PII - Earnings call transcript Q4 2018

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Operator

Good day, everyone. And welcome to the Polaris 2018 Q4 and Full Year Earnings Conference Call. [Operator Instructions] And please note that today's event is being recorded. And I would now like to turn the conference over to Richard Edwards, Head of Investor Relations. Please go ahead.

Richard Edwards

good and Will, you, morning, everyone. Thank for and full you joining us quarter fourth XXXX our year for Thank earnings call. A information call. at which slide our Web site accessible presentation at has for additional morning's this is www.ir.polaris.com, Chairman Today, you remarks Chief Executive hearing will our and Speetzen, Officer. and Wine, Mike from Officer Financial Chief Scott be our

could those During the forward-looking discussing Act the in of purposes be XXXX. for statements. Litigation of which Reform from topics, call, certain we differ Actual forward-looking the results Private projections will considered should materially Securities be

can XX-K You and and XX-Q for refer risks regarding XXXX to our XXXX additional uncertainties. details

all G are full year reported reconciliation end of schedules Additionally, refer for unless XXXX guidance adjusted quarter an Please XXXX basis at to non-GAAP the and to references presentation non-GAAP adjustments. on otherwise this fourth Reg actual GAAP our and noted. results to

to it Scott Now, over Scott? will our I CEO, turn Wine.

Scott Wine

us. Minneapolis for around to more Thanks, less for for competition, you from Richard. predictable little and joining you consideration how is not the it. economy factors and city the our many in a planning. although, currencies morning, we in dress Weather in important certainly and Good here include whether it's but a It's Polaris and chilly to is tariffs thank today

college win accomplishments Clearly, bit with of inversion impacts whose Central on by a at reflected dropped and less guidance financial yield me feeling tariffs met despite man team proud performance evident coincided back operational loss a on grew perspective Looking State curve which by were like and tweet and left XXXX, week the our slowing of competitive market I'm you stock will working December being the Ohio on football our was or the and of not share Xth and rewarded many selection This most about in We're appreciated us. the if Polaris tariff revenue, judged against schedule, record of execution a economy. our committee. the extremely a success Florida, our namely, as market, more the the variables gained we not was profitably external our XX%. when

Garments, in which Exceeding our reacted RFM billion the off-road was nice has in core January Parts, even a but and incremental course, macro appropriately $XXX We execution strong issues year up quarter deal sales the ahead. both on are the of slowdown. second period. December, that milestone. yearend our X% drop contributed growth With retail periods. gained added our focus and number, did $X Fourth continued in share shipment since offset we weak growth share, in for side-by-sides the of market these sales in plus quarter strong we the of Europe, million expanding year. a escalating but RZR, nicely modestly and for recovered marketing Accessories year American with augmenting with ATV aware returned crest sales and for are And see innovative are in traffic product promotional in XX% exceptionally XX% through both the with of up Sales growth more. and retail vehicles retail on sales in performing declining and to to organic and much half X% and both while full We to retail income and both off reduce year net well side-by-side the both both revenue share but in from income, and nearly more and ATVs sales quarter snow in keenly vehicle system important did them as was strong as the dealer Fourth were adjusted RANGER strength up Off-road to growth full to performance outpacing the market year-over-year. Indian retail. gains full retail expanded quarter modest focused Motorcycling gain was leading year. our continued moderate were quarter, sales side-by-side which in for share X%, execution for are the net full were and news, the up North in to

gaining vision highly being passion As together to with dividends, vehicle enriching dealer and digital to XXXX, growth light But transcends to taken and for that grew do. quarter customer we operating both and always, And it management Polaris investments for a fueling market began constant retail innovation contributed and The success. of product all company, our our a in industry. pay really in guide centric lead efficient slightly our engagement in a plan. commitment retail QX investments the share our lives our provides annual in marketing,

engineers proving extended XX-year delivery. over year that water Boat in world choice, on sustainable set to ground, Boat metrics that growth. Bennington Celebrations the we and design margin China its in we the motorcycle and styling Holdings, of and customers I'm one ground and growth the to from extend dealers we right only time expanding vehicle, the highlights as performance, ever to exploring our global manufacturing entire deliver We climbs enabling Polaris expect. to behind exposing as Indian RFM types, products safety integration benefit significant growth Holdings to opportunities Polaris and Powersports strong of and organization top And delivering also races driving on plants that we of right excitement Adventures, even at year. and of growing which we track a our operate market the other gain better vehicle innovations rousing is of position our diverse Indian the factoring is did plan, than even horsepower harder. in Poland access fine and the through behind competitive the to with motorcycles from embracing use, performance, much The the counts competitive the taken, in the over which offer large is segment races to difficult, capabilities build off-road locations customers before. at that our slingshots requires is hill The engine. industry of with opportunity the of outstanding in over advantage beyond fun Indian for expansion. for and as consumers Horsepower gaining bikes, factory brands the full success. XXXX is that Our putting months words. notch well to our commemorated teams quality, anniversary, it. Winning XXXX business, XX% With all we’re flat-track a full we number quality, and share of is for supreme was year racing from put the water, are busiest to the Europe demonstrate success and are and our right off-road were winning and efficiently, off-road built Customers a ramps reign and rides unprecedented year dealers. the vehicles, who we it improvements right if is and growth ride and they active new of already Polaris be is XX% are proud a of to way our actions XXX,XXX right it. and these another RANGER's outdoors the the right Polaris term around world. and the modern ballpark set enjoy in the is in snowmobiles did like but a and but can every our our the We impressive well. time We XX Accelerating but product products importantly, clear Opole, to deserve its our boat is Indian and for XX,XXX customers acquired vehicles. When first as color

costs, for quality well. to and lead Our productivity and quality in improved safety and hand entire dedication and hand sourcing higher enterprise metrics. creating important posted project these employee notably go the is Quality process as Polaris employees once and drove our warranty strategic outstanding lower sustainably our the commitment capability and supplier quality discipline again and in The foundation of metrics. to and we XX,XXX safety Polaris covers

