Polaris Inc. (PII) Q3 2026 Earnings Call Transcript

Good day and welcome to the Polaris 3rd Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to J.C. Weigelt. Please go ahead.

Thank you, Chad, and good morning or afternoon, everyone. I am J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2026 third quarter earnings call. We will reference the slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Spitson, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing our 2026 third quarter results as well as our expectations for the remainder of 2026, then we'll take your questions. During the call, we will be discussing various topics which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2025 10-K and our other filings with the SEC for additional details regarding risks and uncertainties. All references to 2026 third quarter actual results and future period guidance are for our continuing operations and are reported on an adjusted non-gap basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation and at the end of our earnings deck for the gap to non-gap adjustments. Now, I will turn the call over to Mike Spitson.

Go ahead, Mike. Thanks, JC. Good morning, everyone, and thank you for joining us. We delivered another strong quarter, with results exceeding our expectations and demonstrating that the actions we've taken over the past several years are making Polaris a stronger, more focused, and more profitable company. We are the global leader in power sports, with leading share in the largest U.S. manufacturing footprint in the industry. Our portfolio serves all who play and work outside, and today, over half of our sales come from customers who buy their vehicles for work. from farms to ranches to commercial job sites, as well as government agencies and the military. I'm proud of how the Polaris team continues to execute. They've stayed focused and have done a great job navigating a dynamic environment. As a result, our dealer inventory remains healthy. We gained share in ORB for the sixth consecutive quarter. And once again, we delivered industry-leading innovative products that were launched at our dealer shows in August. While the consumer environment remains dynamic, we continue to focus on what we can control. That focus is driving share gains, translating into stronger operating performance, and we believe, positioning us to deliver our full-year outlook in mid-cycle targets. Third quarter reported sales increased 11%, and excluding Indian Motorcycle from Q3 of 2025, sales grew 17%. Sales growth was driven by high single-digit growth in ORV, double-digit growth in PG&A, and high double-digit growth in commercial, government, and defense, and marine, as well as over 100% growth in seasonal. Our growth was driven by growing in markets and share gains in ORV. Strong growth in large capital projects, such as data centers, increasing the need for our commercial products. Given the level of infrastructure investment we're seeing, we believe this business has a long runway for growth. Growing government defense demand, supported by increased defense spending across the U.S., Canada, and NATO, with U.S.-manufactured utility and snow products contributing to that growth. Robust ridership, leading to higher parts and accessory sales, meaningful innovation across ORV and marine, and healthy dealer inventory levels, which allowed us to ship in snowmobiles ahead of the season. Growth this broad in a soft consumer market shows the strength of a portfolio built for both utility and recreation. Turning to margins, adjusted EBITDA margin improved 118 basis points to 8.8%. Positive contributors to margins were volume, net price, and operational efficiencies. As expected, offsetting these gains were higher commodity costs driven by elevated prices for steel, diesel, aluminum, and logistics. Our lean work and our manufacturing facilities helped offset more than half of the commodity pressure. We also recorded $10 million in IEPA tariff refunds and related interest during the quarter. As we did last quarter, we have removed these refunds from our adjusted financial metrics and will refer to them as operational adjusted results on today's call and our earnings materials. Excluding these refunds, our operational performance drove margins higher by approximately 85 basis points. We delivered adjusted earnings per share of $1.08, which includes the pre-tax $10 million in tariff refunds. Excluding these tariff refunds, operational adjusted EPS was $0.95 compared to $0.41 last year and was well above our expectations. In July, we noted that our earnings split between the third and fourth quarter could shift with the timing of fall and winter shipments, which is a portion of the Q3 overperformance given higher than expected shipments in snowmobile and utility. This year, with snowmobile dealer inventory in good shape, we shipped a portion of those units in the third quarter to ensure dealers had inventory to meet early season consumer demand. Bob will walk through the details in his remarks. As a result of our third quarter performance and the momentum we are seeing across the business, we are raising guidance for the third time this year. Excluding