Polaris Inc. Q2 FY2025 earnings call

Team Performance: The team has done an outstanding job despite external challenges like tariffs and macro environment. Polaris has exceeded Q2 expectations, gained share across businesses, mitigated tariff impacts, generated strong free cash flow, and has healthier dealer inventory. ### Financial Performance: Q2 sales down 6%, shipments down 4%, retail flat. Margins pressured by mix, incentives, and promotions, but lean and quality initiatives are showing progress with $40M operational efficiencies targeted for 2025 and lower warranty costs. ### Tariff Mitigation: Target to reduce source parts from China to US by 35% by year-end, with transition plan for 80% of China source parts. Negotiated with suppliers to mitigate pass-through costs, saving over $10M. ### New Product Launch: Launched Polaris RANGER 500, targeting the entry and value segment, starting at $9,999 with features like 1,500 lbs towing capacity, etc.

In Q2, adjusted sales declined 6% primarily due to planned shipment reductions and elevated promotional activity. Off-Road sales declined 8%, driven by lower whole goods volume and increased promotions. On Road sales were down 1%, with mid-single-digit sales growth in Indian Motorcycle offsetting the softness in Slingshot. Marine sales were up 16% driven by positive shipments of new boats. International sales were down 5%, and PG&A sales declined 1% but had strength in parts and oil. Off-Road contributed a significant portion to the sales decline, while Indian Motorcycle's growth in On Road and Marine's growth provided some offsetting factors.

No Full-Year Guidance: Due to uncertainty around tariffs and consumer spending, full-year guidance not reinstated. ### Third-Quarter Assumptions: Expect third quarter sales to be between $1.6 billion and $1.8 billion. Net pricing neutral year-over-year, retail flattish. P&L impact of incremental new tariffs estimated at $30 million to $40 million net of inventory deferrals. Adjusted EPS for third quarter expected to be negative.

Tariff Uncertainty: Continued uncertainty around tariffs and their impact on consumer spending and competitiveness. ### Macro Environment: Dynamic and unpredictable macro environment affecting consumer spending. ### USMCA Re谈判: Uncertainty around USMCA re谈判 and its impact on global supply chains. ### Competition: Aggressive promotions from other OEMs posing short-term challenges.

Q: Question on USMCA. How is Polaris preparing for USMCA re谈判 scenarios and optimal scenario?

A: Polaris is ramping up efforts to reduce sourcing from China, pushing for higher USMCA content in new products, and has a team working on scenarios. Positioned well with manufacturing footprints in US and Mexico.

Q: On RANGER 500, can win at lower price points given trade policy and cost structure?

A: RANGER 500 is made at Monterrey facility with less tariff drag, previewed well by dealer council, and targets 50% of utility market. Competitors' products in this category face heavy tariffs and lack dealership service.

Q: Thoughts on 3Q margins and tariff impact?

A: Tariff is a big driver, price promos relatively flat, better warranty and operations performance. Run rate of tariffs in 3Q estimated at $30M to $40M, with other factors relatively flat.

Q: Consumer credit side, any tightening or deterioration?

A: Credit availability good, rates stable, but need rates to come down for buydowns and consumer financing.