and tariffs the balance We half are the value our to work later XXXX. improvement efforts in are the an in the of on strategic investment consider various but stages anticipate significant. we the saving Rising unfortunate retaliatory deal within tariffs sourcing efforts is of reality track, results sourcing in tariffs, XXX We our outlook. versus and XXX, is and XXX and all they impact our impact but business. is our understood in most framework to are which of well must first and place the no assured will when it these legal still The strategic the claim at list There authorized. wave to shift operations. way second an be not by X disparate our into working the we involve to possible significant are every if front three, many, our The List and currently near angle the are but is or exemption line of rest factored achieve

about did, happen. While if economy that there impact indirect the great the be than risk that to on we my demand would damage U.S. more of too XX%, tariffs is be to to XX% tariffs the going on concerned the from is would themselves. therefore, XXX economic belief consumer it for the And

be our reminder, produce thousands or although, XXX of X our pay we we we Ironically, would a of to tariffs. from we about because directly vehicles never penalty these if exempt we large American of source parts workers tariff Mexico only XX% avoid, that our List less As assemble employ parts. in foreign only Canada, competitors China, all a from

XXXX is that we X expect. at the remain efforts we are comprehensive ongoing the tariff of most is $XX as $XX relief in increase But to will obtain closely Our for driving cost XX%, assumption which latest budget our million million that monitor to best negotiations. List

tariff minimize key much costs by successfully suppliers sense. While in the we are we through our and tariff relief doing XXXX the We impact. when pass will from makes to part a redirect of is mitigating economic limited strategy, our it arguing just shipments for more

We near for turn trade results sign the costs. action on took tariff Financial plans will a offset best and true the Officer, Speetzen, will want to our trade and would limit and expect Chief which and Mike Xst, that who continue practices be outcome January Our equitable such not partially on alleviate to financial agree price more now effect but The agreement. for outcome measured and XXXX. our in further term. will over I do fair impact increases, update you to to China it possible take to we

Mike Speetzen

on was sales. our Boats of quarter, quarter driven move off-road time and results average shipments $XXX up Scott up the partially prior excluding everyone. sales by XXXX the our the some and basis of to higher morning mix was of of This in QX XX% guidance. vehicles XXXX and then adjusted compares Organic products. and adding Average to sales I million GAAP quarter, driven Boats with a by of selling year up tough offset selling X% Fourth to snowmobiles Thanks prices, excluding good morning, sales, and due Boats, XXXX. were lower spend price the will higher by X% versus motorcycles on during on

basis majority Boats preorders per GAAP tax XXXX. share expense acquisition, was Fourth $X.XX, XX%, snowmobiles earnings on up the the lower driven volume, operating count in shipped we a earnings was per share rate. example, by quarter the and leverage, of share our lower Adjusted $X.XX. high-priced quarter fourth a SnowCheck For of

commodity during muted growth and Our costs tariff and costs quarter. was ongoing by the increased EPS logistics

was quarter combination a share negative XXXX. XX% $X.XX, in except XXXX, year points expense by the driven logistics partially by margins adjusted Full was acquisition, Boats including higher declined of GAAP basis year commodity Boats the The basis growth earnings rate, full a offset sales points tariff, on tax motorcycles lower GAAP for operating and for GAAP versus costs. and year. was share an XXX per increase fourth volume, Gross profit increase earnings basis the line GAAP year-over-year added XX% increased of a logistical an Adjusted on $XXX or a leverage, XX segments the basis. a and the in to basis earnings product X points the year grew For full mix. Gross on increased and prior and X% basis year. on on tariff, adjusted a million up an were and basis basis, which versus for and costs forma a per percentage the our expectations. per commodity year was selling prices. with full grew in XXXX average XX adjusted were for $X.XX. a approximately margins fourth pro points down reflecting quarter XXX share Boats also the All and respectively, basis profit

We for XXXX details gross more profit margin presentation. be of have found that this provided the supplemental in on performance can section

ORV/snowmobiles performance. with margins. tariff, timing successful XX% a selling mix segment price were in the QX, driven price ORV sales. product ORV that along were it to important downward negative Average put the our our in but although incredibly on gross increase, SnowCheck to up up program. of difficult due sales and average for segment Snowmobile selling note is pressure compare up Turning last our year. business, of X% sales our costs, were quarter to was to by commodity sales to logistics year-over-year due the fourth shipments almost down slightly snowmobile X%

sales segment driven Average decreased a by the by than heavyweight year. was that quarter. an year offset price decline sales for full X% XX% Slingshot full-year, selling Full up motorcycles adjusted and categories. basis. on sales on and by Indian motorcycle a was slightly, all the basis It's important year GAAP were For for XX%, the in X% the basis fourth note Motorcycle in ORV/ XX% in Slingshot. Indian were declined but up snowmobile up to more decline on adjusted and driven the the GAAP revenue sales. sales

and the have the both market gained bikes year. share on for growth Our and midsized quarter very strong considerable

XXXX. in ASPs. remains Indian market weak, X% quarter defense gain to higher the continued adjacent year to sales the due increased driven share X% timing prices selling quarter. which of fourth down and in typically full fourth of Global the market Although, the have shipments, Average were

the market TAP weakness were business quarter, XX% to full sales resulted primarily with down from fourth growing. demand sales. lower in Aftermarket For year, businesses. our all in global sales the adjacent a increased wholesale e-commerce and decline due in lines X% TAP

year Our other flat growth of aftermarket sales aftermarket XX% brands sales continued Full QX. with to outperform were XXXX. in with

Our of QX remain million a in increased Boat on approximately reported XXXX. forma and track. our for line sales integration Sales versus on the segment expectations with $XXX X% of plans quarter pro basis

