Polaris (PII) added to Yield rankings this week, seeing robust demand, good on buybacks
3:45 pm Monday, October 11th, 2021
Polaris (NYSE:PII) is a new addition to our Yield Leaders rankings this week. In our Friday report, we profiled Cummins (CMI), but we also wanted to put Polaris on your radar screen ahead of its upcoming Q3 report on October 26 in the pre-market.
The company makes outdoor recreational vehicles. Its largest segment by far (64% of 2020 sales) is Off-Road Vehicles (ORV), which includes ATVs and side-by-side vehicles. Snowmobiles are also included in this segment. Smaller operating segments include aftermarket (13%), motorcycles (8%), and boats (9%), primarily pontoon and deck boats.
Polaris is seeing very high demand these days. While down from unprecedented levels in 2Q20, it was still up in 2Q21 over pre-pandemic levels of 2Q19 by 14%. ORV market share gains continued in Q2 in both ATVs and side-by-sides. Boats also remained strong, growing retail sales and market share during the quarter with a healthy and significant backlog.
Although it’s off-season for snowmobiles, PII is seeing near-record-high SnowCheck preorders. Of note, the sales cadence of its snowmobile business will be even more heavily weighted toward Q4 this year given the timing variation in component deliveries.
Additionally, its parts, garments and accessories (PG&A) and international businesses also performed quite well. PG&A sales were up 35% during Q2 as more consumers look to personalize their vehicles. International sales grew 64% as the economies outside North America continued to improve.
While demand remains robust, like many companies these days, Polaris is facing supply chain and logistics challenges. As a result of this and continued strong consumer demand, dealer inventories are at the lowest levels in decades. Retail sales would have likely been significantly higher in Q2 without these impacts. Presold orders have increased significantly since the pandemic began. Pre-pandemic presold orders accounted for roughly 3% of retail, but ORV presold orders are now 80% of retail.
Looking at the remainder of the year, dealer inventories are expected to remain lean into Q4, which is when Polaris is anticipating the supply chain issues will begin to slowly improve. Polaris uses a Retail Flow Management (RFM) ordering system for ORV dealers, which allows dealers to order daily and create a segment stocking order which reduces order fulfillment times. Given stronger than anticipated demand coupled with continued supply constraints, PII’s expectations for dealer inventory levels to return to RFM profile levels is now sometime in late 2022 or even into 2023.
