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On Tuesday, 04 March 2025, Polaris Industries (NYSE: PII) presented at the Raymond James & Associates’ 46th Annual Institutional Investors Conference. The company discussed its strategic direction amidst a tough economic landscape, highlighting both the hurdles it faces and the steps it is taking to maintain its market leadership. Key points included a significant revenue decline and proactive inventory management, with a focus on innovation and operational efficiency.
Key Takeaways
- Polaris experienced a revenue decline of nearly $2 billion, attributed to slowing category growth.
- The company is investing 4.5% of its revenue in research and development to drive innovation.
- A focus on cost reductions aims to save $40 million in 2025, with plans to generate $300 million in cash through inventory improvements.
- Tariffs present a significant challenge, with $60-70 million in expected costs, prompting inventory repositioning and potential production shifts.
- Despite challenges, Polaris remains committed to its dividend and aims to maintain its status as a dividend aristocrat.
Financial Results
- Revenue Decline: Polaris reported a significant revenue drop of almost $2 billion, driven by a slowdown in category growth.
- R&D Investment: With 4.5% of revenue allocated to R&D, Polaris is dedicated to maintaining its edge in innovation.
- Dividend Commitment: The company has increased its dividend for 29 consecutive years, reflecting confidence in its cash flow.
- Cost Reduction Target: Aiming for $40 million in cost savings, Polaris is focusing on operational efficiencies.
Operational Updates
- Innovation Focus: Polaris continues to innovate across all categories, including motorcycles, boats, and comfort vehicles.
- Dealer Network: With approximately 4,000 dealers globally, Polaris is committed to maintaining their financial health.
- Production Strategy: 60% of off-road vehicle production occurs in Mexico, but the company is considering shifts to the U.S. to mitigate tariff impacts.
- Supply Chain Adjustments: Efforts are underway to reduce reliance on Chinese supply chains, though this transition will take time.
Future Outlook
- Retail Environment: The first half of 2025 is expected to be challenging, with potential stabilization later in the year.
- Consumer Confidence: High debt levels, interest rates, and inflation are affecting consumer behavior, a trend Polaris is closely monitoring.
- Tariff Mitigation: Strategies include evaluating surcharges and potential production shifts to address tariff-related pressures.
Q&A Highlights
- Tariff Exposure: With significant off-road production in Mexico, Polaris is taking steps to mitigate tariff impacts, including inventory repositioning.
- Bonus Program Impact: Changes in the bonus program create a $100 million headwind, affecting EBITDA margins.
- Production vs. Retail: Polaris is intentionally shipping fewer products than retail demand to reduce dealer inventory.
In conclusion, Polaris aims to emerge stronger from current market challenges by leveraging innovation and strategic cost management. For more detailed insights, readers are encouraged to refer to the full conference call transcript.
Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:
Joe Alf, Fellow Leisure Research Analyst, Raymond James: All right. Good morning, everybody. Thank you for joining us. I’m Joe Alf, fellow Leisure Research Analyst here at Raymond James. And I’m very pleased to introduce our next presentation from Polaris.
Today, we have CEO, Mike Spitzen and CFO, Rob Mac. Welcome to you both. Polaris is a leader in the powersports and marine industries with a presence in off road vehicles, snowmobiles and motorcycles as well as pontoon and deck boats. The past few years have been a challenge for both the company and the industry as how to navigate a softening post COVID demand and heightened dealer inventories. As we look ahead into 2025, the removal of election uncertainty and the prospect of lower interest rates could serve as tailwinds, though there are still a number of caution marks, including tariffs, which we’ll talk about later.
We’ve got the backdrop. Mention does have a few slides if you’d like to go over to provide an overview of the company, after which we’ll dive into a fireside chat format and there will be a chance for the audience to ask questions. And with that, let me hand things over to Mike.
Mike Spitzen, CEO, Polaris: Thanks, Joe. Thanks for everybody coming. I’m just going to cover a little bit of who we are, what we’re focused on in 2025, what we think the value proposition and then we’ll open some Q and A with Bob. Joe did a nice job of introducing us. We are the number one player in Power Sports.