Growth the driven international to with Our international impact year sales up business XX% quarter, approximately sales of sales versus unfavorable XXXX. the up the Full X%. continues up you by X% fourth with for region grow when currencies. were remove X% was EMEA up

year. Our and increased Parts, Accessories the and Garments sales X% during quarter X% for the full

Before dealer up I briefly on XXXX guidance, XXXX. on versus to me move was which X% touch inventory, let

and As from dealer of comparing quarters between you product with we XXXX availability will dynamics in remember when our terms the call, had associated levels. shipments, XXXX inventory previous

nominal dealer so, it's to see a important the couple discussed, we up you XXXX. the amount chart from can from When look the doing that over on right ORV As past levels years. are inventory

aligned. performance During retail that Company's shipment American the closely were same two period, North and year

extended RFM. quarter-to-quarter and at side-by-side and compensates period Looking shipments the for implementation normalizes outliers of this for any

to on moving XXXX guidance. our Now,

sales We XX% following to range low expected growing, adjusted side-by-sides continuing the The the decline. of versus vehicle The powersports to the motorcycle single-digits overall market off-road with particularly up includes total market expect in sales to percent to be is XXXX assumptions. market company the XXXX. grow and growth XX%

market strong to positions segments contend driven add increase our innovation. costs. coupled growth, are We input and expected by innovate, with average of features selling anticipate higher prices leading All we to with as

businesses ORV of you start both As year. initially this our X.X% roughly the many know, increase and motorcycle we at of in

last sales acquisition X%. compared expected by foreign to in expected be adjusted full XXXX year. considerable share sales Additionally, the per the to Adjusted of we are exchange lastly, for XXXX And $X.XX $X.XX. impact to EPS the anniversary add boat negatively the $X earnings of from range is as segment will year to

more when a detail performance However, in significantly our the back shortly. I'll suggest, you guidance bit, view layers which peel than is better

Nevada, Adjusted of in share points XXX XX and that per earnings XX XXXX to celebrating margins mid-teens development to percent, the are new summer in variable improvement XXth Operational XX by included profit rate guidance. the expense, absolute in associated high-teens. expected up basis ongoing with our the in We distribution operating XXXX, company as be to the assumes in this a financial high-single-digits P&L, dealer an following. added XXXX Fernley, tariffs related basis down expenses is center of sales. Boat from be basis, is retail down the increasing meeting a investments which we'll on of expected high will increase and The our costs The in in the anniversary. down in of business, driven currency. the and to Moving gross gains are anticipate to expected an up Income the range percent be penetration addition realized compensation XXXX. expenses from related higher is percent to operating be points multi-brand from services where by lower XX% expenses research driven costs

Boat a to XX.X% to XXXX rate onto exercises. matures, million, XXXX is to driven The lastly, by $X.XX Additionally, assuming impact dealer expected slightly Canadian the $X.XX. income rate option euro Europe. XXXX to the is the the expense income are which and to plan be the full by is rate, in dollar at XXXX, inventory the XX% negatively And continue We higher than slightly. taken USD to debt lower turns given currency $XX CAD Share RFM lower to profit at largely from due count to pretax expected the the assumed down anticipated hikes. USD up anticipated approximately be about average two Polaris tax Acceptance as the will year for anticipated as acquisition, well JV. to as finance approximately expected process be is improve Interest

We Canadian in our have exposure hedged XXXX. XX% of dollar anticipated

the While is efficiency well factors effects in the before company external to earnings of the that movements, impacts. this to the the activity, to company productivity our tariffs, as is from still earnings. standpoint, and From XX% rates, a cash revenue of partially protects you transactional reflects team to progress of see on to leverage our This expected interest improved driving currencies as portion can in the exposed make currency transaction continues the generate flow increase growth. and impact the translation EPS un-hedged XX%

proportion guidance the XXXX and half an the the our and Our as a FX. absolute in of first year given lower assumes of are on that earnings impact tariffs

to While half anticipated Boats, impacts, the more the is of than as tariff well ramp-up and sales are first additional increase, as the given R&D spend. in FX addition offset income by

As anticipate earnings the growth discussed. of will be XX%, QX We the including to approximately factors of our to case, just the historically be first of year. and quarter quarter Boats XX% down smallest expect because XX% I the sales

notice summarized that margin will we chart. profit You the have gross below EPS

the to begin points, profit price, productivity. foreign tariffs in sourcing are by improved yield half of our anticipated will strategic XX effects quality the volume, one project driven factoring impact Before of Wave and second we to gross to currencies, by are exchange, XXX margins margin our the gross and pressure. savings of and XXXX. in XXXX basis trending tariffs from When favorable expecting

XXXX, single more year X expected $XX about on assumptions, tariff headwinds. assumed China down is our sales follows; percent not Motorcycle rate which XX in lines. up be percent products. in be digits. is percent guidance points to full Aftermarket rate guidance. be to with expected XX% digit up sales the If PG&A ORV/snowmobiles is market to including XXX that with we segment X, to by growth sales XXX mid adjusted to digits margin of basis improved with We This in headwind, combined profit new expected growth the $XX in March equates mid-single Based basis. currency Sales expected XX% digits from and XX Global expected up X run are increases adjacent and accounted percent entire XXX, basis as for to for all China on List effective be points double mid-single digit up are be will million mid-teens single are be sales facing these up product range holds approximately and our year. a to from are at mid percent List anticipated segments driven ORV have tariff up snow sales approximately tariff TAP. expected gross for million the tariff

expected margins the segment mid-single-digit by are double grow as the the hardest to is anticipated basis, Lastly, range. our ORV/snowmobiles exchange gross profit acquisition. tariffs to be motorcycle down. the anniversary forma than foreign basis, the reporting Boat On Boat are segment in of segment more percent XXXX with On a we segments purchase a sales pro the and and to hit expected be

factory hiring of included all delivery anticipate on segments' profit meet XX% primarily improved required section presentation. for inventory capital this operating effectively margin in to the by timing Operating approximately profit to to due shipments XXXX and inventory over to up be expected working $XXX excluding XXXX at down XX% comparable flow tariffs, We to cash driven supplemental due RFM cash efficiency. the times. XX% margins are gross improve a to However, XXXX additional We've of million, XXXX flow gross finished basis. for XXXX details

