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PI

Polaris Inc. (PII)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $1.85B, down 6% YoY but above company expectations; adjusted EPS of $0.40 vs $1.38 last year, pressured by mix, promotions, and non-cash impairments; management withheld FY25 guidance and introduced Q3 sales guidance of $1.6–$1.8B .
  • Versus S&P Global consensus, Q2 beat on revenue ($1.85B vs $1.72B*), adjusted EPS ($0.40 vs -$0.02*), and EBITDA ($119M vs $106M*), driven by higher-than-anticipated Off Road shipments and strong cash generation; adjusted EBITDA margin fell to 6.4% from 10.1% YoY .
  • Significant non-GAAP items: $52.6M goodwill impairment in On Road and $49.4M strategic investment impairment; incremental tariff expense of ~$10M in the quarter; YTD operating cash flow reached $403.5M, with Q2 free cash flow of ~ $290M .
  • Stock catalysts: share gains across ORV, motorcycles, marine; launch of entry-level RANGER 500 at $9,999 aimed at value segment to broaden the funnel; Q3 adjusted EPS expected negative on tariff headwinds and lower shipments, with $30–$40M tariff impact net of deferrals .

What Went Well and What Went Wrong

What Went Well

  • “Revenue exceeding our expectations, gaining market share, achieving our highest second quarter operating cash flow in over 5 years, and surpassing pre-pandemic benchmarks in plant efficiency through our lean efforts.” — Mike Speetzen, CEO .
  • Retail stability and share gains: total powersports retail flat; ORV retail up 1% vs industry down low-single digits; Indian Motorcycle gained share; Marine share gains on entry-level Bennington offerings .
  • Strong cash generation: ~ $320M operating cash flow and ~ $290M free cash flow in Q2, aided by working capital reduction and lean initiatives; DSOs ~110 days vs peers’ improvement (below 140) .

What Went Wrong

  • Margins compressed: adjusted gross margin 19.5% (-232 bps YoY) and adjusted EBITDA margin 6.4% (-366 bps), driven by negative mix and higher promotions; total OpEx rose to $394.9M (+20% YoY) .
  • Non-cash charges: $52.6M goodwill impairment in On Road and $49.4M strategic investment impairment, driving reported diluted loss per share of -$1.39 .
  • Tariff headwinds: ~$10M impacted Q2 P&L; Q3 expected $30–$40M net of deferrals; management expects Q3 adjusted EPS negative and continues to withhold FY25 guidance amid trade uncertainty .

Financial Results

Revenue, EPS, Margins vs Prior Periods and Estimates

MetricQ2 2024Q1 2025Q2 2025 ActualS&P Global Consensus
Revenues ($USD Millions)$1,961.2 $1,535.8 $1,852.7 $1,717.6*
Diluted EPS (Reported) ($)$1.21 $(1.17) $(1.39) n/a
Adjusted EPS ($)$1.38 $(0.90) $0.40 $(0.02)*
Gross Profit Margin (%)21.6% 16.0% 19.4% n/a
Adjusted Gross Margin (%)21.8% 16.6% 19.5% n/a
Adjusted EBITDA ($USD Millions)$198.1 $52.7 $119.0 $106.2*
Adjusted EBITDA Margin (%)10.1% 3.4% 6.4% n/a
Operating Expenses ($USD Millions)$329.8 $303.2 $394.9 n/a

Values with an asterisk were retrieved from S&P Global.

Segment Breakdown (Q2 2025 vs Q2 2024)

SegmentSales Q2 2024 ($MM)Sales Q2 2025 ($MM)YoY ChangeGross Margin Q2 2024Gross Margin Q2 2025Change
Off Road$1,533.8 $1,408.4 -8% 21.0% 20.5% -55 bps
On Road$293.3 $289.0 -1% 20.8% 19.4% -146 bps
Marine$134.1 $155.3 +16% 20.3% 17.1% -317 bps

KPIs

KPIQ2 2025Context
Company powersports retailFlat YoY Stability in downturn
ORV retail (North America)+1% Industry down low-single digits
Operating Cash Flow (Quarter)~ $320M Highest Q2 OCF since 2020
Free Cash Flow (Quarter)~ $290M Working capital reduction
YTD Operating Cash Flow$403.5M Six months ended June 30
YTD Adjusted Free Cash Flow$343.8M Six months ended June 30
DSOs (Polaris)~110 days Healthy vs peers
Tariff P&L impact (Q2)~$10M Within anticipated range
Impairments (Q2)Goodwill $52.6M; Investment $49.4M On Road goodwill; strategic investment
Dealer inventory (ex snow)Down 17% YoY Healthier levels