Next competitor, we’re larger than by a factor of two. So that provides a pretty good position. You can see the breakdown. Obviously, our off road vehicle business is the predominant portion of the portfolio and where we hold pretty much number one across the board. Innovation is the lifeblood of our company.
Really don’t have to look too far. Over the past three years, we’ve reinnovated in just about every category across the entire platform, whether it’s motorcycles, boats, comfort vehicles. We’ve also gone into new categories that competitors are not present in, things like the Polaris Expedition as well as the Ranger Extreme Duty vehicle. And so I think it’s a testament to the fact that it’s a big focus for us. It’s up 4.5% of our revenue that we put into R and D in an area that we work really hard to preserve no matter how tough the external market conditions are.
You see our financial performance for last year, not a great year by any stretch. We saw revenue decline by almost $2,000,000,000 and it was really driven by the fact that we had our categories slowing and we took the lead in making sure that we right sized dealer inventories. Luckily, a majority of our competitors either followed suit or have followed suit, which is really important because we share a dealer network. About 70% of my dealers, we’ve got one or two or three of our competitors in it, usually are the largest component of their sales. And given a slowing consumer market and raising interest rates, it was imperative to make sure that we managed shipments to get that to our inventory in a much better position.
Now, I’ll make another comment on that. Our dealer inventory was not out of control by any measure. We look at case sales outstanding as one of many measures. If you peak in 2024, we were at about 130 to 135 case. That is still below where we were pre pandemic.
But given higher ASPs on the vehicles and given higher interest rates and what we saw as a slowing broader macro as well as consumer discretionary, we knew that we needed to get the inventory count down even further. And that’s why we really targeted to get around one hundred days of supply. Feel good about where we ended the year. And really in 2025, our big focus is making sure that the snowmobile inventory levels, which are relatively small to the whole category, will continue to get right sized. We’ve got a strategically global footprint, which I think in times like this when we’ve got the tariffs going on can serve as an advantage
Rob Mac, CFO, Polaris: because we’ve got the ability
Mike Spitzen, CEO, Polaris: to move production if we need to. It’s not simple and it’s not for free, but it does give us some
Rob Mac, CFO, Polaris: of that flexibility because we
Mike Spitzen, CEO, Polaris: don’t have a high level of concentration. We do have a pretty sizable U. S. Footprint. Capital discipline in terms of how we deploy the cash flow.
The number one priority for us is investing in ourselves, whether that’s in the capital and the facilitation that we have or the R and D that really drives the innovation in the company. We know that we get the best payoff there. Between capital to shareholders is a top priority. I’m proud of the fact that we’ve got now our twenty ninth year of an increasing dividend. We’re a dividend aristocrat.
We feel that that’s important to a subset of our shareholders, but I also think it’s important to everybody because it demonstrates the strength and confidence we have in our cash flow generation. Doing anything different with the dividend as we got into guidance for 2025 wasn’t even
Rob Mac, CFO, Polaris: a question.
Mike Spitzen, CEO, Polaris: It was a given. And so we’ll remain committed to that as we move forward. And then obviously, share repurchases and M and A become that third lever. Right now, both are in a bit of a pause as we assess the current environment. And I can tell you that M and A is probably in the way, way off in the background.
I couldn’t see pursuing anything at this point. If we were to see extra cash flow, we’re going to take that down or we would lean into share repurchases. And then on the right are just some stats about the company. We’ve got 15,000 employees. We actually did take a reduction in force last year given the slowing market conditions.
We took out about 10% of our workforce, both hourly and salary. We used it as an opportunity to slim down our organization. We took out about 20% of our Vice President level. And we did that to allow Bob and I to be a lot closer to each of the segments of our business. And quite frankly, if you get the business ready for when the rebound comes, we’ve got the ability to leverage into that.
