Polaris Sales Up 7% In 2007

Polaris Industries Inc. had net income of $112.6 million, or $3.10 per diluted share, for the year ended Dec. 31, 2007, down slightly from income of $112.8 million, or $2.72 per diluted share, for the year ended Dec. 31, 2006. Sales for the full year 2007 totaled $1.780 billion, up seven percent compared to sales of $1.656 billion for the full year 2006.

"We knew at the start of the year that we would face a challenging economy, but we also had confidence in the plan we laid out early last year," says CEO Tom Tiller. "You will recall that we have three stated objectives over the next few years: win in the core; deliver operational excellence and grow the company. We effectively executed on all three of these initiatives in 2007. We not only gained market share in every business during the year and witnessed the operational excellence initiatives we implemented take hold, but we also aggressively expanded sales in our growth businesses, particularly in our side-by-side business with the RANGER RZR."

ATV sales were responsible for 67 percent of Polaris' total sales in 2007. Full year ATV sales increased seven percent over last year, a direct result of the success of the RANGER line of side-by-side vehicles. The company says core ATV shipments to dealers decreased in 2007, resulting in dealer inventories at year-end 2007 finishing at much lower levels than a year ago. It also claims to have gained a modest amount of market share at retail in core ATVs in a declining overall core North American ATV market.

Full year 2007 Victory motorcycle sales to dealers grew less than one percent compared to 2006, primarily due to the impact of a slowing cruiser industry, the company says. Polaris calls the Victory business "a significant long-term growth opportunity" as the company continues to add new products and markets in the future.

Sled sales increased 14 percent compared to the prior year, aided by a 30 percent increase in fourth quarter sales resulting from early snowfall in many parts of the nation.

Parts, Garments, and Accessories sales for the full year 2007 increased nine percent compared to 2006 and were driven primarily by increased shipments of snowmobile, Victory motorcycle and RANGER side-by-side related PG&A.

Full year gross profit, as a percentage of sales, was 22.1 percent, an increase of 40 basis points compared to 21.7 percent for the full year 2006. The increase is due to a favorable product mix change — the company sold more side-by-side vehicles, which typically have higher margins offset somewhat by increased promotional and warranty costs.

Operating expenses grew 10 percent to $262.3 million in 2007. As a percentage of sales, operating expenses grew to 14.7 percent of sales, primarily due to increased advertising costs.

Taking into account the current economic and industry conditions, the uncertainty in the retail credit markets, dealer inventory levels and anticipated new product introductions, Polaris expects full year 2008 sales to increase in the range of three to five percent from 2007 levels, resulting in full year 2008 earnings in the range of $3.28 to $3.40 per diluted share and representing 6 to 10 percent growth in diluted earnings per share.

"We anticipate that many of the overall external challenges we experienced throughout 2007 will continue into 2008, as North American ATV retail sales for the industry are expected to decrease again in 2008 and the overall economic outlook is less than optimistic," Tiller says.

Still, he says the company "is well positioned to weather the economic storm."

"Our focus in 2008 remains consistent. We expect to win in the core with market share gains in ATVs and snowmobiles, and deliver further improvements in our operational excellence initiatives, which will result in further core ATV inventory reductions and company wide improvements in quality, costs and speed. Additionally, we have multiple opportunities to grow the company in 2008 particularly in our RANGER side-by-side vehicles, international operations and military sales."