Polaris Industries Inc. (NYSE: PII) today reported record second quarter net income from continuing operations of $24.4 million, or $0.72 per diluted share for the quarter ended June 30, 2008 compared to $22.9 million, or $0.62 per diluted share for the same period last year. Sales for the second quarter 2008 totaled $455.7 million, an increase of 21 percent over last year's second quarter sales of $376.9 million. The increase in second quarter 2008 sales and earnings per diluted share is primarily attributable to increased operating performance of the Company's side-by-side vehicles, international operations and parts, garments and accessories businesses. The demand for the Company's RANGER(TM) side-by-side vehicles continued to be strong and Polaris' international business experienced strong growth, particularly in side-by-side vehicles as shipments to customers outside of North America of the highly successful RANGER RZR(TM) increased during the second quarter 2008. Second quarter 2008 results included income from financial services of $5.2 million, which decreased $8.7 million compared to the second quarter of 2007 primarily due to the fee income to Polaris being eliminated by the Company's revolving retail credit provider, HSBC. Additionally, second quarter 2007 included a pretax gain of $1.4 million from the sale of KTM Power Sports AG ("KTM") shares.
"Our operating results this quarter are very strong especially given the very challenging macroeconomic environment," commented Tom Tiller, Chief Executive Officer. "Eighteen months ago, we laid out an aggressive plan to generate superior results based on three pillars; winning in our core businesses, delivering operational excellence and capitalizing on our growth businesses. Our results this quarter and for the first half of 2008 clearly reflect the commitment of our entire organization to achieving these goals. We continue to be competitive in the more traditional core ATV and snowmobile categories with innovative products and aggressive marketing; our operational excellence objectives for quality, cost and speed are on track; and we are leveraging our knowledge and experience in our growth businesses, particularly in side-by-side vehicles and international."
Tiller continued, "As a result of our continued successes we are raising our full year 2008 guidance and now expect earnings per diluted share to be in the range of $3.40 to $3.48, which represents an increase of ten to twelve percent when compared to earnings from continuing operations of $3.10 per diluted share for the full year 2007. Sales for the full year 2008 are now expected to grow in the range of nine to eleven percent over full year 2007 sales of $1.78 billion. During the third quarter of 2008, we expect total sales to increase in the range of two to five percent over the third quarter 2007 which was the first quarter of the start of significant shipments of the RANGER RZR(TM). Third quarter 2008 earnings are expected to be in the range of $1.07 to $1.11 per diluted share, flat to up four percent compared to earnings from continuing operations of $1.07 per diluted share for the third quarter of 2007. In the third quarter we expect continued sales growth in side-by-side vehicles, PG&A and international operations offset by a continued weak core ATV market, higher commodity costs and significantly lower financial services income due to the Company's revolving retail credit provider, HSBC, eliminating the volume-based fee income payment to Polaris in March of this year."
"Next week we will be unveiling our model year 2009 products at our annual dealer meeting," Tiller explained. "Innovation has always been a cornerstone of Polaris' success and our new model year 2009 products will reflect the high standards that our customers have come to expect from Polaris. While we set the bar high in model year 2008 with our innovative new products including the RANGER RZR(TM), RANGER Crew(TM) and Victory Vision(TM), we similarly have high expectations for our new model year 2009 products. Despite a tough external environment that is not likely to improve in the near-term, we expect the momentum that we generated in the first half of 2008 to carry over into the second half of the year."
---------------------------------------------------------------------- Product line Second Quarter ended Six Months ended Information June 30, June 30, ---------------------------------------------------------------------- (in thousands) 2008 2007 Change 2008 2007 Change ---------------------------------------------------------------------- All-terrain Vehicles $350,280 $282,057 24% $614,806 $504,544 22% ---------------------------------------------------------------------- Snowmobiles 6,006 4,419 36% 15,441 7,332 111% ---------------------------------------------------------------------- Victory Motorcycles 23,409 28,983 -19% 50,755 55,598 -9% ---------------------------------------------------------------------- Parts, Garments & Accessories 75,991 61,443 24% 163,368 127,141 28% ---------------------========-========-======-========-========-====== Total Sales $455,686 $376,902 21% $844,370 $694,615 22% ---------------------========-========-======-========-========-======
ATV (all-terrain vehicle) sales of $350.3 million in the 2008 second quarter increased 24 percent from the second quarter 2007. The new RANGER RZR(TM) side-by-side recreation vehicles continued to sell well during the quarter along with the new RANGER Crew(TM) six passenger side-by-side utility vehicles. Sales growth outside North America was also strong in the second quarter for both the Company's ATV and side-by-side vehicles. The overall market for more traditional core ATVs sold in North America remained weak during the second quarter resulting in fewer shipments of Polaris ATVs to North American dealers as they continued to reduce their core ATV inventory levels. Currently North American dealer ATV unit inventories are down ten percent from the same time last year.
Sales of Victory motorcycles decreased 19 percent during the 2008 second quarter compared to the second quarter of 2007 as the North American motorcycle industry retail sales for heavyweight cruiser and touring motorcycles remained weak.
Parts, Garments, and Accessories sales increased 24 percent during the second quarter 2008 when compared to last year's second quarter. This increase was driven primarily by increased sales of ATV and side-by-side vehicles related PG&A.
Snowmobile sales totaled $6.0 million for the 2008 second quarter compared to $4.4 million for the second quarter of 2007. The second quarter is historically a seasonally low quarter for snowmobile shipments with deliveries to dealers ramping up significantly in the second half of the calendar year.
Gross profit, as a percentage of sales, was 23.7 percent for the 2008 second quarter, an increase of 70 basis points from 23.0 percent for the second quarter of 2007. Gross profit dollars increased 25 percent to $108.0 million for the 2008 second quarter compared to $86.6 million for the second quarter of 2007. The gross profit margin and absolute dollar increase in gross profit was due to the positive mix impact of increased sales of higher gross margin products, such as RANGER side-by-side vehicles and PG&A, and favorable foreign currency fluctuations during the second quarter of 2008, which were partially offset by significantly higher commodity and transportation costs.
Operating expenses for the second quarter 2008 increased 14 percent to $72.5 million compared to $63.8 million for the second quarter of 2007. Operating expenses as a percent of sales decreased 100 basis points in the second quarter 2008 to 15.9 percent compared to 16.9 percent in the second quarter of 2007.