In the two step distribution, we work through a global dealer network. You can see there’s about four four thousand dealers across the globe, 2,500 in North America. And we work hard to cultivate these dealers, build relationships as well as make sure that they remain financially viable. And I’m proud of the work we’ve done over this past year and we’ll continue to do in 2025 to make sure we protect one of our most strategic assets. This is a breakdown of the company, 7,200,000,000 in revenue last year.
You can see almost 80% of our revenue comes from off road vehicles. You can see the brands underneath in terms of RZR, Ranger, Expedition, Sportsman, ATV. This also includes our snowmobile business. Snow has been pretty heavily impacted the last couple of years as a result of the poor snow conditions. Interesting snow has actually started to pick up in the Midwest.
It’s a little late to sell snowmobiles. A lot of people aren’t going to see that risk, but it does mean people are out riding again, which is good because we see it show up in oil and parts sales as well as selling jackets and ski gear. Off road or on road is about 14% of the portfolio.
Joe Alf, Fellow Leisure Research Analyst, Raymond James: This is actually four different businesses
Mike Spitzen, CEO, Polaris: in there. You’ve got Slingshot. Slingshot is primarily a North American product, almost entirely U. S. Some sales into Mexico.
You’ve got Indian Motorcycles. Indian is very global, 40% of Indian retail goes into Europe and Australia. And then you have Ekman Gautil. Ekman Gautil are French based businesses. These are small vehicles.
Ekman Gautil is all electric delivery vans. And Ekman is essentially, it looks like a smart car, but made for more rural areas and dense cities and for people who don’t have driver’s license, they’re technically considered a scooter. And then our marine portfolio, which makes up about 7% of revenue. It’s interesting, this business has seen some pretty significant reductions as the market slowed. We were one of the first to get out in front of inventory challenges with our dealers.
We feel good about where we’re at. We have reinnovated every platform across many of you drive through hurricane. We were just at Miami Boat Show, very positive reception to a lot of the new products that the Hurricane business is coming out with. We’ve got a competitor who has a marine platform that we’re trying to sell, we’re losing a ton of money on. We make a ton money in this business.
Even at the low points we’re at right now, we’re still making high single digit EBITDA in this business. Strong cash flow, we’ve repaid a portion of the original investment we made back in 2018. So really proud of that portfolio. So in terms of our focus in 2025, you know, work and I talked about this a lot. I’m not going to belabor it, but making sure that they remain healthy, that we mind.
I just was with our number one tour network right now, meeting the new CEO and operating guys who’ve been there for a long time. We’ve always had a really strong relationship. And they remarked on how we are number one in terms of our sales team, number one in terms of ease of doing business, and they stressed that we just got to continue to work that partnership. They also stressed that we’ve got to make sure innovation remains top of mind. It’s why Polaris became number one coming out of the financial crisis in ’eight and ’nine.
And we know that’s important and we’re not going to back off. We fell behind back in 2016, ’20 ’17 and allowed some of our competitors to come in some key segments. We are now back in front. We’ve innovated in categories others don’t have. So they’re going to have to catch up and we’re going to continue to maintain that lead.
The other thing we’re going to do is stay focused on making our company better. We developed a lot of bad habits during COVID, supply chain disruption, trying to get products out, doing anything we could get product into the hands of our dealers and ultimately our consumers. The reality is we probably didn’t have the best habits before that. And so we’ve really taken a step back and we’re starting down in our factories with reinvigorating a truly environment. And And it is not some super complicated, sophisticated thing.
This is about making life easier for the operator who is assembling our vehicles. Some of it is as simple as how we move and position components that they need to add to the vehicle at the line. Complex because we have a big plant network and we’ve got a lot of folks that have to get trained as we go through this. But we’ve already seen improvements coming through our rolled first pass yield through the factories. Our schedule attainment has improved better than where we were at before COVID happened.
So our confidence and ability to deliver coming out of our factories is raising. Now it’s about driving efficiency. We saw that last year. We saw massive volume declines. And when you look at the EBITDA drop rate, we held that thing to around 30%.