tariff refunds, we now expect operational adjusted EPS of $2.40 to $2.50, up from our prior guidance of $2.05 to $2.15. And while uncertainty remains, October retail is tracking in line with expectations. We still have work ahead of us, but the business is on increasingly solid footing, and we remain confident that our focus on innovation, disciplined inventory management, and operational execution is positioning Polaris well as we head into 2027. Moving to our retail performance, total company retail was flat for the quarter. ORV North American retail was up 2%, outperforming the industry and gaining share for the sixth consecutive quarter. This growth was even more impressive as we were comparing against a very strong third quarter of 2025, where North American ORV retail grew 9% on the heels of a successful FAC event. Trends within ORV remain consistent with recent quarters, with utility growing and recreation seeing pressure from external factors. Because we serve customers who use our vehicles for work as well as for fun, utility growth more than offsets softness in more discretionary recreational markets, resulting in ORV retail growth. ORV utility continues to be the biggest driver for our business as it represents over 60% of Polaris PowerSports sales. From the value tier Ranger 500 and Sportsman 500 to the new Ranger cab units, the premium North Star lines, and Ranger XD-1500, we give dealers and customers a broad and innovative utility portfolio. Six straight quarters of share gains reflect that strength. Additional data points that demonstrate our leadership position in ORV include this quarter marked our highest third quarter ORV share in the industry since the third quarter of 2019. The Ranger 500 helped our midsize portfolio of Rangers gain more than 10 points of segment share in the quarter. Our Ranger cab units gained multiple points of share in the quarter and still represent over 50% of our Ranger sales. Cab units with comfort features such as AC and heat continue to grow faster than the broader industry. For Polaris specifically, we have seen over 70% growth in utility cab units since 2023. We are shipping three new vehicles to dealers in the fourth quarter. The first is the Polaris Expedition with Pneumatics. This is our second-generation Expedition, while competitors have yet to launch a product that we believe is comparable. The second is the Razor Pro-R Boost, the industry's most powerful side-by-side with a leading 275 horsepower and 223 pound-feet of torque. And third is our new value-tier ATV, the Sportsman 500. Our close relationships with dealers is paying off as our survey work reflects an improvement in dealer sentiment over the last two years, with the recent data sets showing us tied for the lead. And finally, our commercial, government, and defense businesses deserve mention. Commercial demand is tied to infrastructure and data center construction, and these construction contractors rely on our purpose-built vehicles and our parts support to keep their projects running. In government defense, we're seeing growth across a range of customers and applications, supported by increased defense spending across the U.S., Canada, and NATO. These customers buy on government budgets and project schedules rather than on consumer confidence. That gives these businesses a different profile through the cycle than recreation. A highlight of the quarter for me was attending the ORV and Marine dealer shows and product launches in August. Nothing is more energizing than seeing our dealers overtaken with excitement for our new products. I'm proud of the products we recently launched, but what makes me even more excited is what's ahead. We have a strong pipeline of innovative products planned for the next three to four years, and I believe the best is yet to come. Turning to marine, our third-quarter pontoon retail was down low double digits, according to the August SSI report. The good news is that we gained pontoon share in the quarter, but it remains a challenging industry. Our intention is to keep innovating to drive consumer interest and ensure we have an attractive portfolio of pontoons and deck boats when the industry recovers. we continue to see healthy dealer inventory levels across our portfolio during the third quarter we again strategically increased inventory and utility given the robust growth we're experiencing in this category we did see a slight increase in orv recreational inventory associated with the timing of the new polaris expedition launch but expected to be to be normalized by year end we also continued to take the appropriate actions to right size dealer inventory in our seasonal business and we entered the snowmobile season with dealer inventory in the best position in years. In aggregate, dealer inventory was up 3% in the quarter versus last year, and dealer DSOs are slightly over 100 days, which remains well below historic levels. We remain committed to matching shipments to retail, and we expect dealer inventory to end the year in a healthy position relative to retail. I'm now going to turn it over to Bob to provide you with more details on the financials and the increase to our full-year guidance.

