"Polaris Inc.'s 2025 Q3 Earnings Call Contradictions: Promotional Strategies, Tariff Mitigation, Inventory Trends, Product Quality, and Growth Expectations"

Date of Call: October 28, 2025

Financials Results

• Revenue: $1.8B, up 7% YOY (adjusted sales for Q3)
• EPS: $0.41 adjusted EPS (Q3); company expects Q4 adjusted EPS ≈ $0.05 and full-year adjusted EPS ≈ -$0.05; excluding new tariffs FY adjusted EPS would be close to $1.10
• Gross Margin: Improved 104 basis points YOY in Q3; full-year adjusted gross profit margin expected ~19% with tariffs representing ~1 point headwind
• Operating Margin: Adjusted EBITDA margin contracted year-over-year (no % provided); operating expenses higher due to normalized incentive compensation and timing of engineering/legal/IT spend

Guidance:

• Full-year 2025 adjusted sales expected $6.9B–$7.1B
• Full-year adjusted gross profit margin expected ~19% (tariffs ≈ 1 point headwind)
• Q4 adjusted EPS expected ≈ $0.05; full-year adjusted EPS expected ≈ -$0.05 (excluding new tariffs ~ $1.10)
• Q4 sales expected to grow sequentially; Q4 EPS pressured by mix, higher tariffs and higher OpEx
• Sale of majority stake in Indian Motorcycle expected to close Q1 2026; anticipated +$50M adjusted EBITDA and +$1 adjusted EPS (reduces revenue ~ $450M)

Business Commentary:

• Strong Third Quarter Results and Strategic Move:
• Polaris reported sales of $1.8 billion for Q3 2025, driven by a 7% increase due to stronger shipments and a solid mix of Off-Road vehicles, particularly RANGER side-by-sides.
• The company's strategic move, which involved the announced sale of a majority stake in Indian Motorcycle, is expected to sharpen focus on its core business and enhance profitability.

• Off-Road vehicle shipments increased approximately 5%, excluding Youth products, contributing to a 9% increase in North American retail.

• Dealer Inventory and Operational Efficiency:

• Polaris successfully reduced dealer inventory by 21% year-over-year, with aged units down approximately 60%.
• This improvement was driven by efficient plant operations, healthy dealer inventory levels, and reduced flooring expenses.

• The company exceeded its goal of realizing $40 million in structural operational efficiencies, resulting in leaner operations and lower costs.

• Impact of Tariffs and Financial Performance:

• The company faced increased tariffs, particularly $35 million in Q3, which pressured adjusted EBITDA margin.
• Despite these challenges, Polaris generated $159 million in operating cash flow for the quarter, reflecting strong earnings quality and improved working capital management.

• The net price was neutral due to price increases offsetting elevated promotions, and the company remains committed to maintaining its investment-grade credit metrics.

• Innovation and Market Share Gains:

• Polaris gained an estimated 10 points of share in the crossover category and over 5 points in the utility side-by-side segment.
• This was due to leading innovation, like the introduction of the Polaris XPEDITION and the RANGER 500, which attracted new customers.
• The company's dealer engagement and operational improvements, such as better inventory alignment and enhanced customer experience, contributed to the strong performance.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized 'strong third quarter results' with $1.8B sales and inventory improvements, while warning of rising tariffs (~$90M in 2025, >$200M in 2026) and projecting a full-year adjusted EPS loss of ≈ -$0.05; they reintroduced guidance and highlighted operational/lean improvements and the Indian Motorcycle sale as accretive.

Q&A:

• Question from Noah Zatzkin (KeyBanc Capital Markets): Maybe first on ORV retail strength and kind of the magnitude of outperformance versus the industry in the quarter, up 9% versus up low single digits, particularly on the utility side. Wondering if you could share any thoughts around what drove those share gains in the quarter as well as thoughts around industry retail and kind of the share gain opportunity looking ahead?
  Response: Rightsized dealer inventory plus a broad, differentiated RANGER product lineup, improved quality and dealer execution (NorthStar) drove share gains and stronger retail.

• Question from Noah Zatzkin (KeyBanc Capital Markets): Very helpful. And maybe just one more. Hoping you could share any early thoughts on fiscal '26, either from an industry perspective or Polaris specifically. Obviously, as it relates to Polaris, there are some puts and takes next year. The deal, I think, is expected to be $1 of EPS benefit. And on the tariff front, it seems like maybe mitigation this year is a bit better than expected. So just any high-level thoughts around '26 would be helpful.
  Response: Indian Motorcycle separation is the biggest 2026 driver (≈ -$450M revenue, +$50M EBITDA, +$1 EPS); tariffs expected to rise to just north of $200M in 2026; mitigation underway but industry call remains uncertain.