And quite frankly, we’re doing the same again in 2025. And I think that’s a testament to the team’s ability to really get
Joe Alf, Fellow Leisure Research Analyst, Raymond James: in there and get
Mike Spitzen, CEO, Polaris: after costs. And then the last thing is really driving working capital improvements. We talked about this on the earnings call. Cash is king right now. We had a lot of inefficiencies from an inventory standpoint.
We’re working through all that, both in raw as well as finished goods and getting that work down to the free cash flow. That gives us the ability to make some decisions around debt pay down or share repurchases depending on where the broader macro is heading. So we’re crystal clear, not that we’re not going to pay attention to obviously everything that’s going on with tariffs and the broader macro, we certainly do. But we’re going to really focus in on controlling all the levers that we have to make sure that we’re keeping our business in a great spot and that we’re positioning the business to come out of the powersports recession in a much better spot. This is our strategy.
It’s pretty simple. It’s about delivering for customers. It’s about making sure that we maintain and even widen the gap between number two and the power sports and really make sure we’re doing everything we can to position the company for the long term. And then the last thing I want to talk about is why invest in Polaris. Now we’re going to have a Capital Markets Day next week, so I’d encourage you if you have the opportunity to dial in.
You’ll hear a lot more from me. You’ll hear from Bob. You’ll also hear from Mark Suarez. Mark runs operations for our off road business. So you’ll get an opportunity to hear a little bit more about the we’re doing inside the company to make sure that we’re running the business much better.
Obviously, when I look at the value that this company should be at, there’s some things in the near term that are in the way. I mean, tariffs is certainly the elephant in the room that we’re going to have to address. But once we get through that, I think the key is looking at this business, we’ve got the best dealer network offer. And that’s created a pretty big moat. When you look at the level of innovation in the pure comments we have in the industry in terms of setting the tone, defining new categories and then continuing to evolve those categories to put us in a better position, that is something that we’ve regained the lead in, we’ve regained the confidence and commitment in, and we’ll continue to push that going forward.
We are focused on improving business. I know it’s tough to sit here and talk about that when we just had a $2,000,000,000 drop in revenue and we’ve got a challenging $25,000,000,000 But as we get to the other side of this and the business starts to grow again, which we’re confident that the market will, we believe that we’re going to be in a position to deliver much better sustained margins and get ourselves up into that 2019 EBITDA. And then from a capital deployment balance sheet perspective, ROIC doesn’t look great to me because of where we’re at from an earnings standpoint.
Rob Mac, CFO, Polaris: But if
Mike Spitzen, CEO, Polaris: you look back over the last couple of years, you look at the trajectory that we’ve got as a company, it’s a really good investment return. And with the capital deployment strategy around investing in the company that generates high returns as well as the dividend as well as share repurchases, that puts us in a really little bit to that. So with that, I’m going to turn it over to Joe and we’ll go through any questions.
Joe Alf, Fellow Leisure Research Analyst, Raymond James: Thanks for that, Mike. This first question, you touched on this a little bit in your prepared remarks, but the retail environment sounds like you’re expecting that to continue to be challenging. How do you see that playing out for the full year? And maybe how does that differ between the first half and the second half?
Mike Spitzen, CEO, Polaris: I mean, before tariffs entered the equation, I think we the trajectory we were seeing in the fourth quarter, we weren’t expecting to all of a sudden, because January 1 hits, move back in a different direction. So we knew that the first half of this year was probably going to continue to be challenging. And then the view was
Rob Mac, CFO, Polaris: that we’d start to stabilize as we got into the back half.
Mike Spitzen, CEO, Polaris: Now snow is a whole different category within that, but I’m talking more broadly around what we were expecting for the motorcycles ORV and the Marines portfolios. Keros has put a whole different lens across this, both specific to the company in terms of how do we handle the costs that get added as a result of the increase coming out of China as well as Mexico and Canada and then the retaliatory. But I think it’s a bigger question around the health of the consumer. Consumer confidence was already low. We knew that consumers are struggling because they’ve got elevated debt levels, interest rates are high, inflation is persistent.
