Stock Story -
Off-Road and powersports vehicle corporation Polaris (TSX:PIF) (NYSE:PII) fell short of the market’s revenue expectations in Q3 CY2024, with sales falling 24.1% year on year to $1.72 billion. Its GAAP profit of $0.49 per share was also 44.1% below analysts’ consensus estimates.
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Polaris (PII) Q3 CY2024 Highlights:
- Revenue: $1.72 billion vs analyst estimates of $1.77 billion (2.8% miss)
- EPS: $0.49 vs analyst expectations of $0.88 (44.1% miss)
- EBITDA: $159.1 million vs analyst estimates of $184.1 million (13.6% miss)
- Gross Margin (GAAP): 20.6%, down from 23.3% in the same quarter last year
- Free Cash Flow was -$32.4 million compared to -$77.4 million in the same quarter last year
- Market Capitalization: $4.47 billion
Leisure Products
Leisure 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 Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Polaris’s sales grew at a weak 2.9% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Polaris’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.7% annually.
This quarter, Polaris missed Wall Street’s estimates and reported a rather uninspiring 24.1% year-on-year revenue decline, generating $1.72 billion of revenue.
Looking ahead, sell-side analysts expect revenue to decline 2.5% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates the market thinks its newer products and services will not lead to better top-line performance yet.
Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.Polaris has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.9%, lousy for a consumer discretionary business.
Polaris burned through $32.4 million of cash in Q3, equivalent to a negative 1.9% margin. The company’s cash burn slowed from $77.4 million of lost cash in the same quarter last year . These numbers deviate from its longer-term margin, raising some eyebrows.