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Summary

  • The company beat last year's revenue and earnings first quarter numbers.
  • The stock is fairly valued.
  • All revenue segments of the company are firing on all cylinders.

The last time I wrote about Polaris Industries Inc. (NYSE:PII), I stated:

"Due to the bearish technicals, overall market whiplash taking place, and fair valuation I'm not going to be pulling the trigger on this name at this price right now." Since that article was published the stock is up 1.69% while the S&P 500 (NYSEARCA:SPY) is up 0.52%. Polaris designs, engineers and manufactures off-road vehicles including all-terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and on-road vehicles including motorcycles and small electric vehicles.

The company reported earnings before the market opened on 23Apr14 and on the surface the results were mixed with the company reporting earnings of $1.19 per share (beating estimates by $0.03) on revenue of $888.3 million (missing estimates by $3.61 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Product Line Sales (in thousands)

1Q14

1Q13

Y/Y

Off-Road Vehicles

$ 602,843

$ 541,272

11%

Snowmobiles

$ 15,586

$ 14,714

6%

Motorcycles

$ 78,867

$ 51,797

52%

Small Vehicles

$ 38,483

$ 11,059

248%

Parts, Garments & Accessories

$ 152,567

$ 127,067

20%

Total

$ 888,346

$ 745,909

19%

Revenue was amazing on all fronts with revenues increasing 19% from the prior year! The only "disappointment" was snowmobiles only increasing 6% from the prior year. The 11% increase in Off-Road Vehicles is indicative how well the single-seat sit-in off-road vehicle the "Sportsman ACE" did after being introduced in January. The Motorcycle segment posted a 52% increase in huge part to the new 2014 models of Indian Motorcycles. Small vehicles sales have increased by an astounding 248%! The small vehicles segment is comprised of Aixam, GEM, and Goupil vehicles. When you purchase a new recreational vehicle you obviously have to purchase the gear to ride that recreational vehicle, which is why Parts, Garments, and Accessories increased 20% from the prior year. Polaris is hitting on all cylinders!

Income Statement

Income Statement (in thousands)

1Q14

1Q13

Y/Y

Sales

$ 888,346

$ 745,909

19%

Cost of sales

$ 629,929

$ 529,261

19%

Gross profit

$ 258,417

$ 216,648

19%

Selling and marketing

$ 65,570

$ 54,493

20%

Research and development

$ 35,513

$ 31,450

13%

General and administrative

$ 41,292

$ 38,810

6%

Total operating expenses

$ 142,375

$ 124,753

14%

Income from financial services

$ 10,640

$ 10,074

6%

Operating Income

$ 126,682

$ 101,969

24%

Interest expense

$ 2,812

$ 1,473

91%

Equity in loss of other affiliates

$ 896

$ 412

117%

Other (income), net

$ (2,105)

$ (2,468)

-15%

Income before income taxes

$ 125,079

$ 102,552

22%

Provision for income taxes

$ 44,178

$ 27,088

63%

Net income

$ 80,901

$ 75,464

7%

Average number of diluted shares

67,958

70,762

-4%

Earnings per diluted share

$ 1.19

$ 1.07

12%

Gross profits increased at the same rate of sales and cost of sales. Selling and marketing increased 20% while Research and development increased 13% bringing total operating expenses to an increase of 14% from the prior year. Higher marketing and expenses were incurred primarily due to the re-launch of the Indian Motorcycle. Operating income increased an eye-opening 24% from last year. Interest expenses increased 91% while equity in loss of other affiliates increased 117%. Other income decreased by 15% bringing income before income taxes to a gain of 22% from the prior year. The company had to have a 63% increase in provisions for income taxes because it made much more money when compared to last year. Earnings per share increased 12% from last year on excellent revenues. Top and bottom line beats are what great companies are made of.

Balance Sheet

Balance Sheet (in thousands)

1Q14

1Q13

Y/Y

Cash and cash equivalents

$ 101,789

$ 380,750

-73%

Trade receivables, net

$ 150,464

$ 129,332

16%

Inventories, net

$ 482,874

$ 370,856

30%

Prepaid expenses and other

$ 59,326

$ 30,740

93%

Income taxes receivable

$ 3,030

$ 9,194

-67%

Deferred tax assets

$ 93,024

$ 85,488

9%

Total current assets

$ 890,507

$ 1,006,360

-12%

Property and equipment, net

$ 495,053

$ 274,737

80%

Investment in finance affiliate

$ 71,439

$ 56,432

27%

Investment in other affiliates

$ 15,102

$ 12,421

22%

Deferred tax assets

$ 20,048

$ 26,257

-24%

Goodwill and other intangible assets, net

$ 226,461

$ 105,096

115%

Other long-term assets

$ 45,839

$ 21,603

112%

Total assets

$ 1,764,449

$ 1,502,906

17%

Current portion of capital lease obligations

$ 3,076

$ 2,627

17%

Accounts payable

$ 257,795

$ 215,187

20%

Compensation

$ 50,870

$ 65,666

-23%

Warranties

$ 47,224

$ 40,941

15%

Sales promotions and incentives

$ 133,058

$ 109,601

21%

Dealer holdback

$ 90,374

$ 75,659

19%

Other

$ 77,284

$ 66,930

15%

Income taxes payable

$ 27,333

$ 18,017

52%

Current liabilities of discontinued operations

$ -

$ 5,000

-100%

Total current liabilities

$ 687,014

$ 599,628

15%

Long term income taxes payable

$ 13,405

$ 3,616

271%

Capital lease obligations

$ 28,723

$ 3,727

671%

Long-term debt

$ 300,000

$ 100,000

200%

Deferred tax liabilities

$ 24,067

$ 2,017

1093%

Other long-term liabilities

$ 85,369

$ 62,080

38%

Total liabilities

$ 1,138,578

$ 771,068

48%

The balance sheet had lots of movement from last year. Cash and cash equivalents decreased 73% from the prior year causing total current assets to decrease by 12% but to counter that, property and equipment increased 80% to bring total assets upwards to the tune of 17%. Total current liabilities increased 15% while total liabilities increased 48% due to a whopping 1093% increase in deferred tax liabilities.

Conclusion

The company reported earnings which were 12% higher than a year ago on much more revenue while the share price was up 1.54% since the last earnings call excluding dividends. The share count has decreased by 4% for the entire year. I love that earnings and revenue increased on a yearly basis. The results were great to me, and investors seem to think they were bad as the stock dropped 0.53% after reporting while the S&P500 was down 0.22%. That being said, I think the stock is fairly valued. I like to see year-over-year increase in earnings and revenue and with these results the stock is going to be on my team, and in the starting lineup.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long PII, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Polaris Is A Great Dividend Stock That Knocked Earnings Out Of The Park

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