In our earnings call, I made a comment about inflation being around 2.5% and then I think right after that the print came out at 3%. Percent. So it’s actually kind of moved in the wrong direction. And I think there’s a broad consensus that tariffs really remain in effect, especially with Mexico and Canada, inflation is going to start to move back up. And I think that’s why you see the market impacting the way it is both to our category but even more broadly.
So it’s really tough to make a call on the consumer right now. It certainly is getting worse, not better. And so we’re spending a lot of time
Joe Alf, Fellow Leisure Research Analyst, Raymond James: thinking through
Mike Spitzen, CEO, Polaris: both near term and long term and how we contend with the tariffs and the relevant moves that we’re going
Joe Alf, Fellow Leisure Research Analyst, Raymond James: to have to make. So the EPS trends for this year is $1.1 obviously didn’t anticipate any additional tariffs we’ve seen go in place today. Can you talk about what your exposure is on the tariff front? What you could possibly do to mitigate that?
Mike Spitzen, CEO, Polaris: Yes, I mean, we went through a lot of numbers on the earnings call, so I kind of point you back to that. I mean, the key is we’ve got about 60% of our off road production comes out of Mexico. It’s about a third of the production for the company because we’ve got other businesses that are solely located in The U. S. We’ve done a couple of things.
There were near term things that we did where we got as much content on the water coming from China because there is a grace period before they will enact the China tariffs. And we also repositioned a fair amount of inventory out of Mexico up into Laredo, Texas. We have a pretty good flow where stuff coming out of our factory moves to our distribution centers. We keep that flow up. We push our production schedules as much as we could.
And then we also tend to have vehicles that are going through a light rework process, having decals and hang tags and things like that put on. We’ve positioned all that into Texas to allow us to avoiding tariffs.
Rob Mac, CFO, Polaris: And when you take that plus, we’ve had about
Mike Spitzen, CEO, Polaris: one hundred days of inventory sitting at our dealers. We should be able to insulate consumers at least from a short term price impact. The reality is if there’s a 25% tariff on vehicles on shipping up from Mexico, we’re going to have to figure out what a surcharge is. And the team is working through that. We’ve had some preliminary numbers and strategies around which categories and where.
If this looks like it’s going to be more sustained, probably a couple of steps we would go through in terms of production moves out of Mexico. First of all, we could move everything, but that takes years. I mean, our square footage down
Joe Alf, Fellow Leisure Research Analyst, Raymond James: in Mexico is 2x what
Mike Spitzen, CEO, Polaris: we have at our Huntsville, Alabama plant. There are some near term things
Rob Mac, CFO, Polaris: that you
Mike Spitzen, CEO, Polaris: can move that leverage the existing lines that we have in Huntsville that we would obviously look at as a potential. But it’s not free and it’s not easy. And I sure want to make sure that these things are in place for the long term before I go and commit us to spending that. Now it’s hard to I mean these things just went in place. We’re trying to watch the news as much as we can.
Canada and China were quick to retaliate. Canada put theirs in two steps. And I think that just reflects that they think there’s a chance that something can get negotiated away in between. Mexico came out and said they’re going to put theirs in place on Sunday. So I’m still holding out a little bit of hope that at least from a North America standpoint, we come to a different conclusion.
I think China, I think that’s going to stay in place. And we’ve been under tariff regime since 2018.
Rob Mac, CFO, Polaris: I think we talked about in
Mike Spitzen, CEO, Polaris: our guidance that we had $60,000,000 or $70,000,000 worth of tariffs built in from the list three zero one, one, two, three and part of four. And we have been working that down. We worked out a couple of hundred million dollars of impairment out of China. We’ve gone to alternative sources. So we still have about $500,000,000 coming into the company, half of that goes into Mexico, half goes into The U.