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Company Sales ($)Q3 2025n/a$1.6B–$1.8B Introduced
Adjusted EPSQ3 2025n/aExpected negative Introduced
Tariff impact (net of deferrals)Q3 2025n/a$30M–$40M Introduced
Full-year Sales & Adjusted EPSFY 2025Withdrew in Q1 Withheld (no FY guidance) Maintained withholding
DividendQ3 declaredn/a$0.67 per share; payable Sep 15, 2025 Declared
Non-GAAP tax rate (adjustments)FY 202523.8% 23.8% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroDiscussed potential new tariffs; FY25 guide excluded changes; focus on mitigation; dividend priority; debt paydown Withdrew FY25 guidance; gross tariff costs $320–$370M; net new < $225M after mitigation/deferrals; 30% China parts reduction target Enacted tariffs implied gross $180–$200M; ~ $150M reduction vs April; Q3 $30–$40M net impact; Q3 EPS negative Improving mitigation; persistent uncertainty
Lean/Operational Efficiency>$250M savings in 2024; target mid-high teens EBITDA over cycle Continued lean progress; warranty improvements tailwind Plants surpass pre-pandemic efficiency; targeting +$40M efficiencies in 2025 Improving
Dealer InventoryORV dealer inventory -16%; act as shock absorber; shipments down Plan shipping below retail; finish goods drawdown in 2025 DSOs ~110; inventory healthier; still surgical by segment Improving
Product Performance (ORV)Strong premium lineup (XPEDITION, RANGER XD); bumpy rec demand Utility resilient; rec weak; premium demand stable ORV retail +1%; launch RANGER 500 at $9,999; targeted margin positive vs 570 Stabilizing; broadening value
MarineIndustry down; innovation pipeline; shows positive sentiment Entry-level Bennington price-protected offering; share capture plan Sales +16% YoY; share gains; margin pressured by mix/ops Mixed
On Road / Indian MotorcycleScout lineup; mixed heavyweight Heavyweight turnaround; market weak; share gains Indian Motorcycle up low-double digits vs industry down low-teens; On Road goodwill impairment Mixed (share gains + impairment)
Liquidity/Balance SheetAmended covenants; investment-grade focus; debt paydown ~$1.4B available liquidity; capex prudence Credit facility amended; ~ $1B revolver; prudent capital; dividend deliberation → maintained Stable

Management Commentary

  • CEO: “There are many successes in the quarter to celebrate, such as revenue exceeding our expectations, gaining market share, achieving our highest second quarter operating cash flow in over 5 years, and surpassing pre-pandemic benchmarks in plant efficiency through our lean efforts.” — Mike Spezten, CEO .
  • CEO on tariffs: “We now expect full-year gross tariff costs of $180M–$200M, with less than $100M incremental hitting the P&L this year after mitigation and deferrals… $125M lower than our April estimate.” — Mike Speetzen .
  • CFO: “We expect third quarter sales to be between $1.6B and $1.8B… Due to tariff impacts and the incentive compensation headwind, we do expect adjusted EPS for the third quarter will be negative.” — Bob Mack .
  • CEO on product strategy: “Later today, we’re launching the Polaris RANGER 500… Starting at $9,999… built at our Monterrey facility… at this point, it really isn’t carrying the drag of tariffs.” — Mike Speetzen .

Q&A Highlights

  • Supply chain/USMCA positioning: Management is reducing China-sourced parts, increasing USMCA content, and leveraging Mexico/U.S. footprint for flexibility; targeting 35% China content reduction by year-end with 80% transition plans identified .
  • Tariff run-rate: Q2 impact ~$10M; Q3 expected $30–$40M net; full-year enacted tariff gross $180–$200M with net incremental < $100M after mitigation/deferrals; annualized run-rate discussion cautioned due to carryover and mitigation timing .
  • Retail cadence/promotions: Retail lumpy; Q2 ORV (ex youth, snow) up each month; promotions easing modestly in H2 but remain high given rates; one competitor still high DSO .
  • RANGER 500 margins: Better margin than 570; designed for entry/value segment; benefits from accessories margin; built in Monterrey to mitigate tariffs .
  • Credit/Dividend: Credit availability robust; amended facility and covenant relief; dividend later declared $0.67; focus on cash preservation and working capital .

Estimates Context

  • Q2 2025 beats vs S&P Global: Revenue $1.85B vs $1.72B*, adjusted EPS $0.40 vs -$0.02*, and adjusted EBITDA $119M vs $106M* .
  • The magnitude of the beat reflects stronger-than-expected Off Road shipments, lean benefits, and working capital execution despite promotional pressure and tariff headwinds .
    Values with an asterisk were retrieved from S&P Global.

Key Takeaways for Investors

  • Execution over uncertainty: Despite trade/promo headwinds, Polaris delivered revenue above expectations and strong cash flow; management remains disciplined with lean and inventory, a positive setup for eventual cycle recovery .
  • Near-term caution: Q3 adjusted EPS expected negative and $30–$40M tariff headwind signal pressure ahead; traders should anticipate estimate cuts for Q3 and monitor tariff developments closely .
  • Mix pivot and value entry: The new $9,999 RANGER 500 broadens the funnel in utility side-by-sides, potentially adding share and PG&A attachment; watch for early sell-through and margin impact vs premium mix .
  • Segment dynamics: ORV retail stabilizing with share gains; Marine growing on volume but margin headwinds; On Road shares up but goodwill impairment highlights segment risk; positioning matters by segment .
  • Cash and balance sheet: Liquidity robust; strong YTD OCF and free cash flow support dividend continuity ($0.67 declared) and flexibility; balance sheet amendments mitigate downside risk .
  • Tariff mitigation traction: Gross tariff expectation cut vs April; sourcing shifts and supplier negotiations progressing; monitor USMCA content initiatives and China exposure reduction milestones .
  • Stock narrative: Share gains, lean-driven efficiency, and product innovation (XPEDITION, XD 1500, RANGER 500) underpin medium-term thesis; short-term multiple risk from margin compression and tariff uncertainty until clarity improves .

Appendix: Consolidated Financial Statements (Key Lines, Q2 2025 vs Q2 2024)

MetricQ2 2024Q2 2025
Sales ($USD Millions)$1,961.2 $1,852.7
Gross Profit ($USD Millions)$424.0 $359.2
Operating (Loss) Income ($USD Millions)$119.7 $(12.9)
Net (Loss) Income ($USD Millions)$68.9 $(79.1)
Diluted EPS ($)$1.21 $(1.39)
Total Operating Expenses ($USD Millions)$329.8 $394.9

Note: All cited figures are from company filings and transcripts as referenced. Values retrieved from S&P Global are marked with an asterisk.