Polaris Industries reports record second quarter sales & earnings - 2011
Polaris Industries Press Release - Jul 19, 2011

Second Quarter Highlights:

• Victory Motorcycles sales increased 99% in North American Market and 3% outside North American
• Net income increased 90% to $48.7 million, or $1.37 per diluted share, with sales increasing 41% to $607.9 million, setting new second quarter sales and earnings records
• All product lines and geographic regions experienced increased sales during the 2011 second quarter. North America sales increased 43% and International increased 35%
• Gross profit margin percentage increased 300 basis points to 29.2% due to lower product and warranty costs, higher selling prices, and favorable currency movements.
• Raising guidance for full year 2011 earnings to a range of $5.93 to $6.05 per diluted share, a 39% to 41% increase over full year 2010 based on expected full year 2011 sales growth of 25% to 28%.

Polaris Industries Inc. (NYSE: PII) reported record second quarter net income of $48.7 million, or $1.37 per diluted share, for the quarter ended June 30, 2011, up 90 percent from the prior year’s second quarter net income of $25.6 million, or $0.75 per diluted share. Sales for the second quarter 2011 totaled a record $607.9 million, an increase of 41 percent from last year’s second quarter sales of $430.9 million.

“The Polaris team continues to excel and I am proud of our ability to accelerate sales while simultaneously expanding margins and strengthening earnings. Strong consumer retail sales demand for Polaris products, up 19 percent in North America for the second quarter, drove market share gains, while margin expansion efforts generated gross profit margin improvement of 300 basis points and net income margin improvement of 210 basis points compared to the 2010 second quarter. We expect our new Monterrey, Mexico production facility to play a key role in supporting future sales growth and margin expansion and we are pleased to note it came online during the second quarter on budget and on schedule. We are making steady progress in our LEAN journey, and the results and opportunities are extremely promising,” commented Scott Wine, Polaris’ Chief Executive Officer.

“Given our first half results and the continued strength of our businesses, we are again significantly raising our expectations for sales and earnings for the full year 2011. We continue to seek strategic investments to further strengthen our Company, as evidenced by the recently announced acquisitions of Indian Motorcycle Company and Global Electric Motorcars (GEM).”

Wine continued, “Next week we will be unveiling a number of new model year 2012 products.

Innovation has always been one of our key competitive advantages and these products exemplify our commitment to providing consumers with high quality, cutting-edge products. I am confident that these new products, combined with continued execution of our strategic objectives, will drive profitable growth for the remainder of 2011 and deliver another record year for sales, net income and earnings per share.”

2011 Business Outlook

Based on Polaris’ performance in the first half of 2011 and projections for the remainder of the year, the Company is increasing its 2011 full year sales and earnings guidance. The Company now expects full year 2011 earnings to be in the range of $5.93 to $6.05 per diluted share, an increase of between 39 and 41 percent over full year 2010 earnings of $4.28 per diluted share. Full year 2011 sales are now expected to grow in the range of 25 percent to 28 percent from 2010. Revised full year 2011 expectations include costs and savings related to the ongoing manufacturing realignment and the impact of integrating the Indian Motorcycle Company and GEM acquisitions announced during the second quarter.

Victory Motorcycles…

Sales of the On-Road Vehicles division, comprised primarily of Victory motorcycles, increased 99 percent to $30.9 million when compared to the same period in 2010. Sales of On- Road Vehicles to customers outside of North America increased 34 percent compared to the prior year’s second quarter. Second quarter North American heavyweight cruiser and touring motorcycle industry retail sales were up mid-single digits percent over the prior year’s second quarter, while Victory unit retail sales in North America were up about 40 percent during the same period. North American dealer inventory levels of Victory motorcycles for the 2011 second quarter remained approximately equal to the same period last year.

Parts, Garments, and Accessories (“PG&A”) sales increased 23 percent during the second quarter 2011 compared to the same period last year, with PG&A sales increasing across all businesses and product lines.

Gross profit was 29.2 percent of sales for the second quarter of 2011, an increase of 300 basis points from 26.2 percent for the second quarter of 2010. Gross profit dollars increased 57 percent to $177.6 million for the second quarter of 2011, compared to $113.1 million for the second quarter of 2010. These increases resulted primarily from continued product cost reduction efforts, lower warranty costs, higher selling prices, and favorable currency movements, and were partially offset by increasing commodity costs and an unfavorable product mix.

Operating expenses for second quarter 2011 increased 43 percent to $106.2 million, or 17.5 percent of sales, compared to $74.4 million, or 17.3 percent of sales, for the second quarter of 2010. Operating expenses in absolute dollars for the second quarter of 2011 increased primarily due to continued infrastructure investments being made in international and adjacent markets for future growth opportunities and increased incentive compensation plan expenses due to the higher expected profitability and the current higher stock price.

Income from financial services was $5.5 million during second quarter 2011 compared to $4.2 million in the second quarter of 2010, primarily a consequence of increased profitability generated from retail credit portfolios with GE, HSBC, and Sheffield.

Non-operating other expense was $1.6 million in the second quarter of 2011, as compared to $2.3 million in the second quarter of 2010. The decrease in expense is the result of foreign currency exchange rate movements and the resulting effects on foreign currency transactions related to the Company’s foreign subsidiaries.

Financial Position and Cash Flow

Net cash provided by operating activities increased eight percent to $61.8 million for the year-to-date period ended June 30, 2011 compared to $57.0 million for the first half of 2010. The increase in net cash provided by operating activities for the 2011 period was due to increased net income, mostly offset by a higher investment in working capital, largely due to higher accounts receivable compared to the same period in 2010. Total long-term debt was $100.0 million compared to $200.0 million in the same period in 2010. The Company’s debt-to-total capital ratio was 18 percent at June 30, 2011, compared to 45 percent at the same period in 2010. Cash and cash equivalents were $262.2 million at June 30, 2011 compared to $166.3 million for the same period in 2010.