Thanks, Mike. The strong momentum we saw in the first half of the year continued into the third quarter and we delivered results well above our expectations across each of our key financial metrics sales were up 11 or 17 organically excluding indian motorcycle as mike noted some of the growth came from the earlier timing of vehicle shipments mainly snowmobiles which i will walk through shortly we also saw strong contributions coming from orv commercial government and defense and marine total pgna sales increased 12 driven by parts and oil which we attribute to strong ridership data and strong sales in apparel ahead of the snow season. We recognized $10 million of tariff refunds and related interest that was not contemplated in our July outlook. Excluding the refunds, operational adjusted EBITDA margin still increased 85 basis points and operational adjusted EPS was $0.95 versus $0.41 a year ago. Underlying performance was strong in the quarter. In addition, approximately $0.30 of adjusted EPS shifted from the fourth quarter into the third quarter, primarily due to two timing items. First, we were able to ramp up efficient ranger production on the new lean line in our Huntsville facility earlier than anticipated. When the line opened in early July, we expected the benefits to be more heavily weighted toward the fourth quarter as operators adjusted to the new process. The team progressed more quickly than anticipated, allocated, allowing us to capture a greater portion of those shipments in the third quarter. Second, healthy snowmobile inventory at our dealers allowed us to ship more product ahead of the season than we have historically. These earlier shipments benefit our dealers by providing additional setup time and allowing them to focus on retail execution during the selling season. Although these items affected the quarterly cadence, both reflect positive developments, faster progress on our lean initiatives, and healthier snowmobile inventory across our dealer network. Turning to our segments, Polaris PowerSport sales increased 18% year-over-year with growth across our major product lines. Seasonal, commercial, and government and defense delivered particularly strong performances, while ORV also generated high-single-digit growth. Overall, it was another strong quarter for the segment. Utility continues to be a key strength and differentiator for Polaris. Our broad-ranger portfolio spans across the value tier through ultra-premium and extreme-duty products, complemented by our commercial business, where we continue to see strong demand at large job sites, such as data centers. Utility products represented approximately 60% of PowerSport sales and more than 50% of PowerSport sales in the quarter. This mix differentiates Polaris from both our direct competitors and the other leisure companies that have greater exposure to discretionary purchases. Many of our customers rely on our industry-leading products to get work done, whether on a ranch, a farm, a data center project, a general construction site, or at a municipal facility. PowerSport's PG&A sales were up 19%, driven by factory-installed accessories and oil sales, providing further evidence that customers continue to ride and use our vehicles. Commercial PG&A revenues were up significantly, bolstered by parts and factory-installed accessories and configurations requested by our commercial. Gross profit margin from operations declined 19 basis points. Positive net price and operational efficiencies partially offset a 190 basis point headwind from commodities, logistics, and tariff costs. As we discussed last quarter, commodities and logistics continue to be one of the more significant year-over-year pressures in the second half of the year. Marine sales increased 29%, driven by a richer mix of pontoons led by the Bennington QS and Godfrey Sandpan premium lines. Gross margin increased 43 basis points year over year, reflecting favorable mix and operational efficiencies. We expect premium mix to remain a positive contributor through the selling season. Higher commodity costs, particularly aluminum, continue to press our margins, and we expect that headwind to persist while aluminum prices remain. EXIM and Goupil sales declined 12%, affecting our planned reduction in EXIM shipments to better align dealer inventory with retail demand heading into the new year. Gross profit margin declines 47 basis points year over year, primarily due to these lower planned bonds. Capital deployment priorities remain unchanged. First, investing in core businesses to drive higher margin, profitable growth. Second, returning capital to shareholders through our dividends. And third, reducing debt. As we expected, cash generation was strong in the third quarter with operating cash flow of approximately $382 million as seasonal working capital unwound. We used that cash to reduce total debt by more than $320 million, mostly by repaying borrowings under our revolving credit facility. Supported by our strong year-to-date operational performance, we reduced our net leverage ratio from 3.4 times at the beginning of the year to two times at the end of the third quarter. We expect to make further progress in exit 26 with net leverage below two times. We remain confident in our financial position, and we continue to take a disciplined approach to capital deployment. We plan to continue to strengthen balance sheet flexibility while managing the business in line with investment-grade metrics. We now expect year-end working capital to be negative 2% of sales, a 100 basis point improvement versus prior expectations. We expect working capital reductions to continue into next year as we localize our supply chain in North America, which also reduces our tariff exposure to China. Moving to guidance, we are raising our full-year outlet, given our third quarter beat and continued strength across the business. This is the third time we have raised guidance this year, demonstrating the consistent operational execution of our teams and the improving earnings power of the business. We now expect full-year sales of $7.55 to $7.60 billion, representing growth of approximately 6%, with both ends of the range above our prior guidance. Excluding the sale of Indian motorcycle in the first quarter, this range reflects approximately 11% organic sales growth at the midpoint. We expect fourth-quarter organic sales to be roughly flat, as Q4 retail is expected to be flattish, and the shift of snowmobile shipments into the third quarter are partially offset by year-over-year sales growth in marine. We are also narrowing our full-year adjusted EBITDA margin outlook to the upper end of our prior range. We now expect adjusted EBITDA margin to increase 270 to 275 basis points. On an operational basis, excluding tariff refunds, we expect margin expansion of approximately 165 to 170 basis points, compared with our prior outlook of 145 to 170 basis points. The primary operational drivers of this year's margin expansion are higher volume, favorable mix and operational efficiencies. These are partially offset by higher commodity and logistics costs, which we expect to be approximately $70 million higher than last year. In the fourth quarter, we expect adjusted EBITDA margin to increase by more than 100 basis points, primarily due to the benefit from the Indian motor cycle separation and positive net price. These benefits will be partially offset by higher commodity and logistics costs. On tariffs, we still expect to pay approximately $215 million dollars this year unchanged from our prior outlooks this assumes no material change to USMCA or other tariff policies currently in place the Indian motorcycle separation remains on track to be accreted by approximately 50 million to adjusted EBITDA with the benefit weighted more toward the back half of the year and into January 27 due to the seasonality of motorcycle sales we are also raising full year adjusted EPS guidance to 350 to 360 from three dollars to 310 this includes a dollar nine from the tariff refunds recorded in the second and third quarters excluding tariff refunds operational adjusted EPS is expected to be two dollars and forty cents to two dollars and fifty cents compared with our July 28th guidance revision of two dollars and five cents two dollars and fifteen cents this increase reflects our strong third quarter performance an additional improvement in the underlying business relative to our July expectations. Our guidance does not include any additional tariff refunds. While we believe there may be opportunities to recover additional amounts, a formal process for the next phase of refunds has not been established. The timing and amount of any further recovery is uncertain, and certain amounts would need to be recovered from suppliers. Our full year guidance implies fourth quarter adjusted EPS of $0.32 to $0.42, reflecting in part the approximately $0.30 of earnings that shifted from the fourth quarter into the third quarter. We expect fourth quarter earnings to be supported by net price and the separation of Indian motorcycle, somewhat offset by higher commodity and logistics costs. In closing, our strong third quarter results and increased full-year outlook reflect the continued momentum across our business and the disciplined execution of our teams. We are delivering meaningful operational margin expansion, strengthening our balance sheet, and positioning the company to exit the year with net leverage below two times. While commodity and logistics costs remain headwinds, we are confident in the underlying fundamentals of the business and the actions we are taking to drive further progress in 2027. With that, I'll turn the call back over to Mike.