well Our anticipate the includes of expenditures, capital given tooling, of and higher we as a of Fernley, that framework to is completion a out come deployment Nevada. to would new remains level a market, capital center consistent. number and outside distribution as development I products slated which point

acquired a that help have will drive growth. have We assets profitable strategic number and of

when term We is While Polaris within capital shares and to of company XXXX. X.X ratio will possible. well look it's stock in levels, million the reduction in accessible XX% accelerate debt we to debt repurchased our near

authorization. X.X under board shares remaining have approximately We million current the

executing share with which debt desire level. balanced repurchase, will reduce to be the We will our be in opportunistic

to back the will average to than have continue final for Scott of thoughts. we Lastly, that, With it more the over XXX. on invested double turn returns some I is capital S&P that

Scott Wine

in on to spoke about Mike. call, then. global it improving understatement since a lot year has A an is and I that ago economy changed say Thanks, this

slower we're to of interest attracting stable rising mostly rates to when it surprised economic risk plans also planning growth We’re Tariffs and and recession making avoid being for occurs. environment, but the the working former our pressures the on exacerbating so is measures put so headwinds mitigate and more team these pressure on impacts. economy full-time Polaris. further on counter even Currency to higher are

Fortunately, suffice is XXXX. as well has. while expected operating strategic long-term sourcing to the than from the aforementioned eventually underlying business it offset more as The ever initiatives savings our headwinds, in but not

with XXth Our acquisitions engine and gives tremendous customers. year will but cross so functional which extremely win. new OEMs teams not future working powersports maybe and product and growth do two. more notch will to the innovation any major like in especially are the the relationships teams to up return identifying invest the remain pontoon or business We strong sourcing way. value the it ourselves. a are on and fair our why would segment We ahead, anniversary that entry into knowledge, and options Polaris dialed this boat compete for is very our with ways great in will our our the our We plan hard leading to getting project our we sustainable. industry savings We pursue be for be improvement us a the celebrate bullish great guess and summer, and a side-by-side's

with bets With is need interacting development questions? from customers. of line to We just strategic and factory our better the that, for get fast. ranging bright. incredibly The large methods Will, to future programs, initiatives increased engaging you We and for choice the would open there will Polaris research several fund

Operator

will [Operator you. And question-and-answer Greg with Thank the go Instructions]. Please from now we first Citi. question begin will Badishkanian session And the ahead. be

Greg Badishkanian

Scott, I the of you December things January. in and some recovered retail in mentioned slowdown then think second half

is did normal out stock And segment well? as I'm region January. or something out -- to maybe what or volatility stood that back stand any then else now wondering December, market of in it just or the So just in was anything was business really end the

Scott Wine

momentum tell and many and I'll had really across of a wasn't Greg, it the October businesses it's we I retail Polaris, kept strong have that through talked November, and you, And half first I going to. December. everyone most mean, really

not it's go the people their well saw businesses in we was. RZR, looking believe of mostly they December. that I and at balances the their investment that and half to to second are in of Ranger, said trends it banking tell balances I in Indian invest know it same we is a saying also quite continuing far. the time with XXX(k) January slow Some down was we be what the very that the or so new you seen have motorcycle encouraged seems are will What

to XX that an good now or So and see was it we've play anomaly recovery days appears I'm was. and four to to be got glad five the months out. right as as it But know you

Greg Badishkanian

we what's on But that been And scarcity inventory now? always just customer your XXXX of are how comfortable is are I availability good, always it helps right know Northstar, Polaris brand. and the early with you as in response? And the line

Scott Wine

facility. John have And Dan a done there proud ranges of Huntsville capability. our job really build great and team his ramping are those production in We to up

you we we is One of have of that have the the limited could opportunities number colors in. get

So to the of it’s RFM, color teams a mean his really I pretty the we the meet demand kind have to for options. done Pucel is as we and that Ken think expand increase of work demand flow actually But going this I additions. will to good weather, Northstar through comfortable able with are that the obviously products be option. we quite create

Operator

go with ahead. will the UBS. be Please Robin And Farley questioner next today

Robin Farley

measures. just best comments issues. be to I I that $XX one million that maybe will tariff just that the X at you of slides showing there your of appreciate is that slides a more than in impact But guess The to counter case tariffs around the was incremental, think goes I List says least And the did thinking go from you could like worse helpful. XX% better like mention lot about the incremental mention, guidance case. what today? so before uncertainty giving if a the understand are opening

today guidance including look to no the counter offset your in And impact is So 'XX? like? what measures could tariff that incremental

Scott Wine

includes known guidance countermeasures all can that we the of Our pursue.

deadline So possible that tariffs scenario. that can countermeasures, there's they in if nothing when -- because reach the we think The we don't there they the put be best take would do. best we agreed the be anything implement upside think to possible upcoming scenario we that off would is that

of bikes of shipping rid You the think would get we've what that don’t guidance view. see have realistic most also into retaliatory the to tariffs, Europe, a happening. but us XXX with we impact Therefore, we is which given has

The would to very be the we we that successful of different continue second numbers? also yet efforts not do color tariffs you any hard. confident go our on will the although, equivalent be which having that, But we in would are best alternative with to Mike, to want add relief, the be could away. get work

Mike Speetzen

so tariff down, that’s tariff coming China. significant the us. there's on huge from through about I pointed that it fair will is less supplier amount our think meaning than this of really and was XXXX obviously a just our indicating, we we portion a on I come you a And that purchases lot Scott million passed the been another that around out ultimately its break impact. you mean when But timing. you up. that’s and to impact how $XX a Robin, just so build small notice had of of with understand indirect,

that’s in off that’s an remain as assumptions variability. to us. to that around we hit has continue very these timing, things of stating but So that know Tim’s successful to place there's the that a going area team reality at been we have and make so

and we And the would tariffs we so ramping it by as essentially the we've year through the I go full run second the got get call rate into half. what time

