Polaris Industries Inc. (PII): This Recreational Vehicle Company Looks Good

Polaris Industries Inc. (PII)Polaris Industries Inc. (NYSE:PII) recently reported its latest earnings report. It saw record sales and earnings, but still had a few negatives along with the good news. The company is a strong player in the luxury and recreational vehicle market. There is a lot of competition, and investors need to know if Polaris Industries Inc. (NYSE:PII) can hold its own in a changing and difficult industry.


Polaris Industries Inc. (NYSE:PII) owns two separate motorcycle brands. The first is its own brand of bikes called Victory. The second is the Indian brand of motorcycles that the company purchased in 2011. Indian Motorcycles are the oldest U.S. bikes, dating back to 1901.

Total sales of motorcycles dropped 3% in the first quarter of this year. Total revenue from this division was $69 million. Motorcycle sales are often cyclical. More sales are made during the spring and summer months. Last spring saw elevated sales due to unusually warm temperatures. The opposite took place this year. Cooler temperatures in the spring may have had a negative impact on sales.

On road vehicle sales make up only 8% of all of Polaris Industries Inc. (NYSE:PII)’ revenue, so, a slight drop in sales won’t make a huge dent in the bottom line. Polaris is investing heavily in the Indian Motorcycle brand. It currently holds just 2% of motorcycle market share in the United States. It plans on releasing new styles of motorcycles in 2014 in an attempt to steal away market share from the motorcycle industry’s biggest name Harley-Davidson, Inc. (NYSE:HOG).

Harley-Davidson commands 80% of the market share in the United States for motorcycles. If Polaris Industries Inc. (NYSE:PII) wants to compete, this is who it will have to target. Harley-Davidson has built an entire culture around its legendary motorcycles. It offers not only the best bikes on the road, but plenty of clothing and accessories to brand your entire life around your choice in motorcycles.

It has been extremely successful at this, too. Luxury items always suffer in cyclical economies, but in the last three years, it has been able to increase its bottom line a total of 324%.

Marketing efforts are a major reason for Harley’s success. As baby-boomer riders are aging, Harley has begun targeting younger generations as well as female riders. It expanded its product offering to include a strong starter bike, the Sportster 883.

Also, the company is expanding internationally. In the next two years, the company is expecting nearly 40% of its sales to come from countries other than the United States. Harley is expected to grow its revenue by 8% in the next year and hold its strong market position.

Other recreational vehicles

Polaris is known mostly for its off road vehicles. Nearly 70% of its revenue comes from off road vehicles like its branded Ranger and RZR ATVs. The company was able to increase its sales from this division by 7% in the quarter.

Snowmobile sales tripled to more than $14 million. This was largely due to a heavier snowfall this winter and that snow stayed on the ground much longer.

These two numbers are great for investors. These are its two largest divisions, representing a combined 78% of total sales.

Sales of snowmobiles are cyclical, and will likely decline through the rest of the year in most of the United States. But, the U.S. represents around 72% of total company sales. ATVs and other off road vehicles are expected to grow 12%-13% this year as the warmer summer months approach.