Go ahead, Mike. Thanks, Bob. Before wrapping up, I want to spend a few minutes on how we're thinking about 2027. While it's still early and we're not providing formal guidance today, there are several factors that give us confidence in the continued progress of the business. First, we expect to maintain the same disciplined approach to dealer inventory that has served us well, with production and shipments aligned closely with retail demand. At the same time, we are preparing to bring innovative new products to market across our core businesses, while continuing to capitalize on the consumer shift toward cab units. From an operating perspective, we expect commodity costs to be a meaningful headwind given current prices on steel, diesel, and aluminum, in addition to logistics. But we also see continued opportunities to drive productivity, operational efficiencies, and expense leverage to help offset a portion of these elevated costs. Our manufacturing facilities are currently running at roughly 70% of capacity, and we continue to expand lean to improve our efficiency. As volume recover, as volumes recover, that available capacity should provide a meaningful incremental margin opportunity. We also remain focused on executing our tariff mitigation strategy, including meeting our targets of reducing our exposure to China by the end of 2027. Finally, we expect our improving earnings and cash flow profile to support a healthy balance sheet, and we intend to manage net leverage within our one to two times target range. Operating within that range gives us more flexibility to enhance our return of capital to shareholders. So while we're operating in an unsettled macroeconomic world, we believe the actions we have taken over the past several years have put Polaris in a much better position to manage through volatility and drive improved financial performance over the long term. With one quarter to go, our priorities remain consistent. The overall retail market has played out slightly better than we originally expected. Growth remains volatile, but utility continues to outperform. We had originally called for the retail environment to be flattish year-over-year, but now expect it to grow low single digits. And while uncertainty remains in the broader economy, the trends we have seen through the third week of October give us confidence that we can have a strong ending to the year. We continue to build and ship products at the same pace as retail and expect this strategy to hold true for the foreseeable future. As I noted earlier, we are shipping three important new products this quarter, the Razor Pro-R Boost, Hilaris Expedition with Pneumatics, and the Sportsman 500. Early feedback from dealers and customers has been very encouraging, and we believe the Pro-R Boost and new Expedition can help provide a lift in recreational sales. We remain ahead of our internal targets regarding our tariff mitigation strategy, with an expected 9% of material cost of goods sold originating from China by year-end. This is down from approximately 14% at the beginning of the year, and our ultimate goal is to have these costs below 5% by year-end 2027. Our focus and execution this year drove these results and allowed us to raise guidance for the third time. Our strategy is unchanged, and our foundation is stronger. We are a different company than we were five years ago. We are more focused, our manufacturing facilities are more efficient, our dealer inventory is healthy, and our portfolio increasingly serves customers who rely on our products for work as well as play. Dealers see the change, as do customers and employees, and increasingly it is showing up in our results. Polaris is the leader in power sports, and I am confident we have the strategy, portfolio, and operating foundation to deliver higher earnings power and stronger returns over time. With that, I'll turn the call over to Chad to open the line for questions.