• Question from Craig Kennison (Robert W. Baird & Co.): I wanted to start with a follow-up on RANGER 500. I know it's early, but what can you tell us about the consumer profile of that product line? Are they new to powersports overall, younger? Are they first-time buyers? Just looking for a profile.
  Response: RANGER 500 is attracting primarily new-to-Polaris and first‑time/pull‑forward buyers (practical, small‑acre users); >80% of buyers were new to Polaris.

• Question from Craig Kennison (Robert W. Baird & Co.): And then I guess, with respect to that particular customer profile, we have seen some cracks emerge in the subprime auto space. And I'm just wondering with respect to your consumer, if you're seeing any changes in credit availability among that particular credit tier.
  Response: Credit metrics remained stable in Q3: through‑the‑door FICOs down ~2 points vs 2024, 12‑month losses improved and subprime availability is decent; no lender fallout observed.

• Question from Joseph Altobello (Raymond James): I guess first question on retail. Obviously, the FAC was very successful. Any sense or concern that, that might have pulled demand forward? I'm curious what you're seeing in October. I know the FAC, I think, is still ongoing, but it's probably waning in terms of the impact. So I'm just curious if you're concerned there and what you're seeing here in Q4.
  Response: FAC generated engagement without materially increasing promotions and helped draw down aged inventory; October trends supportive and retail (ex‑youth) expected up low single digits in Q4; youth will be a near‑term headwind as Mexico ramp continues.

• Question from Joseph Altobello (Raymond James): Okay. Got it. Perfect. And then just moving on to tariffs. I think, Mike, you mentioned that you expect next year to be all in just north of $200 million, which is only slightly higher, I think, than what you're expecting this year if you include the $301 million. So maybe what's the incremental net impact next year? And what do you think a good incremental margin is for '26?
  Response: Not providing 2026 guidance yet; incremental tariffs are expected to be over $100M versus 2025 with all‑in >$200M for 2026; more detail to be provided in January.

• Question from Sean Wagner (Citigroup) on behalf of James Hardiman: This is Sean Wagner on for James Hardiman. I guess, first, I think initially, fourth quarter was expected to be maybe a lot better than third quarter. Was there any shift in earnings power between the 2?
  Response: Q4 EPS will be lower due to highest quarterly tariffs, unfavorable mix (Youth/Snow/Marine), and higher OpEx (normalized incentive comp plus timing of engineering/legal/IT); plant performance is slightly better but doesn't offset these headwinds.

• Question from Sean Wagner (Citigroup): Okay. Fair enough. I guess piggybacking off of that from a high level, now that you've round tripped the '25 guide, excluding tariffs, is it anything outside of tariffs that has fundamentally changed this year or any big lessons that you guys have taken away from the year?
  Response: Excluding tariffs, promo was heavier than expected, mix benefited from premium product outperformance, and plant/operational execution exceeded targets (on track to meet or exceed $40M in structural efficiencies).

• Question from Tristan Thomas‑Martin (BMO Capital Markets): One kind of qualification question. Your comment plan to ship in line with retail. Is that just Off‑Road? Or is that consolidated Polaris?
  Response: For Q4 the comment primarily refers to Off‑Road; on a full‑year basis management expects build = ship = retail broadly across the company.

• Question from Tristan Thomas‑Martin (BMO Capital Markets): Okay. And then just one more. It kind of sounds like everyone is coalescing around a little more of a conservative industry outlook for next year, but also everyone is expecting to take share. You talked a lot about products. So kind of outside of that, what other levers do you have to kind of protect the share you've gained in the last 2 quarters?
  Response: Beyond product, the primary levers are dealer network strength/engagement (NorthStar), dealer optimization (selective consolidation and multi‑dealer structures) and focusing on dealer profitability.

• Question from Arpine Kocharyan (UBS): This is Arpine for Robin. Your margins came in better than expectations, and you, of course, called out sort of favorable mix and positive contribution from warranty expense for the quarter. Could you maybe walk through whether those are recurring benefits to margin as we look into Q4 and more importantly, 2026? I know you mentioned mix reverses to less favorable in Q4. But just thinking about those drivers for next year? And then I have a quick follow-up.
  Response: Warranty improvements and continued plant/lean efficiency gains are sustainable drivers; mix is variable by quarter but overall mix benefits should persist given premium product strength.

• Question from Arpine Kocharyan (UBS): Great. And then just really quickly, any comments you could give us in terms of early reads into retail environment for 2026? So some of the things that you're looking at that shape your outlook for demand for next year? And maybe any initial comments on cadence of new product intros and where you see opportunity maybe for you to grow a bit above industry growth range for next year?
  Response: Cadence of innovation will continue, which supports share opportunity; macro (inflation/interest rates) is the main demand uncertainty — rightsized dealer inventories position Polaris to outgrow a flat industry.

