Polaris sales power up a solid quarter

Polaris Industries Inc. boosted its full-year guidance Tuesday after posting record second-quarter sales and a 43 percent jump in earnings that beat analysts' expectations.

The Medina-based manufacturer credited surprisingly strong results to North American sales of new "off-road" all-terrain vehicles (ATVs) and motorcycle products.

"We are extremely pleased with our success during the second quarter, but we are mindful of the uncertainty surrounding the overall economic environment in Europe and North America," CEO Scott Wine told analysts in a conference call Tuesday.

Second-quarter net income was $69.8 million, or 98 cents a share, 6 cents above analysts' consensus estimates. Sales climbed 24 percent to a record $755 million.

Wine also announced that Polaris has entered a 50/50 joint venture with Eicher Motors Limited in India. Polaris's $25 million investment is designed to take advantage of a well-established brand in India and to expand Polaris' presence in that country. India's middle class is growing, and many in the country depend on motorcycles and scooters as a primary means of transportation.

Eicher has a joint venture with Volvo that focuses on component parts. The new joint venture with Polaris will require a new plant in India and will result in new vehicle introductions, said officials, who declined to elaborate.

Despite the slowdown in Europe, Wine told analysts the company is concerned but still bullish on overall growth for the second half of the year. He raised Polaris' earnings forecast for the year to $4.05 to $4.15 a share, up from $3.20 for all of 2011. Sales are expected to grow 14 to 17 percent this year, the company said.

At first investors welcomed the news. Polaris' stock shot up to $75.50 in early-morning trading before falling with the broader markets later in the day. Shares closed at $70.98, down 94 cents or 1.3 percent.

Although analysts expressed concern about rising dealer inventories, a weakening Europe, a sudden slump of military vehicle sales and currency fluctuations in Canada, they remained generally pleased with the results.

"It's a good quarter, obviously," said Citigroup Investment research analyst Greg Badishkanian.

"Great quarter," said Tim Conder with Wells Fargo Securities.

Polaris President and COO Bennett Morgan told analysts that dealer inventories were intentionally allowed to rise 25 percent so that the company and its dealers were prepared to roll out new Indian and Victory motorcycles, and keep dealers well stocked with off-road ATVs.

Wine insisted that the company's expectations for the rest of the year were realistic and already factored in the weak economies in North America and Western Europe. After questions from analysts, he said Polaris had reviewed fresh orders from dealers and still expects growth.

Wine added that a host of new products will be introduced in at a dealer show in Las Vegas next week and that a dealer show is scheduled in Brazil next month.

"While the weak U.S. economy and likely recession in Europe are concerning, we continue to see strength in our core North American power sports business," Wine said. "Our investments in adjacent markets and international expansion are paying dividends."

Dee DePass • 612-673-7725