Thank you. We will now begin our question and answer session. To ask a question, you may press star, then 1, on your touchtone phone. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And the first question will be from Joe Altebello from Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning. First question, I want to kind of talk about incremental margins for next year, right? If we assume modest unit growth, let's say, how do you see incremental margins playing out given all the puts and takes you just laid out, Mike?

Yeah. So, well, first of all, good morning, Joe. The, you know, the incremental margins were pretty heavily impacted in the third quarter. There was obviously a little bit of incremental tariff cost. Third quarter of last year is when tariff costs had really ramped up for us. The third quarter really saw the impact of commodities. And as we, you know, mentioned in the prepared remarks, the commodities, you know, really have ramped up, and we expect that to be a bit of a headwind as we get into next year. Now, the good news is, you know, we've been making substantial improvements in the business in terms of just how efficient the factories are operating. The team, as I indicated in my prepared remarks, has done an excellent job of, you know, pulling content out of China, pulling that supply chain back into North America primarily, which is going to, you know, help from a tariff perspective. It's early for us to make a lot of comments around what we expect incrementals to be going into next year. But I think we've got the business position. I mean, it's a bit frustrating because the incremental tariffs, the incremental commodities, you know, those things are eating away at the margins. And I would just remind you that, you know, X the $215 million of tariffs, our margins would almost be two points higher than where they are today. And obviously, Bob can fill in some of the blanks that I skipped over.