• Question from Joseph Nolan (Longbow Research): This is Joe Nolan on for David. You guys had strong success with the factory authorized clearance program. Just wondering if you can give an update on what sort of promotional activity you're seeing from competitors and just how that develops into fourth quarter and 2026? And also, just in past quarters, you've given an update on competitor channel inventories, if you can give an update there as well.
  Response: Competitor inventories (DSO/current vs noncurrent) look similar to Polaris for the largest competitor; Japanese OEMs improving; outsized promos have largely subsided and management expects promo environment to remain flat absent material inventory deterioration or macro changes.

Contradiction Point 1

Promotional Activity and Inventory Management

It involves the company's approach to promotional activities and inventory management, which directly impacts sales, revenue, and profitability.

What are the ongoing margin benefits from warranty expenses and product mix, and what impact will changes have in 2026? - Joseph Altobello (Raymond James & Associates, Inc., Research Division)

2025Q3: Promotional activities have eased from previous extreme levels, and competitors are managing their inventory more like Polaris. The Japanese competitors have reduced incentives and rebates. The promo environment is expected to be neutral for 2026. - Michael Speetzen(CEO)

How should we assess the annualized tariff impact for next year based on Q3 assumptions? - Noah Seth Zatzkin (KeyBanc Capital Markets)

2025Q2: Industry promotional activities, particularly with the Japanese competitors, ramped up meaningfully in the quarter, driven by both increased rebates and incentives. This additional promotional spending contributed to a higher dealer selling price and steeper discount rate. - Michael Speetzen(CEO)

Contradiction Point 2

Tariff Impact and Mitigation Strategy

It involves the company's strategy to mitigate tariff impacts, which directly influences financial performance and cost management.

How is Polaris preparing for USMCA renegotiation and global supply chain optimization? - Craig R. Kennison (Baird)

2025Q3: Inclusive of the 301 tariff, we estimate an annualized basis of around $230 million. We're working to further reduce this through continued efforts with suppliers and advocacy with the administration. - Michael Speetzen(CEO)

How should we estimate next year's annualized tariff impact based on Q3 assumptions? - Noah Seth Zatzkin (KeyBanc Capital Markets)

2025Q2: New tariffs are roughly $75 million annually or 2.2% of sales. We're working to mitigate this through increased sourcing of Mexican content as well as adjusting our supply chain for parts now sourced in China. - Robert Mack(CFO)

Contradiction Point 3

Inventory Management and Retail Trends

It highlights differing perspectives on inventory management and retail trends, which could impact investor expectations regarding the company's operational efficiency and market positioning.

Were there concerns that the FAC program pulled demand forward, and what are your expectations for the remainder of the quarter? - Joseph Altobello (Raymond James & Associates, Inc., Research Division)

2025Q3: The commentary on demand and inventory in our last call, where some, in my view, were overlaying some negative forward-looking assumptions onto our inventory and demand levels that we were speaking to at that point. It's really quite the opposite. - Michael Speetzen(CEO & Director)

What are your 2025 ORV inventory expectations? - James Hardiman (Citi)

2024Q4: We expect to exit the year with lower dealer inventory levels for ORV compared to the end of 2023. We expect to enter 2025 with inventory levels that are below where we finished the second half of 2023. - Mike Speetzen(CEO)

Contradiction Point 4

Product Quality and Warranty Expenses

It involves the company's stance on product quality and warranty expenses, which directly impact operational costs and customer satisfaction.

What are the recurring margin benefits from warranty expenses and product mix, and how will changes in these factors impact 2026? - Arpine Kocharyan (UBS Investment Bank, Research Division)

2025Q3: Warranty expenses will continue to improve due to product quality. - Robert Mack(CFO)

What is the projected annualized impact of tariffs in 2026? - Megan Clapp (Morgan Stanley)

2025Q1: There are ongoing efforts to improve product quality and further drive down warranty expenses. - Mike Speetzen(CEO)

Contradiction Point 5

Future Growth Expectations

This contradiction involves differing statements on future growth expectations, which could impact investor confidence and strategic planning.

What drove share gains in utility ORV retail this quarter, and what is your outlook for future share gains? - Noah Zatzkin (KeyBanc Capital Markets Inc., Research Division)

2025Q3: As we look forward to 2026, we anticipate that our segment growth will be supported by a broader product lineup, continued innovation, and strong customer engagement. We expect to continue to grow share in both the ORV and aftermarket segments. - Michael Speetzen(CEO & Director)

What are 2025 expectations for powersports retail? - Tristan Thomas-Martin (BMO Capital Markets Equity Research)

2024Q4: We expect 2025 to be another year where we outperform the market and grow share in ORV and aftermarket. - Mike Speetzen(CEO)