50 versus $3.07.

• Operating income increased to $182.8M from $176.0M; gross profit rose 13% to $445.7M, with gross margin up 80 bps to 22.9%.

• Financial-services income fell 53% to $21.2M, mainly after HSBC volume-based fees ended effective March 1, 2008; interest expense declined to $9.6M from $15.1M.

• Q4 sales were $523.6M versus $541.4M; gross profit was $119.2M versus $119.0M, and net income was $36.2M versus $38.0M; diluted EPS was $1.11 versus $1.07.

Outlook and guidance

• FY09 capital expenditures, including tooling and R&D equipment, expected at $50M–$60M.

• Management expected yen-dollar movements to raise cost of sales and Canadian-dollar movements to weigh on sales and gross margin versus FY08.

• Retail-credit trends and less favorable HSBC terms were expected to significantly reduce income from HSBC and GE Bank retail-credit agreements in 2009; Sheffield financing began under a new multi-year agreement in January 2009.

• Existing cash, operating cash flow and available borrowing capacity were expected to fund 2009 operations, regular dividends, repurchases and capital spending.