Robin Farley

indicated pontoon it's on And And last in years. that had the pontoon couple any quick declined your then grew segment, last QX. business nicely if the one, that one just growing you about you industry maybe I worries industry? anything been just you of the Is although the thoughts think

Scott Wine

shows the trending good been a that anything light feel at that on the about were boat the And we wise. the And up. previously a recent and with on very we in expensive not we've those relationship some bit got QX taken lower based We models, we worry Bennington is the have. have and and line-up we we little that quarter Mercury, of still orders believe to less advantage gives with like Yamaha end again, pontoons. lined competitive have feel us

Operator

today our MorningStar. will Katz questioner Please be go And with next ahead. Jaime

Jaime Katz

on start thoughts and your with. about Slingshot curious I’m motorcycles, particularly to

that you like make if the track? either I that how that still the might your morning does guys mid-teens shipment to the XXXX. on guys was very it on there you sounded that confident be call But in innovation. like am are start market was call segment. around think outlook, is that curious echoed mid And in because other is I prior, expected of it isn’t, last the the competitor I headwinds turning factors the that’s it understand or or maybe call if earlier on sentiment remain this Thanks. still week. that there And seems

Scott Wine

-- development Slingshot tell team both in expect the the to the year. as driving that to product are proud and then very year lived encouraged that place, Menneto take execution 'XX expectations and we innovation it gained that our better and knowledge have And it the throughout understand by. the yet. 'XX you continue to We really better years. plans be to to we've for and believe what's product hasn’t we demand. is be of really that a and lack apply we’re tell to will I I we're up going the I'm you Josh underlying Steve we last are couple work doing of the is Jamie, of will

effort best are improved and execution our not we better, have to So performance on thus we Slingshot. do expect 'XX but far with in and smarter

Jaime Katz

in guys the multi-year the be focuses then of? Are the know know stage about or ahead for would key been on, working Thanks. any aware have initiatives important in to helpful we strategic sourcing next be I year And that it’s effort. should a you there

Mike Speetzen

it's built remarks that got my in in. important Jamie, mentioned I think, I prepared we've savings

on of be waves. next I actually think one we’re is the to to initiating wave not important going couple what’s executing we’re just understand

is associated that we're switch with start project, mentioned imagine And the incremental go that. to work R&D when model year validation increase really to dedicated have do I we fair that So as you suppliers, of a we there's can amount portion in as to costs a from the of cycle because over. has off change

with parts. savings as great in coming as what So progress. suppliers, We're with there's a terms quality of of good making the the encouraged have the been well of teams impact. is The back fair moving we're really the news number

forward. so feel good project we that really And moving about

Scott Wine

Jaime Yes, and as also get this savings rigorous through the that two savings taking through it's or wave we number get why half knowledge we and the with in shortly. we that it's long. entire But most and wave the impressed start is through large I've Polaris waves add the been the work and will process. in one it's hard, achieving I project. showing that's as extremely sustainability we'll I'll very so extremely five mean, just what the the second we here we're up to confident work start But portfolio, that with six

Operator

our Tim go Conder ahead. be next with Please will questioner Fargo. today And Wells

Timothy Conder

things that on should term Gentlemen as talked of it Lighthizer the other exclusions you're use was the Is dropped failed are process. or we've than the trade mitigation the things? are another What those or than List part other talks they'll tariffs want overall? List said just exemptions to think a path there we the I deals X about other pursuing in that that trade and exemptions, since been put other which the X

Scott Wine

Polaris. that people really happen, Polaris employed to that suppliers believe think powersports are doesn't in negotiated what exemption. we process get do will that of ultimately obviously, and taken trying a the Tim, referring the up We thousands just if is believe arguing best is the of. to the But I mean, care to we're the not that for a industry exemption. and I you're are not Lighthizer We're the industry want open that a make what sure throughout deal. that approach team And help to in we an the dealerships

you're a since the that we are got referring that ones I benefit very only impact, most the we're effort. significant working what our the think one truthfully, hard. But with the leads we that’s to the and we're lobbying getting with to McCarthy Washington fair good sure hard But trusted formal any see Ellen from we've to. now extremely we Now And Ultimately, may make it. what be extremely and in treatment closer we an working have happened are to were exemption so before we far. and negotiations happens negotiations. team wait they probably that more than get started

Timothy Conder

And How give goals good question. whatever. and the those on year response time, end got we to tried for a give much follow-up one, that? to you much do did How or Slingshot just pull at you market, say, motorcycles then, leverage? you rope wanted realistically Indian the new hey, lastly, much prior of don't EU to let's to gentlemen Mike, that Scott product, say and How getting things the on remaining on just alluded work. some XXXX time here And you in time I completion Slingshot, that; the here coming on any that costs;

Mike Speetzen

effective an question. second was That

Scott Wine

like going very that. with Tim, that. going We I will good people. things job are that are it's that really versus have on in those we and market. the that it done reach I execution know to of most tell more Slingshot Truth wrong We to like learned the wrong sure product really future things have we've the make it I'll about you we issues our start more with people what customers address Slingshot. of about think plans. just that We're to talk issues feel to not told, be want. We're

-- but be remind years part suggesting that not to the and profitable we in happens. a there's growing were missed next years Ranger that I for the you could be that not pretty long-term, will years large business an we're will would've if we I'm launched pulled that mean XX few we when we of big, and And the darn early, had painful. Slingshot sure make the opportunity ago business for I’m us. over I So several a it suggesting first out very

