Shares of Polaris Industries (PII) ended the week 10% higher after beating on first quarter earnings and an upgrade in the outlook for the remainder of the year.
First Quarter Results
Polaris reported a 27% increase in net income to $60.1 million. Earnings per share came in at $0.85 vs. $0.67 last year. Revenues increased 25% on the year to $673.8 million. Off-road vehicles which represents 75% of firm-wide revenues were up 30% in the first quarter. Gross margins expanded 60 basis points to 28.9% on manufacturing savings and lower warranty costs.
"Our record first quarter results reflect not only the continued strength of our business and solid execution of our strategy, but also a healthy start to the year for our end markets," according to CEO Scott Wine. The company continued to gain market share as retail sales in North America for off-road vehicles and motorcycles are off to their strongest start in years.
On the back of the strong results the company raised its guidance for full year earnings per share to $3.85-$4.00, a 20-25% increase compared to 2011. Full year sales growth is expected to come in at 10-13%.
The company ended the first quarter with $286 million in cash and equivalents and operated with $100 million in long term debt for a net cash position of roughly $186 million. After this week's jump the market values the firm at $5.5 billion or roughly $5.3 billion for the operating assets of the firm. Operating assets are valued at 2.0 times annual revenues and 23 times 2011's annual earnings.
Recently the board of directors increased the quarterly dividend from $0.23 to $0.37 for an annual dividend yield of 1.9%
Shareholders in Polaris Industries have few reasons to complain. Shares have risen 204% over the last five years and trade 42% higher year to date after two increases in the full year guidance and a 61% increase in quarterly dividends.
While shares are not cheap on a valuation basis the multiples for 2012 are coming down to an expected 1.8 times annual revenue and 20 times earnings a fair valuation for a niche player with excellent operational execution capabilities.
I initiated a long position long before, but won't take profits or consider a closing of my entire position before $90 per share.
Disclosure: I am long PII.