Polaris cut $250M out of costs in 2024, including 10% of workforce

Polaris cut its workforce by 10% in 2024, part of figuring out how to take $250 million out of its costs.

Chief Executive Mike Speetzen said the company will try to cut around $40 million this year, as the powersports industry retail environment continues to be difficult.

"Consumers still are carrying a lot of debt," Speetzen said. "Inflation is kind of stalling out in the mid-2s, which would signal that there may not be that many interest rate cuts this year."

Plus, it's another mild winter, quashing impulse buys of snowmobiles.

Consumer caution already was reflected in Polaris' fourth quarter results released Tuesday, with earnings dropping 90% to $10.6 million, or 19 cents a share, and sales dipping 23% to $1.8 billion.

Medina-based Polaris, the country's largest powersports maker, is not the only company in the industry with issues. Textron, which owns Arctic Cat, said it is shutting down production of snowmobiles and other vehicles at its Thief River Falls, Minn., plant and was seeking strategic alternatives for the unit.

Others in the industry have recently filed for bankruptcy protection, including Austria-based motorcycle maker KTM and makers of electric motorcycles Fuell Inc. and Energica.

Powersports companies faced a huge surge in interest during the pandemic as people sought more outdoor recreation. Then were stung by the bullwhip effect of supply chain disruptions.

They struggled to produce inventory with supply chains in flux then overcorrected when supply chains improved just as the spike in interest began to subside.

Polaris recognized that problem last year. Seeing dealer inventories languish because of declining demand in the third quarter, the company announced it was going to limit shipments in order to protect dealers in their network.

"This commitment came at a cost as we realized approximately $140 million in negative absorption from lower build levels and left the year with higher finished goods inventory than we would like," Speetzen said.

On the company's third quarter earnings call Speetzen said they would reduce shipments to protect dealers wrestling with inflated inventories. The moves helped as the company reported off-road vehicle inventory at dealerships decreased 16% though more progress on dealer inventories may be needed.

Polaris fourth quarter results exceeded analyst expectations, but its guidance for 2025 was not received as well. Shares of Polaris closed Tuesday at $51.34 a share, down 9.2%.

The company expects adjusted earnings per share to be down 65% year-to-year and annual sales to be down 1% to 4% compared to the weak 2024.

Addressing questions on the market conditions, inventory levels, and potentially increased tariffs, Speetzen said, "We are going to control what we can control."

But the company, officials said, is set up better long term than its competitors. It has not made as many discounts, its lean manufacturing reduced costs and gives it flexibility and the five-year cycle of vehicle replacement is holding up, they said.

That means customers who bought off-the-road vehicles during the pandemic are likely to at least look at replacements in the next few years.

"We believe our proactive efforts on costs and efficiencies will set us up well for a strong recovery when the industry returns to growth," said Chief Financial Officer Bob Mack on call with investors.

Like Polaris, Morningstar senior equity analyst Jaime Katz also believes any rebound likely won't come until the second half of the year.

"Until interest rates for floor financing and consumer loans improve, it will be difficult to lift sales," he said in a research note. "If the federal funds rate ticks down early in 2025, we could see positive demand growth resume late in the year."

Speetzen on the investors call also pointed to the company's commitment to innovation. Speetzen told analysts that Polaris continues to invest more than 4% of sales in R&D, which leads the industry.

Last year, Polaris redesigned the Indian Scout midweight motorcycle. Officials said it has been well-received and is leading its product category. The company also released new versions of its popular off-road vehicles as well as new boats from Polaris marine brands Bennington and Hurricane.