S. That half into The U. S. Is what fell under the prior tariff regime. We have continued plans to migrate out of China.
The reality is that the supply chains were built up over decades. You don’t just turn around and get out of them in a matter of a year or two. But the team has plans in place. It doesn’t just completely out, but it does take the level of exposure down pretty dramatically. I’ve been anointed Bob.
He’s gotten the benefit of being the head of our tariff team. It touches so many different parts of the business, but he sits in a good spot to be able to understand all the implications. We are looking at everything. I mean, we’re looking at transfer pricing. We’re looking we looked heavily at free trade zones.
Those obviously aren’t going to work under this new tariff methodology. And then we’re looking at what do we do in Washington. I don’t think now is the time. I think there’s enough stuff going on. They’re not necessarily paying a lot of attention, especially to small companies like us.
There will come a time when we have to be in D. C. Making our voice heard and continuing to carry the banner. But they’re the only American powersports company and we need to make sure we’re not getting disadvantaged by the policy.
Joe Alf, Fellow Leisure Research Analyst, Raymond James: You mentioned surcharges. Have those gone in place?
Mike Spitzen, CEO, Polaris: Yes. We’ve gone through an evaluation process. It’s tricky. It impacts how much promo you put in place. So there’s a number of things.
And the team’s come up with a first pass that that Rob and I also have a fair amount of time running through with them.
Rob Mac, CFO, Polaris: Like Mike said, I mean, we’ve got one hundred days of inventory on average in the dealers. We’ve got a fair amount of products sitting in Texas right now from the Mexico plant. And then 40 plus percent of our off road business is made in The U. S, snowmobiles are made in The U. S, Indian motorcycles are made in The U.
S. So, we’re not as exposed to some of our competitors to Mexico. I think we didn’t talk about Terrafly stealing aluminum tariff. What you’re probably hearing as you’ve been hearing a couple of days, the bulk of the tariff really is on imported raw steel and aluminum from outside The U. S.
Most U. S. Companies don’t import a tremendous amount of foreign steel and aluminum. But U. S.
Providers raise prices immediately to match what it would cost bringing in tariffs. So we’re about 60% hedged right now for our for the year. So we’ve been able to mute some of that impact. We’ve actually done some more advanced five tariffs, same thing with aluminum. So I think relatively muted impact of the steel and aluminum tariffs.
The piece that isn’t getting as much tension. There’s a derivative tariff on components coming in that have steel and aluminum content in them.
Joe Alf, Fellow Leisure Research Analyst, Raymond James: That’s a
Rob Mac, CFO, Polaris: little more challenging. If you’re trying to figure out well how much if you’re bringing something in from Germany, how much steel is in it and it’s German steel, so it’s going to be tariff. And so it’s not in place it’s in place theoretically, but like government in its wisdom does not know how to calculate it yet. So they have deferred the tariff until they can actually figure out how to charge it. So that one is a little more complicated.
We don’t think that’s going to have significant impact on us at the moment.
Joe Alf, Fellow Leisure Research Analyst, Raymond James: So if you think about your off road vehicle business, your largest competitor is actually relatively more exposed tariffs since you in Mexico and Canada. On the flip side, other competitors are primarily Japanese, which somehow get around the tariffs. So does that put you at a disadvantage relative to those other tariffs?
Mike Spitzen, CEO, Polaris: Yes, I mean, it’s part of the argument we made back in 2018 and ’nineteen. We did, at that time, under the prior Trump administration, we did get some dispensation. I think they gave us about a year, year and a half of exemptions on a portion of the tariffs. But the message was loud and clear that get out of time. Now I think they understood that there’s a portion of the supply chain that doesn’t exist elsewhere and we’re going to have to work through that.
And hopefully, we can demonstrate to them that we took them serious and we did make moves. It is certainly creating some disparity in the marketplace. And it’s disadvantaging the two largest players and favoring some of the smaller guys.
