Investor Presentation November 2014
- 1. Investor Presentation November 2014 POLARIS INDUSTRIES INC.
- 2. Polaris Industries Inc. – A Global Corporation SALES $3.8 BILLION UP 18% NET INCOME* $381 MILLION UP 22% Total Company FY 2013 >7,000 Employees Worldwide 11 Manufacturing Locations 5 Research & Development Centers of Excellence ~1,750 Dealers In North America ~1,400 Dealers Outside North America >300,000 Units Shipped in 2013 >100 Countries – Polaris Products Sold * from continuing operations IR Nov-2014 2
- 3. A Global Corporation with Industry Leading Brands IR Nov-2014 3 2013 Sales by Geography Polaris Brands 2013 Sales by Product Line 67% 16% 8% 6% 3% OFF-ROAD VEHICLES MOTOR- CYCLES SNOW SMALL VEHICLES PG&A 72% 16% 12% PG&A Snowmobiles Small Vehicles Motorcycles ORV International Canada United States
- 4. Polaris Strategic Objectives Vision & Strategy Strategic Objectives VISION STRATEGY Fuel the passion of riders, workers and outdoor enthusiasts around the world by delivering innovative, high quality vehicles, products, services and experiences that enrich their lives. Polaris will be a highly profitable, customer centric, $8B global enterprise by 2020. We will make the best off-road and on-road vehicles and products for recreation, transportation and work supporting consumer, commercial and military applications. Our winning advantage is our innovative culture, operational speed and flexibility, and passion to make quality products that deliver value to our customers. Best in Powersports PLUS Global Market Leadership Strong Financial Performance Growth through Adjacencies LEAN Enterprise is Competitive Advantage 5-8% annual organic growth >33% of Polaris revenue >$2B from acquisitions & new markets Significant Quality, Delivery & Cost Improvement Sustainable, profitable growth Net Income Margin >10% Guiding Principles Performance Priorities Best People, Best Team Safety & Ethics Always Customer Loyalty Growth Margin Expansion Product & Quality Leadership LEAN Enterprise GROW SALES >$8 Billion by 2020 12% CAGR INCREASE NET INCOME >10% of Sales by 2020 13% CAGR IR Nov-2014 4
- 5. $116.9 $140.8 Q3 2013 Q3 2014 Q3 2014 Sales and Net Income Record 3rd quarter sales and net income* Motorcycles up 28%; PG&A up 24%; ORV sales increased 17%; Snowmobiles up 13% International up 9%; APLA up 40%; EMEA up 1% N.A. retail sales increased 12%; ORV, motorcycles & snowmobiles up strong Earnings per share* increased26% to a record $2.06 Operating income increased 23% to $222.6 million Net income margins* were up 21 bps to 10.8% $1,102.6 $1,302.3 Q3 2013 Q3 2014 Another Strong Quarter Q3 Net Income* Q3 Sales (in millions) (in millions) +20% +18% IR Nov-2014 5 * from continuing operations
- 6. Full Year 2014 Guidance Record sales and earnings projected for 2014 North American retail sales growth and market share gains continue Industry trends expected to remain unchanged for balance of 2014 Improving operational and commercial execution drives profitable growth IR Nov-2014 6 $3,777 2013 Actual FY 2014 Guidance $5.40 2013 Actual FY 2014 Guidance Increased Full Year 2014 EPS* Guidance Diluted EPS* Total Company Sales Up 17% to 18% $4,425 to $4,475 Up 21% to 23% $6.55 to $6.65 (in millions) * from continuing operations
- 7. Business Unit Performance IR Nov-2014 7 Snowmobiles Off-Road Vehicles PG&A SxS SxS SxS ATV ATV ATV 2012 2013 FY 2014 Guidance $283 $302 2012 2013 FY 2014 Guidance $196 2012 2013 FY 2014 Guidance $461 2012 2013 FY 2014 Guidance +13% $2,522 $2,226 +7% *Includes Kolpin acquisition in April 2014 Motorcycles Up mid- single digits % The All New Platform Up 13% to 14% Up 65% to 75% +12% $220 Up about 20%* +33%* $611 LOCK & RIDE® PRO-FIT™ X CAB SYSTEM Best in Powersports PLUS MY’15 ACE 570 MY’15 600 Switchback PRO-S MY’15 Indian Scout
