Financial and Operational Highlights
- Third quarter reported and adjusted sales increased 10% to $1,955 million and $1,953 million, respectively
- Third quarter reported net income was $2.66 per share; adjusted net income for the same period was $2.85 per share
- North American retail sales increased 15% for the quarter compared to last year led by strength in ORV, Motorcycles and Snow. Boats retail sales were also strong during the quarter.
- Gross profit margin for the third quarter was 27.3%, up 270 basis points over prior year. Adjusted gross profit margin was 27.5%, up 260 basis points versus last year primarily due to positive product mix and lower promotional costs
- Dealer inventory levels decreased 55% given continued strong retail sales growth
- Polaris' liquidity profile remains solid with debt/EBITDA at 2.45 times and total liquidity of $1.5 billion at quarter end
- Polaris raising full year 2020 sales and adjusted earnings guidance with full year adjusted earnings in the range of $7.15 to $7.30 per diluted share and full year sales up in the range of 2% to 3%
MINNEAPOLIS — Polaris Inc. (NYSE: PII) (the "Company") today released third quarter 2020 results with reported sales of $1,955 million, up 10 percent from reported sales of $1,772 million for the third quarter of 2019. The Company reported third quarter 2020 net income of $167 million, or $2.66 per diluted share, compared with net income of $88 million, or $1.42 per diluted share, for the 2019 third quarter. Adjusted net income for the quarter ended September 30, 2020 was $179 million, or $2.85 per diluted share compared to $104 million, or $1.68 per diluted share in the 2019 third quarter.
Retail demand remained strong during the quarter benefiting Company performance as both new and existing customers continued taking advantage of off-road vehicles, snowmobiles, motorcycles and boats to enjoy the outdoors while maintaining social distancing etiquette.
Our continued strength in the third quarter reflects the broad-based consumer demand for our industry leading Powersports products, and tremendous execution by our Polaris team and dealers. Their focus and determination enabled Polaris to generate double-digit sales increases in ORV, Motorcycles and Boats, which were somewhat limited by supply chain capacity constraints. I am extremely proud of the diligent and efficient efforts of our team to mitigate these supplier disruptions and drive a three-year high in quarterly gross profit margins. Demand has remained strong to start the fourth quarter and we expect our sales and earnings momentum to continue for the rest of the year. This pushes our expectations for overall Company performance to exceed our pre-Covid-19 targets for 2020, demonstrating our confidence in the team to accelerate production as we manage through continued challenges. Thanks to the dedication, innovation and customer-centric work of our entire Polaris team, whom we are working relentlessly to keep safe, we are realizing tremendous progress from our strategic investments in supply chain and digital transformation, electrification, and breakthrough product development programs. I am very optimistic about the future growth and profitability prospects for Polaris and our stakeholders.
— Scott Wine, Chairman and Chief Executive Officer of Polaris Inc.
Gross profit increased 22% to $535 million for the third quarter of 2020 from $437 million in the third quarter of 2019. Reported gross profit margin was 27.3% of sales for the third quarter of 2020, up 271 basis points compared to 24.6% of sales for the third quarter of 2019. The improvement in gross profits was primarily driven by positive product mix and lower promotional costs incurred during the quarter. Adjusted gross profit for the third quarter 2020 was $537 million, or 27.5% of adjusted sales compared to the third quarter of 2019 adjusted gross profit of $441 million, or 24.9% of sales. Adjusted gross profit for the third quarter of 2020 and 2019 excludes the negative impact of $2 million and $5 million of restructuring and realignment costs, respectively.
Operating expenses decreased four percent for the third quarter of 2020 to $313 million from $328 million in the same period in 2019. Operating expenses were lower primarily due to the Company's ongoing cautionary approach to spending given the pandemic-generated economic uncertainty.
Income from financial services was $18 million for the third quarter of 2020, down 17% compared with $22 million for the third quarter of 2019. The decrease was primarily the result of a decrease in wholesale financing income during the quarter due to lower dealer inventory levels.
Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1,289 million for the third quarter of 2020, up 12% compared to $1,152 million for the third quarter of 2019 driven by broad based strength across ATV and side-by-side sales. PG&A sales for ORV and Snowmobiles combined increased 32% in the third quarter of 2020 compared to the third quarter last year. Gross profit increased 23% to $378 million in the third quarter of 2020, compared to $308 million in the third quarter of 2019. Gross profit percentage increased 255 basis points during the 2020 third quarter compared to the prior year due to strong retail demand, and as a result, lower promotional and floor-plan financing costs, in addition to positive product mix.
ORV wholegoodsales for the third quarter of 2020 increased 13%. Polaris North American ORV retail sales increased low-double digits percent for the quarter with both side-by-side vehicles and ATV vehicles up low-double digits percent. The North American ORV industry was up low-twenties percent compared to the third quarter last year.
Snowmobile wholegood sales in the third quarter of 2020 were $70 million, down 34% compared to $106 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 intermittent supply-chain disruptions.
2020 Business Outlook
Given the continued strong retail environment, the Company is raising its sales and adjusted earnings guidance for the full year 2020. Adjusted net income is expected to be in the range of $7.15 to $7.30 per diluted share for the full year 2020 compared to adjusted net income of $6.32 per diluted share for 2019. Sales are now expected to be in the range of $6.925 billion to $7.0 billion, up two to three percent compared to 2019 adjusted sales of $6,783 million.