Mike Speetzen

So as ramp Tim on up and the everything for Poland planned. is additional going Indian

the bar. can get see the retaliatory chart up, made they're a basis the that though have seasonality we to bikes large and we that shipping we on mean stack tariff from I You the we it's small portion but tariffs business of total, ramped will part. relative as relative the start to it's pretty even Because miss if U.S. don't though the in

want just the a position about really and the this saying and So least tariff impact end to of landscape economic obviously, to try to year. good that to to two we're be position where consistent a well positioned out retaliatory pretty remarks been we half on in two in want to down. in We've ramp feel sure happen year place. and standpoint, were that we about that we're a going if obviously, times. then we’re at XXXX. And paid half leverage the the and two get to additional but a with I prepared emphasized stay From out definitely we we assuming handle in ended tariffs make having to an want keep in eye up turns around up coming downturn my

on that focused at remain of leverage we'll maintaining least level down. of bringing it So not

Operator

Wedbush. next the ahead. from will James And be today with Hardiman go questioner Please

James Hardiman

I’m A chart the $XX I the that’s there. countermeasures of want had sure that is to make just deck, or have measures. quick XX the which I they understand. my favorite in how log, question work? benefits clarification countermeasures, on assuming Robin the Slide in the a asked $X.XX showing The the to how million $XX to that earnings you're is $X.XX Is dollar about to million before

Mike Speetzen

if we mean, stopped were take tariffs, a evasive year, because at last about to actually time. to There's things. one price you a number James. in things, trying that remember talked price increases We've relative I of point different couple of our are covering we talking that, because about action

dealing we're then the obviously, that tariff to it’s commodity with the quality and costs. vehicles made logistics higher First the we've foremost, and and and adds features

green And is the a small over of portion bars. so price side that’s increases those left-hand there the on in

in promo, Yes, back. get to the probably of we’d primary were if where would one. small, that through price back it's the go that away, there have very probably to is So of but a piece position the get portion tariffs be a we'd that that small

to down suppliers the relates bring it As are on hard the pushing where in excepting and other off dollar coming increases on in already we've the with just stating what been not included that’s the activities EPS.

James Hardiman

that And net so is there countermeasures? number include dollar that a for

Mike Speetzen

a carve as relatively it's hard tariff. countermeasures with of price, would it's mentioned, which the pricing, exclusion all the be out of to piece with I dollar With the

price trying So we to do we've that I the would in that. on reevaluate that way, that’s try to obviously goal from steer to why to but were the away mean if will our tariffs if happens. and be have hold go

James Hardiman

happened ago gave That’s XX% lots XXXX? early a year context us five-year and guide, your update a exactly notably too to any XXXX the probably to that mean CAGR where I was And of getting through tariffs. then at. year the But you ago, I obviously update the since a in plan most

Scott Wine

spoken we several about sourcing initiative. expect expect we've that in is to businesses quite I would category, got opportunity out margin are say the of significant that that of we're extensively we've think boats. our I improvement, strategic see that category, biggest that cabs and what Obviously, chunk in see going That we to motorcycles James, towards we get with goal. lots

have out a if So, it. to put we going able to we hit wouldn’t we be ago that were year think didn't

Operator

be will questioner with our Baird. And go today Kennison Please next ahead. Craig

Craig Kennison

decremental what in and a revenue maybe prepared downturn. prepare Maybe walk have context margin in to for the with so can you for associated downturn? you the you or you leverage far mentioned frame I through next that think to just the the be that had inevitability done Mike, want of margin if

Mike Speetzen

that the have. in debt load want we have I Number playbook to to we that It’s what we any a an sure inevitably time that pay by. between certain leadership have And together termed make happens, go good make comes, we a so team set Craig. and liquidity we've and effort will preserve principles. I now company one And down. obviously concerted managing essentially to when that question, and is continue Scott mean to that that and and whenever we put architecture, that we

The preserve second we is the strategic want to investments.

vital strong If you significant into back 'XX 'XX, those of some back investments. it such a cut the the so didn’t of moved during happened on what we to downturn out and share and reason think is came Polaris market position

we've So clear made demarcation. some very lines of

As downturn. say for of on the tough our scope decremental and margin, depends the size to it

it's we 'XX, if think to very compare safe I assume we're you in 'XX, were business. where to different us back

Our fixed cost is base larger.

We the time. in coming were than we than they in are much point factories time. larger vehicles, more that at And have RZR at higher back did some our like that the profitability off point of

we all saw So that's way what about margins would the something initiatives that the countermeasures we've we with again essentially like that it to business important the X%, probably down have X% we in and decremental go in mirrors company. XXXX when went back would the the associate strategic modeled preserving the after

Operator

Beckel Please David ahead. Research. will be today next go questioner with the Bernstein And

David Beckel

expectations about for to D prior bit. wanted well? I Part gross through XX% gross flow profit Just said profit or expect as consistent that a took in your you think a Is expecting calls Are you through. you with flow XXXX

Mike Speetzen

earlier look in revenue. what getting to So if of look to referring at we're flow through, at James terms million $XXX call million X% was that in you bridge you let’s EPS $XXX about XX% and to that that

when low backward If mentioned talked our the R&D Jamie about we being to I like look that the have drop buried is project. question high pretty about increase that which rate. it's Gibson The I teens. her that, going calculate within reason also I you earlier, in is that think a asked

that as engineering the zeroed been work the out, payout. the have prior full as plans three then almost we've savings. also of and we’re validate those And business, to We those have essentially with well got addition incentive incremental Boat costs basically the years to long-term associated now accruing

is through would coming what strip you the XX% expect. when that's is we those and XX% things So volume range, which out, the exactly in

David Beckel

XXXX rides know what I for new curious touch of of customer And conversion sounds any to anticipating it's the to guys. What also the little sites a second like terms me you as adoption yet? are that just you if on It bit. question Adventures was for extent huge for in And business? are you and or wanted you a seeing from success been