- 8. Powersports Market Share IR Nov-2014 8 #1 Share Position in Major Powersports Markets EMEA Market Share 2006 2007 2008 2009 2010 2011 2012 2013 Consolidated Market Share in Units (Using Total Motorcycle Industry) Honda Harley Yamaha Kawasaki Can Am Deere Arctic Cat Suzuki Kubota KTM BMW Triumph Piaggio Ducati Best in Powersports Plus North American Market Share Off-Road Vehicles #1 Polaris #2 BRP #3 Kymco #4 Yamaha #5 CF Moto #6 Honda Motorcycles #1 Harley #2 BMW #3 Victory/ Indian #4 Triumph #5 Honda #6 Suzuki Snowmobiles #1 Ski-Doo/Lynx #2 Polaris #3 Yamaha #4 Arctic Cat NOTE: EMEA market share data is YTD thru June 2014; Motorcycles is Heavyweight Cruiser/Touring only
- 9. Commercial Defense Business Unit Performance IR Nov-2014 9 Small Vehicles $44 2012 2013 FY 2014 Guidance Sales 2012 2013 FY 2014 Expectations Sales 2012 2013 FY 2014 Expectations Sales Up 25% to 30%* +177% $123 DAGOR™ MY’14 Aixam Vision GRAVELY© ATLAS Adjacencies *Aixam acquisition included
- 10. Motorcycles Unveiled July 2014 2 models: Base & Premium (SL) $19,999 - $23,999 MSRP (U.S.) >360 dealers signed & committed Shipping expected to begin in November 2014 Extremely high initial interest >1 billion media impressions in first 4 weeks Assembly in Spirit Lake, Iowa Adjacencies IR Nov-2014 10
- 11. International IR Nov-2014 11 2013 International Sales by Geography 2013 International Sales by Product New Plant in Opole, Poland International Sales Expanding EMEA, Asia Pacific and Latin America 2012 2013 FY 2014 Guidance ORV 47% Small Vehicles 17% PG&A 16% *Includes Aixam Acquisition beginning 4/2013 Snow 13% Motorcycles 7% Up low-teens digits % +29%* $592 $461 Europe 73% Latin America 7% Asia 3% Aus / NZ 11% ME / Africa 6%
- 12. 2010 2011 2012 2013 2014 Expectations 3-Year CAGR +10.7% Operational Excellence IR Nov-2014 12 QUALITY SAFETY 2010 2011 2012 2013 2014 Expectations Delivering Major Improvements Across All Operations GROSS MARGINS DELIVERY Polaris Total Recordable Injury Rate 86% Improvement in 48 Months 26.6% 27.9% 28.8% 29.7% Down 20–30 bps 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 1000 2000 3000 4000 5000 6000 7000 2010 2011 2012 2013 2014 Guidance Materials Labor & Overhead GM % 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 0.14% 0.16% 0.18% 2010 2011 2012 2013 2014 Expectations Rework expected to be 21% from 2010 LEAN Enterprise is Competitive Advantage
- 13. Safe Harbor Except for historical information contained herein, the matters set forth in this document, including but not limited to management’s expectations regarding 2014 and 2015 sales, shipments, margins, net income and cash flow, the trend toward producing more of the Company’s own engines for its vehicles, the opportunities for expansion and diversification of the Company’s business, the impact of the repurchase of shares on the Company’s full year 2014 earnings per share and the Company’s guidance on earnings per share from continuing operations are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks and uncertainties include such factors as product offerings, promotional activities and pricing strategies by competitors; manufacturing operation initiatives; acquisition integration costs; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy and overall economic conditions, including inflation, consumer confidence and spending and relationships with dealers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in our 2013 annual report and Form 10-K filed by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to any person to provide updates to its forward-looking statements. The data source for retail sales figures included in this presentation is registration information provided by Polaris dealers in North America and compiled by the Company or Company estimates. The Company must rely on information that its dealers supply concerning retail sales, and other retail sales data sources and this information is subject to revision. IR Nov-2014 13