Rob Mac, CFO, Polaris: There is as you look at some of the Japanese players have assembly facilities in Mexico as does the one Chinese player in the market CFMOTO. So they’ll have to deal with the Mexico tariffs the same way we do. CFMOTO will also have to deal a lot of their production comes directly out of China. And now the two successive 10% tariff increases on China that covers every product, those will apply to them. So it will be relatively, I think the level field with pockets of advantage and disadvantage depending on where people manufacture stuff.
I think the challenge is going to be to Mike’s point, really working through that with the administration and Congress to make sure they understand some of what they’re doing, while not intentional, is creating anomalies in the marketplace that could actually disadvantage U. S. Companies. So if
Joe Alf, Fellow Leisure Research Analyst, Raymond James: I look at your EBITDA margin outlook for this year, this was before tariffs obviously, but it was calling for upwards of about a two point reduction year over year from ’24 to ’25. This is a little bit like asking, this is a link in how the trade was, but if we put tariffs aside, can you talk about some of the puts and takes from a margin standpoint that you’re seeing this year?
Rob Mac, CFO, Polaris: Sure. So, one of the anomalies we had, Polaris, if you’re not familiar with the company, Polaris’ bonus program is kind of broader and deeper than most companies. It’s kind of how the was historically run. We have a profit sharing program that we pay down to all the way to the factory employees in The U. S.
And then management employees around the world. In 2020, the 2023 year, 2023 is kind of a challenging year coming out of COVID, like kind of a 75% year. 2024, we paid a 50% bonus. And so coming back into 2025, there’s about a hundred million dollars headwind between cash and just the repricing not repricing, but equity compensation just with the lower stock price, the GAAP accounting for that got a little more expensive. So
Joe Alf, Fellow Leisure Research Analyst, Raymond James: that’s
Rob Mac, CFO, Polaris: a headwind and it shows up through the whole business because a lot of it comes to COGS because it’s factory employees. So that was a big part of it. If you really look at a normalized ’24 versus ’25 from the dynamics of the bonus, EBITDA would have been down $30 ish million on a $100,000,000 revenue drop. So not really bad performance. It’s really just an anomaly.
Other than that, we set last year in ’twenty four, we had a target of $150,000,000 of cost takeout in factories, which is about $250 The challenge was as production went down, obviously absorption went down. So it didn’t as much of it can not flow through the P and L as we would have liked. We’ve got another $40,000,000 in cost reductions this year. And again, a fair amount of unabsorbed costs that’s getting difficult So we’re in a bit of an anomaly. This business has historically operated where production, shipment and retail are generally equivalent, so even a little bit of inventory movement at the dealer end.
This This year in ’twenty five and ’twenty four, we to cut dealer inventory, we shift a fair amount less than we retail. And that’s how you keep the dealer inventory down. In ’twenty, to do that, because you can’t just shut production off, we built factory inventory. So going into ’twenty five, we very intentionally set the plan where the shipments are going to be less than retail, primarily in marine and snow, as Mike talked about. We said production is going to be a fair amount less than the ships, so we can drive that factory inventory out of the system, which will generate about $300,000,000 of cash with reduction in working capital.
So if
Mike Spitzen, CEO, Polaris: we can get back
Rob Mac, CFO, Polaris: to kind of just a more normal cycle in ’twenty six, The math on volume will start to look a lot better. And I think a lot of the things we’ve done will start to be tailwinds. It’s just right now we’re on the volume to see that come through.
Mike Spitzen, CEO, Polaris: Let me just clarify one thing. So when we talk about this incentive comp, we have had a program in place since pretty much the inception of the company and it’s actually called profit share kind of below the senior executive level. So it is a part of the compensation package and this goes all the way into an hourly worker. We also provide stock to employees as part of retirement through our employee stock ownership program, the ESOP, which owns about 3% or 4% of the company. We want employees at Scannigan.
Game. And this last year, they got impacted by the fact that largely outside of our control, the markets were not performing. And so I just want to make sure that that’s clear because these aren’t bonuses that give people an above market level of comp. This is part of that calculation in terms of valuing the employee.
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