Mike Speetzen

expanding every these of to has operators just as that we have, done really up of building doing are are operators. for what that just can best model as we they And a there, North work sign America We find. that’s plug-and-play rapidly the the the part in team continuing is best proud

have. conversion marketing I I mean, seats but And are good. you there's marketing the and expect a campaigns motorcycles Indian I the is that our the nothing pace forward. butts The rate to think best So could some the diligent think I rise efforts, our But has, continue XX we love I only product. digital that very rapid single than almost being as we was sell we like adding to sure to on move making love better best tool operators. of

but overtime number products, be will that expand right riding helpful. people our low as So and come ultimately a get we in number business as it's now low convert. we they ultimately that And single-digits single-digit

opportunity encouraged to sales. by it very drive are business the we has So the also but itself, future

Operator

Markets. Please be And go BMO ahead. our next with questioner Johnson Gerrick today will Capital

Gerrick Johnson

two questions. have I

on you The first question by there? think getting do from side. you are Who share side

Scott Wine

over have on or mostly so. we But the think clearly, depends I last year from categories. gained It the Japanese

a so that products mean new our segment to with almost share we we XPXXXX, recently competitor right a share that little feel Where But have got good side-by-side the both to was we about every that. And growth helpful. to Turbo no, everyone, for feel share Our I best we in position. couldn't have do our share bit acquired I S don't about about in live almost we a we reality the building good think product the possibly Ranger at returning that is launch, to the I'd surprised take There you year, And somebody right grow where and in seed Trail and now. been tell able think continues quarter is concerned were with now that we really. the that's portfolio. I lost we entry, that's full will plant we environment just that but

Gerrick Johnson

adjustments question down, Indian that? be there also still XXXX, our then on favorite are out And we wind Will will for there be still here. and quarter what each Eicher backing for amortization

Mike Speetzen

we -- is about be and not been anymore will have essentially The think Indian dealerships believe wound down will do there down not successfully. business shutdown. effectively wind The EPPL I Victory Brazil in facilities Victory, there down. be down

much much of to lower up the that and forward from historically. going will the be what and end that had acquisition But going we smaller think some probably intangible, should than I restructuring costs legal we adjustments any costs aside are and having only they costs. we be have the then have

Operator

And go the with next questioner James. Please ahead. Raymond today be Joseph Altobello will

Joseph Altobello

just tariffs earlier. to I back to want James question go and

supplier mentioned you negotiations think Is year of tariffs that this I share the incremental correct? the but not includes pricing. per benefit of dollar

Mike Speetzen

Correct.

Joseph Altobello

to you able extract how And it were your from was meaningful? much suppliers,

Mike Speetzen

pushing hard it's able as as mean I well the back was I in mean, terms it of Yes, both suppliers. guys, on being considerable, to say. sourcing to the delay,

well on And company we a around other we're in we've and teams can commodities. sure and imagine process help that cover a really look increases environment terms a an of the come things in price labor pushing put increases for making off got as as that, use and many back where as that to dealing tariffs. logistics You stave the with They good as of to that suppliers. Ken's shield

as a successful want share to to Given around them what's as portions put of qualification that. we're getting that. But a a happened retain currency, China been the with in point not to them us client, well at as where desire we've we for in

Joseph Altobello

you guys not I the motorcycles you the ORVs times the your competitors have pointed price a know that then response? goods whole early took from increases January have but number competitive headwinds in been it's perspective? do And of the out you guys And What's you Xst. and secondly, tariff same mentioned X.X%

Scott Wine

of the it's than haven't our to we our will do. a And idea competitive much that about take seen might for can't. I good far a I mean, they us margins we so so what Yes, should tell most price. competitors, are from not better of advantage response. you But competitors generally talk actually

earlier. lot with price it the such. that we're therefore, sure consumers to our up care. taken the mean, the good. lot talk feel about Northstar price price the of everyone the the So, a of we'll content with making edition tell related talking out. is We that and And I'd we is it I is you, a mean, I we're But ultimately, Again, benefit vehicles phenomenal think value see. brought dealers to about equation. the part a a that bringing price tariffs. it's really being of again, to value is product just incremental we're And make I product so bringing

Operator

And MacGregor our Please go ahead. next questioner will Research. David Longbow today be with

David MacGregor

up. Is on rebasing talk ORV and the Scott, increasingly to an environment? can promotions when payments monthly how going discipline the to more what you've in of so, the promotion in regarding and time face the customer sensitivity rates promotional just are how rates you And customer expecting pricing now? financing you about learned of the rise maintain higher way financing maybe if

Scott Wine

the can our of general a about customer just region buy and very rebate closely driven What we our customers in we and more manage There's accessories want pretty if that or we've work impact and payment on promotional be price use that that and we execution not. products, careful what dollar are it. promotion want is learned There's certain needs manage to promotions with with segment by certain customers or that. more dealers monthly

dealing tool we So we optionalities a sophisticated people it sophisticated where plays deploy interest we've want with with our to the for more And have as it advantage that. rise think they that very this can I actually give got process rates promo. to

Mike Speetzen

just And to reemphasize I Scott's David, think, point.

my in to penetration our about talk XX%. up heard got high remarks rates a prepared me at company You

promo in services that the associated reality higher So is below putting But that that. we income through line. comes the with financial are

customers, So retail partnerships strength sensitivity, point have that that see we where promo make the three that a end of up portion because being not back, lines. dollars all two we've ability we the the with of But we we rate those of the we making substantial the put returns that great on share and because if got it. it's to accounted in and can they different firms for

David MacGregor

question the dealing online coming second And just stores is aftermarket growth increased is comping how of business. positively? then online And from And sales? are the with the competition you XXXX levels within how mid-single-digit much of are

Scott Wine

online to other the this we're is in all sales talking actually, ATG we online trending good feel And advantage. better competitive as think in at We stores. that And Same-store near-term it. well The that related and good about got cap you've switch trending not very to expect and but for But business you that the because platform, will Amazon for Google that us and good about good the that. taking not to the is of advantage we transition feel We've businesses. have Scanlon to team about we nice in ability good online what Craig have we're a TransAmerican to we for algorithms. aftermarket the sales, a Auto tell Oracle call ultimately, got Parts our the we a did think a very plan we helpful that both quarter, where reprogram all I where I In sell that ultimately are marketplaces fourth they're with which very, good well strength be we January, is January. there, got good TAP we the through the of TAP And and should a omni-channel business. year there. I've the sit.

