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ATV/UTV Q4 earnings show ATV, UTV retail sales drop Polaris Industries Inc. reported its fourth quarter 2016 sales of $1,217.8 million, up 10 percent from $1,105.6 million for the fourth quarter of 2015. Fourth quarter 2016 reported net income was $62.6 million, or $0.97 per diluted share, compared with $110.7 million, or $1.66 per diluted share, for the 2015 fourth quarter. Adjusted net income for the quarter ended December 31, 2016, excluding purchase accounting adjustments and certain costs related to the acquisition of TAP, was $76.1 million, or $1.18 per diluted share. For the full year ended December 31, 2016 the company reported sales of $4,516.6 mil- lion, a decrease of 4 percent versus $4,719.3 million in the prior year. Reported net income was $212.9 million, or $3.27 per diluted share, compared with $455.4 million, or $6.75 per diluted share, for the full year 2015. Adjusted net income, excluding purchase accounting adjustments and certain costs related to the acquisition of TAP was $226.5 million, or $3.48 per diluted share, for the year ended December 31, 2016. On Nov. 10, 2016, Polaris completed the acquisition of TAP, a vertically integrated man- ufacturer, distributor, retailer and installer of off-road Jeep and truck accessories, for an aggregate consideration of $669 million. "2016 was a difficult and challenging year for Polaris, but our culture is geared to deal head on with adversity and learn from it, and that's what we did in 2016. In response to a series of recalls, we took the necessary steps to ensure that Polaris vehicles deliver the quality, safety and performance that our customers expect. We are relying on these enhanced improvements, consistent execution, and aggressive innovation to regain our footing as the 'Best in Powersports'," chairman and CEO Scott Wine said. "Our team worked incredibly hard in 2016 to serve our Off-Road Vehicle customers and dealers, and that work is accelerating into 2017. It is a very competitive ORV market and we will aggressively execute and revitalize our broad set of tools that built the most successful armada in powersports. Significant progress was made across our businesses, including mid-20 percent growth in Indian Motorcycle retail sales and an 8 percent reduction in dealer inventories year-over-year, while at the same time, reducing factory inventory 16 percent excluding acquisitions, and improving operat- ing cash flow by 30 percent in 2016. Further, we completed the Taylor Dunn acquisition in the work space and TAP in the aftermarket space, executing our strategy to enhance profit- able growth opportunities in adjacent markets. We continued to enhance our Quality and Safety organization, production in our new facility in Huntsville, Alabama is ramping up to become the enabler to our go to market Retail Flow Management (RFM) process, and lean initiatives across our network drove approxi- mately $150 million in gross Value Improve- ment (VIP) savings during the year." "The entire Polaris team is committed to superior execution, improved product safety and quality, enhanced dealer relations, and earning the trust our customers and stake- holders place in the Polaris brand, in 2017 and beyond. We are accelerating our research and development investments to again win the ORV product game, focusing on the suc- cessful integration of TAP, and developing our competitive position in Motorcycles, all of which will drive increasing shareholder value in the future." Off-Road Vehicle and Snowmobile seg- ment sales, including their respective PG&A related sales, were $905.0 million for the fourth quarter of 2016, compared with $862.0 million for the fourth quarter for the prior year. Gross profit decreased one percent to $259.2 million, or 28.6 percent of sales, in the fourth quarter of 2016, compared to $262.8 million, or 30.5 percent of sales, in the fourth quarter of 2015. Gross profit percentage declined primarily due to higher promotional spending and increased warranty expense. ORV wholegood sales for the fourth quarter 2016 increased three percent as the company's model year 2017 vehicle revalidations were completed and shipments resumed, including the RZR Turbo vehicles, which have higher average selling prices. Polaris North American ORV unit retail sales for the fourth quarter 2016 were down mid-single digits percent from the 2015 fourth quarter, which included consumer purchases for side-by-side vehicles down low-single digits percent and ATV retail sales down about 10 percent. The North Amer- ican ORV industry was flat compared to the fourth quarter last year. ORV dealer inventory was down 11 percent in the 2016 fourth quar- ter compared to the same period last year. Snowmobile wholegood sales in the fourth quarter 2016 increased 13 percent due to the timing of shipments, year-over-year and a favorable mix of higher priced snowmobiles shipped during the quarter. Motorcycle segment sales, including its PG&A related sales, decreased 35 percent in the 2016 fourth quarter to $105.7 million. Both Indian and Victory reported lower sales in the fourth quarter due to difficult comparables as product availability for all brands improved significantly in the 2015 fourth quarter, and as the company reduced motorcycle produc- tion in the 2016 fourth quarter to complete the final paint system upgrade in Spirit Lake, Iowa. Slingshot sales were down due to low product availability related to recall activity. Gross profit for the fourth quarter 2016 decreased 94 percent to $1.6 million compared to $24.0 mil- lion in the fourth quarter of 2015 due to lower production rates and higher warranty expense. North American consumer retail demand for the Polaris motorcycle segment, includ- ing Victory, Indian Motorcycle and Slingshot, was down mid-single digits percent during the 2016 fourth quarter while the overall motor- cycle industry retail sales, 900cc and above, declined low-single digits percent in the 2016 fourth quarter. Indian Motorcycles retail sales increased about 20 percent while Victory retail sales were down mid-single digits percent during the quarter. Slingshot retail sales were down significantly due to tough comparable in the fourth quarter last year as the Company experienced unseasonably strong retail sales in the initial year of Slingshot product availability in 2015. Gross profit increased one percent to $312.8 million for the fourth quarter of 2016 from $310.3 million in the fourth quarter of 2015, including the negative impact of $8.8 million in purchase accounting adjustments related to the TAP acquisition. As a percentage of sales, gross profit margin was 25.7 percent compared with 28.1 percent of sales for the fourth quarter of 2015. Adjusted gross profit was $321.6 million, or 26.4 percent of sales. PSB Wine: 2016 'difficult and challenging' for Polaris 20 • February 13, 2017 • Powersports Business www.PowersportsBusiness.com Models like the 2017 Polaris Sportsman 6x6 Big Boss 570 EPS figure to boost an off-road industry that was flat in the fourth quarter of 2016. Polaris ATV retail sales in North America were down 10 percent in Q4, compared to Q4 2015.