- 14. 14 Appendices IR Nov-2014 Slide Financial Performance 15 New MY 2015 Product Introductions 16 N.A. Retail Sales & Dealer Inventory – YTD Q3 2014 17 2014 Full Year Detailed Guidance 18 2014 Full Year Gross Margin Guidance 19 YTD Q3 2014 Balance Sheet and Liquidity Profile 20 Income from Financial Services 21 Global Manufacturing Operations 22 – 23 Polaris/Eicher Joint Venture (EPPL) 24 Customer Profiles 25
- 15. Return on Invested Capital Return on Assets Consistent Financial Performance IR Nov-2014 15 Sales & Net Income Return on Shareholder Equity Dividends (per share) 5-Year Total Return 13% 16% 20% 23% 24% 0% 4% 7% 9% 13% 10% 9% 6% 6% 7% 2009 2010 2011 2012 2013 26% 32% 42% 44% 43% 0% 6% 12% 15% 21% 7% 11% 12% 7% 8% 2009 2010 2011 2012 2013 $1,566 $1,991 $2,657 $3,210 $3,777 $1.53 $2.14 $3.20 $4.40 $5.40 2009 2010 2011 2012 2013 Sales EPS 594% 212% 89% 84% 70% Polaris Peer Avg. Russell 2000 S&P 500 DJIA 49% 40% 46% 45% 71% 2009 2010 2011 2012 2013 5-Year CAGR Sales = 14% Net Income* = 27% Polaris Peer Average (ACAT, BC, DE, HOG, WGO, TTC) S&P 500 Average $0.78 $0.80 $0.90 $1.48 $1.68 $1.92 2009 2010 2011 2012 2013 2014 5-year dividend payout $380 million Dividends increased 18% per year compounded annually for the past 5 years Expectation Oct. 26, 2009 – Oct. 24, 2014 * From Continuing Operations
- 16. 18 NEW Off-Road Vehicles 5 NEW Motorcycles IR Nov-2014 16 NEW Model Year 2015 Product Introductions Industry-Leading Products in All Categories PG&A Over 300 NEW MY’15 Accessories XP 1000 High Lifter Edition 900 TRAIL, 50” S 900, 60” 900 XC EDITION XP 4 1000 XP 1000 XP 1000 ACE 570 ETX X2 570 TOURING 570 SP TOURING XP 1000 ETX 570 570 FULL SIZE CREW 570 CREW 570 FULL SIZE XP900 MAGNUM ROADMASTER SLINGSHOT SL Two-tone Paint SCOUT
- 17. Q3 2013 Q3 2014 3% Existing Models 9% New models/ categories 3% New Dealers 15% Total Increase Polaris Q3 2014 Industry Q3 2014 N.A. Retail Sales & Dealer Inventory – Q3 2014 Dealer Inventory Adequate – Some 2015 High-demand Models Limited N.A. Dealer Inventory N.A. Powersports Retail Sales Best in Powersports Plus Polaris N.A. retail up 12% for Q3 2014 vs. Q3 2013 Gained share in all businesses - ORV, motorcycles and snowmobiles Polaris Q3 2014 N.A. dealer inventory up 15% vs. Q3 2013 ORV up mid-teens % - new models and market segments Motorcycles up low-double digits; Indian distribution and expanded product line; Victory down Snowmobiles up mid-teens percent – timing of shipments; new models +5% +12% IR Nov-2014 17 +15%
- 18. Improved Earnings Expectations 2014 Full Year Guidance METRIC GUIDANCE Product line sales Off-Road Vehicles Up 13% to 14% Snowmobiles Up mid-single digits % Motorcycles Up 65% to 75% Small Vehicles Up 25% to 30% PG&A Up about 20% International Up low-teens % Total Company sales Up 17% to 18% Gross profit margin Down 20 to 30 bps Operating expenses Down 50 to 70 bps Income from financial services Up about 25% Income taxes 34.5% to 35.5% of pretax income Net income from continuing operations Up 17% to 19% EPS, diluted from continuing operations $6.55 - $6.65 (+21% to 23%) Share count Down about 3% Change in Guidance Increased/ favorable Decreased/ unfavorable Unchanged Narrowed IR Nov-2014 18
- 19. METRIC Actual Q3 2013 Actual Q3 2014 Guidance FY 2014 Prior period 29.5% 30.4% 29.7% Production volume adjustments Product cost reduction efforts Commodity costs Currency rates Higher selling prices Product mix New plant start-up costs Warranty costs Tooling amortization Sales promotional costs Contract dispute charge in 2013 Current period 30.4% 29.8% 29.4% to 29.5% Change +84 bps -55 bps -20 to -30 bps 2014 Gross Profit Margin Guidance Improvement to gross profit margin % Impairment to gross profit margin % Neutral to gross profit margin % IR Nov-2014 19