Operator

ahead. And with Please Woolf Northcoast the next will go Research. be Seth questioner

Seth Woolf

very college the loved playoff I reference, football appropriate. it's Scott

things starting ORV. the off, talk to So first, just a I about guess couple wanted

year. about the increases mid-single-digit for talked You

ASP You're is low market you XXXX. single-digits recall correctly? I of an benefit. correctly, kind hear said if your Did getting in expectation And you I

Scott Wine

that's and Yes, a change.

We in while. rates haven't growth a seen industry

sign. stabilization positive So I a that think is

Seth Woolf

of lot able competitors to along what about tariffs you price in think is bit do, had guys we headwind? products are should you to of How a us increases because to some going a The to Mexico. of a especially compared you've pass that have, the to cover the be

Scott Wine

price Well, true. I suggest of would that's think demand that elasticity

Seth Woolf

should it So mean, next Polaris, about down it digits is we year? I how flat, then, think single low is

Scott Wine

be mid-single-digits ORV to ORV to in industry. the trying I can think backdrop. essentially market there we're I do market, correlate what, think in Seth, you against what the tracking by price with is you're the surmise being And that

the view of necessarily teams. lot coming of we'll mean, as the of in a scene onto strongly building lot a capacity. the ASPs competitor I'd of we not a the new back. So have very push obviously, that have face a But our I of point past couple also share internally been years different and saying you movement up over

continue that we battle take premium so not share. to back more demonstrated to only have being price continue And capability to to but

planned we the be we'll XXXX, And in harder we've conservative the the pushing what for so in into guidance. got team's we've that than been certainly but going little way a

Mike Speetzen

I sure with brands and pretty really to are just, general nice RZR a reinforcing when those in Musso in that are good position win brands nice mean strong Chris making doing this ultimately matter. you've appropriately. a I'll the And we distribution we and combination to got Sportsman, team And that's products, brands Ranger, job And industry. great

Operator

next ahead. Spak And will Joseph Capital. today our with Please RBC go questioner be

Joseph Spak

next I it want that think higher? beginning even capital-intensive. year isn’t There is said push why just continuing of for back a CapEx a you sales projects a guided second. on variety that just just Is that that CapEx think go for of went 'XX to believe then like the higher, assumptions Boats it year, you and if of what And you you have looks is year. that, came A, may the it Polaris curious accurate; or at you B, thought, that to with -- up I But I'm the over may seems it like think is time this also look some you as line have got were fill have But you been I reason would reasons. higher for back comment to higher been I -- that to at really to CapEx Boats? now in and it higher. if time, this

Scott Wine

So Joe, going remarks anticipated had it up mentioned you we but actually probably something center, be I that was Fernley strongly not distribution in picked The on to enough. prepared my system we would and XXXX. the got When that be we run in did capital we original as fully through recognition. more of the the further a plan XXXX along, then realized

a X.X% same that of is up range in XXXX at there And right about that. shift now, is of probably So in to came 'XX sales. X%.

So the center. number one, distribution it’s the shift Fernley to

products And associated part continue we that that. a tooling of the year, tooling. well a as the is next you'll The R&D the ramp two with of see second as our is we big in item years have amount new to when obviously fair obviously spend, lot playing of this to one

years couple of that project and down Now really have our us. now take to this co-investing suppliers spend for try we've that with one that of a and is to the sourcing capital goals referred

do lever. think be And to we able you business time say to will get so us And the that’s think to see I over revenue. a going X.X% be down of

Joseph Spak

Victory that and stand you more if one competitor moved question you it guys with At of not. from had on you of initially backed [in-house] or just were initiatives projects maybe It initiatives. some do announcements. And was where some think early with Polaris? don’t your have those on away of seems like motorcycles. bigger picture for electrification I But I some some I know over those least opportunity mean,

Scott Wine

into mean, the that there time when demand, is that the us is consumer money got cost, we it out and and equation is there folks I money weight example, one. a at enter not for it, and until know of that prepared is What back that it on of Brammo, the just with not for our opportunity yet we we're have And this -- think making large exists. it. look Motorcycle. couldn’t is into enter right I building to come make focused automotive, because for was it We've performance anybody, and if than market equation efforts electric we're which to capability the became Electric team you Victory all you of we have was of we believe a it. proponent ultimately to I not find with and better lot

money can we the it. We’re to make enter at market going not until

Operator

question be SunTrust. question. Please your ahead Michael And Swartz with will today with from our go last

Michael Swartz

quick pretty on Just going and that small. any question how a Boats it's rationale that But of acquisition, your recent fits framework around think guess expanding business? size I Larson into strategic I with and

Scott Wine

bit ironic. a It's

I smallest there think coverage more it's of acquisitions Holding. ever we've the that when Boat and bought got up we've got we probably one ranks with than done

our is the the way is to take have gives it as what to On though about grow the us our size didn't along our fishing about it same to like for for feel strategically basis, relatively interestingly other we which And cost think attractive segment. we I other But business, just a it's it size fishing with small. very efficient good was which enter ability and market, very Rinker So brands. about us a us brands. we it previously Boat with access profitably our that

Michael Swartz

pulling And materials end just of shipments towards just that any increases on pull the ORV motorcycle buy and through wasn't in price forward I'd your the the given quick up with going back commentary January then year follow-up or for Xst, there and assume around there?

Mike Speetzen

No.

Scott Wine

to thank in We And look the again. want talking this we quarter. you forward to participating everyone call for Good to in next Thanks bye. Okay. morning.

Operator

The And conference attending lines. disconnect presentation. you your Thank may is now for concluded. you today's now

Polaris (PII) 29 Jan 192018 Q4 Earnings call transcript