DN listened in on the Polaris second-quarter 2017 financial analyst call, held July 20 with Chairman and CEO Scott Wine and CFO Michael Speetzen. Here are our takeaways on the ORV market, Indian and Slingshot, and improvements the company must make with its Dealer network:
POSITIVE OUTLOOK
“The global powersports industry outlook is improving for the first time in several years.” (Scott Wine)
“It’s the first time in, I don’t know – several years – that we have commented that we feel better about the industry.” (Mike Speetzen)
We are at a point where we’re trying to ship at the same cadence as retail.”
DEALERS: Inventory and RFM
Dealer inventory is down due to RFM [retail flow management] implemented on ATVs and motorcycles, and soon on side-by-sides: “We are at a point where we’re trying to ship at the same cadence as retail. It puts a lot of strain on the manufacturing environment until we go completely live with RFM, but we’ve essentially already put our inventory at the right level, give or take.” (Scott Wine)
“The primary purpose of RFM is to get lead times shorter and delivery times more accurate, but there is also an element that we are putting in to drive significantly improved communication and awareness of delivery time. Part of the frustration for Dealers around delivery is our purposeful effort to take ORV delivery down 6 percent in the quarter. As we get ready for… 2018 shipments and ready to transition to RFM, we purposefully try to keep inventory in a position where we could manage it better than we thought our orders could. So that gets better with RFM. We are excited about what it means for us and our Dealers in the second half.” (Scott Wine)
DEALERS: Improved communication
“What happened from 2013 to now is that our growth slowed down significantly, and [we did] a lot of recall-related cost and pressure on our Dealers. So they have a heightened sense of awareness of what they should expect from an OEM.
“When volume was flowing really good for them and for us, I think it wasn’t the right thing to do, but we accepted the fact that we weren’t as good a partner as we could or should be. Tim Larson and Matt Homan and the teams [are considering] where can we be a significantly better partner. There is a lot of work [and] it’s one of our corporate-wide priorities this year. There [are] detailed action plans.” (Scott Wine)
DEALERS: Too many?
“I think the preeminent Dealer network in North America is Honda. It’s really extensive, it’s really good. They’ve got a little bit more than we do. [For ORV] we want more better Dealers and [fewer] bad Dealers, of course. But we’ve got a very good plan to deal with that.
“The narrative that there are too many [Dealers] when you have a broad array of products like we have is simply incorrect. That said… it doesn’t matter if you have 700 or 1,700 – if you have undisciplined Dealers, when you don’t follow MAP pricing, you’re going to have [Dealer competition]. One of the efforts … is to make sure that we drive better consistency and performance to protect our brand and protect the pricing at the Dealers. Obviously there are… legal ramifications as we try to deal with that.” (Scott Wine)
There are more people that want to add Indian than we are willing to let have Indian.”
INDIAN: ‘No lack of demand’
The “pipeline looks great. There are more people that want to add Indian than we are willing to let have Indian. Our focus right now is driving profitability within our Indian dealerships, and the way we do that is [to] drive more volume in those dealerships. We have to be judicious and aware of how often we add [Indian] Dealers. Obviously, there is a long way to go in building out the overall Dealer network. We’re going to do that carefully, methodically.” (Scott Wine)
Efforts to push Victory owners to Indian: “We targeted about a third that would make the transition early on, and that seems to be about right. By far, most Victory customers are buying new Victorys – they are the best ones helping us flush out this inventory. But we still believe that we’ll be able to get a third of those over time.” (Scott Wine)
SLINGSHOT: ‘Not pleased’
“We’re not pleased with our performance in Slingshot and [we] are working to increase awareness of the product, Dealer engagement, and improve the quality of the vehicle.” (Mike Speetzen)
“Early excitement was good. We know that we did not get all of the performance and quality attributes right on this vehicle, and we have been working the last two years to address [this]. The model year 2018 product is going to be an improvement.” (Scott Wine)
We expected and did lose market share in off-road vehicles in the second quarter.”
OFF-ROAD: 18 products
“We have remodeled around 18 products [to be announced at the Dealer meeting in Las Vegas]. We feel better about our ability to compete, but we expected and did lose market share in off-road vehicles in the second quarter.” (Scott Wine)
Regarding the decline in the ATV sector: “I think everybody knows there were a million units in 2004-05 and it’s come down [since then]. We believe it’s about where it’s going to be. There is a lack of product news in ATVs… and innovation drives Dealer traffic and activity in the market. Most of the innovation is happening in side-by-side, most of the promotional activity is in side-by-side. And I think that’s what’s driving the near-term shift [to SxS]. But we do believe that the overall ATV market is going to be about flat to where it is right now, over time.” (Scott Wine)
“The agricultural sector “was down 7 percent in second quarter [vs. down 1 percent in Q2 2016] so that certainly doesn’t help when you think about the consumer base that we sell into.” (Mike Speetzen)
“General has been an exceptionally good product for us. We’re continuing to improve and refine it over time. The segment itself just offers a lot of opportunities for innovation.” (Scott Wine)