Stock Story -
Off-Road and powersports vehicle corporation Polaris (TSX:PIF) (NYSE:PII) fell short of analysts' expectations in Q2 CY2024, with revenue down 12.3% year on year to $1.96 billion. It made a GAAP profit of $1.21 per share, down from its profit of $2.32 per share in the same quarter last year.
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Polaris (PII) Q2 CY2024 Highlights:
- Revenue: $1.96 billion vs analyst estimates of $2.17 billion (9.8% miss)
- EPS: $1.21 vs analyst expectations of $2.27 (46.7% miss)
- Lowered full-year 2024 sales and adjusted EPS guidance
- Gross Margin (GAAP): 21.6%, down from 23.5% in the same quarter last year
- Free Cash Flow of $79.1 million is up from -$177.5 million in the previous quarter
- Market Capitalization: $4.64 billion
Leisure ProductsLeisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Polaris grew its sales at a weak 4.6% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Polaris's annualized revenue growth of 4.1% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
This quarter, Polaris missed Wall Street's estimates and reported a rather uninspiring 12.3% year-on-year revenue decline, generating $1.96 billion of revenue. Looking ahead, Wall Street expects sales to grow 2.3% over the next 12 months, an acceleration from this quarter.
Cash Is King If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Polaris has shown poor cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 4.5%, lousy for a consumer discretionary business.
Polaris's free cash flow clocked in at $79.1 million in Q2, equivalent to a 4% margin. This quarter's margin was in line with the comparable period last year.
Key Takeaways from Polaris's Q2 Results We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street's estimates. It also lowered its full-year 2024 sales and adjusted EPS guidance. Overall, this was a bad quarter for Polaris. The stock traded down 10.4% to $73.59 immediately after reporting.