- 20. Balance Sheet and Liquidity Profile $ In millions (except per share and rate data) YTD 2014 Fav / (UnFav) YTD 2013 2014 Full Year Guidance vs. 2013 Cash $169.0 ($218.8) Increase Debt / Capital lease obligations $228.0 ($120.8) Decrease Credit facility $350.0 Flat Unchanged Factory inventory $582.2 ($121.6) Increase faster than sales % Capital expenditures $146.5 $45.9 Lower, but > $200M Depreciation and amortization $91.0 $26.7 Increase about 40% from 2013 Operating cash flow from continuing operations $380.4 ($1.4) Increase at slightly higher % than net income Dividend (per share) $1.44 $0.18 Increase 14% over 2013 Polaris Acceptance receivables $1,072.4 ($220.6) Increase at slightly lower % than sales Retail credit – Approval rate – Penetration rate 57% 32% (1%) (2%) Approval rates stable; aggressive financing from other banks IR Nov-2014 20
- 21. Retail Credit Approval Rate Wholesale Credit PA Receivables ($M) Income from Financial Services IR Nov-2014 21 Income from Financial Services ($M) Ample Wholesale and Retail Credit Availability Retail Credit Penetration Rate Full Year income from financial services expected to increase about 25% Increased dealer inventories Higher retail credit income Polaris Acceptance 50/50 joint venture with GE for U.S. Dealer Financing 19-year joint venture contract for renewal in 2017 Three-year Avg. ROI = 29% Third party arrangements: Capital One – 2014, Synchrony Bank (formerly GE) – 2016 and Sheffield – 2016 No Credit or funding risk to Polaris Approval and penetration rates at acceptable levels Other Other Wholesale Credit Wholesale Credit Retail Financing Retail Financing 2012 2013 2014 Expectations $34 $46 Up about 25% $767 $928 $1,072 2012 2013 YTD Q3 2014 60% 58% 57% 2012 2013 YTD Q3 2014 34% 32% 32% 2012 2013 YTD Q3 2014
- 22. Global Manufacturing Operations IR Nov-2014 22 Expanding into Europe and Asia Current Polaris MFG Locations Future Polaris MFG Locations Monterrey MEXICO SxS, Engines Spirit Lake/Milford IOWA SxS, Motorcycles, GEM, Commercial Roseau MINNESOTA Snow, ATV, SxS Osceola WISCONSIN Engines Bourran FRANCE Goupil Chanas, Aix-les-Bains FRANCE Aixam Mega Opole POLAND ATV, SxS Jaipur INDIA Eicher JV
- 23. 23 NEW European Manufacturing in Opole, Poland IR Nov-2014 Grand Opening September 23, 2014 First Polaris plant dedicated to manufacturing Off-Road Vehicles outside of North America 345,000 square-foot facility 300+ Employees Shipments expected to begin in Q1 2015 Anticipated annualized savings $20+ million at maturity
- 24. Next Steps JV Overview Polaris/Eicher Joint Venture (EPPL) IR Nov-2014 24 Partner Overview $1.3 Billion Revenue Established in 1959 Commercial Vehicles JV w/ Volvo Top 3 Market Share Iconic Brand Market Leader 300CC+ 178,000 Sold in 2013 50% growth 50/50 JV, $50M Investment Signed July 2012 New Operating Team New Product Development New Operational Footprint New Distribution Channel Global Emerging Market Focus Building a Partnership and Foundation in a Critical Long Term Growth Market Q3 ‘14 Dealer Recruitment Q4 ‘14 New Factory Complete Q1 ‘15 Market Launch Q2 ‘15 Start of production NEW Manufacturing Plant in Jaipur, India (180,000 sq. ft.)
- 25. Customer Profiles OFF-ROAD VEHICLES MOTORCYCLES SNOWMOBILES Average Age 49 43 44 47 52 42 Income ~$100k ~$100k ~$90k ~$90K ~$100k - $125k ~$90K Male / Female 95% / 5% 90% / 10% 90% / 10% 75% / 25% 90% / 10% 90% / 10% Primary Usage Mostly Work Farming/Ranching Property Maint. Rec/Trail Hunt Mostly Play Rec/Trail Dunes Property Work & Play Rec/Trail Property Maint. Hunt Rec/Trail Hunt Utility Cruising Day trips Around town Commute Recreation on & off trail IR Nov-2014 25