Yeah, Joe, I mean, I think the biggest thing, you know, we'll start to lap the tariffs going into next year. And as of right now, we don't expect, you know, dramatic changes in the overall tariff load on the company. There's, you know, some incrementals. Some of that's going to be offset by the stuff we've moved out of China. So, you know, absent any changes, there is still a 301 investigation out there on excess capacity. I don't think anything will happen with that until after the midterms. But, you know, once the midterms are over, I think it's pretty tough to predict where that one will go. But if that doesn't change the picture, I think our tariff picture will be relatively flattish next year as compared to this year. And so the bigger headwind is going to continue to be commodities. And when we say commodities, we include trucking in that because it is a big part of it right now. You know, the line haul side is almost as big as the diesel side with trucking shortages so you know we talked about having about 50 million of headwind in uh the second half of 26 you know so most of this really ramped up in the back half of the year it was about 70 million for the full year some of that was offset by hedge so you know as as we look at the first half of next year i think the the commodity headwind is going to be in that 70 million range um and it's really tough to predict after that you know the commodity curves as they sit here today, which shows some improvement, particularly in steel and diesel in the back half of the year. But, you know, the reality is we've watched those curves push out the last, you know, few months. And so we'll just have to see how that goes a little too early to get into that. But less tariff headwind a little bit later.

You know, and Joe, the other thing I, you know, is it's obviously not related to cost, but it's a critical component. I mean, you know, think about the comments that we've made about the utility portion of our portfolio, the exposure we have. You know, if you look at things like the Dodge Momentum Index, the level of construction activity, commercial construction activity, isn't anticipated to evade any time soon. And increasingly, our vehicles are being used more and more in that type of environment. And, you know, we've got a dealer meeting in February of next year. We're also going to have an investor day in February of next year, early February of next year. And if you think about That's on the heels of having a dealer meeting in August where we launched three incredible products. So there's more to come, and I'm convinced with the new products and the exposure we have from a utility standpoint, you know, the business is looking at a good environment as we had in the next year, despite the fact that discretionary spending pressures still remain and that the rec markets could remain under a little bit of pressure. The balance of our portfolio, I think, really helps out and, you know, gives us the opportunity to get more volume through the factories and drive that incremental leverage to help address some of the increasing costs we're seeing that Bob outlined.

Yeah, the other piece to think about is, you know, we've had really good operational performance at the factories. I think the, you know, what happened in Huntsville in the third quarter, you know, we had hedged our bets a little bit coming into the quarter as we implemented a new lean line there. You know, Mike and I have both been down there. The team did just a great job at coming up to speed on that line. and getting to some of the highest levels of, you know, first pass yield on vehicles that we've seen. So, you know, we were able to pull a little bit more Ranger into the quarter. We had thought we were going to be pretty tight on Ranger shipments in the quarter, and we were able to do a little better than that. But I think it shows that, you know, the benefits that we're getting from lean are real. And, you know, like we've talked about, I mean, you know, we're kind of in the World Series time. So, you know, we're kind of in the third nine-inning game. And so there's a lot more to go. So, you know, whether we'll be able to fully offset commodities, you know, we'll have to see as we get into budgeting for the full year. But, you know, I expect very helpful.

And just to follow up and somewhat related promotion intensity, is that a good guy or a bad guy next year on margin?

Well, I mean, certainly the fact that we continue to keep dealer inventory in a good spot, you know, retail velocity was up again this past quarter. we were up about 19%, so we're moving product faster. And I think, I mean, look, we've done a better job of making sure that we've got the right inventory at the dealers. You know, the current non-current mix is incredibly important. And then quite frankly, you know, having leading innovation takes significant pressure off from a promotional perspective. And so, you know, it's early to have a perspective as we head into next year, but certainly we're trying to set the business up, you know, through a combination of the innovation, the product mix, as well as just overall dealer inventory levels that we're going to, you know, keep promotional pressure abated and hopefully look to continue to drive that down as a percentage of sales.

Great.

Thank you.

Thank you. The next question will be from James Hardiman from Citi. Please go ahead.

Hey, good morning. I wanted to continue along sort of the same lines as we think about 2027. I think I have all the moving pieces right. Obviously, you know, the three biggest would be the commodity and freight inflation, the efficiencies that you talked about, and then tariffs. It sounds like tariffs are basically going to be a wash, right? The annualization is a bad guy. The lower reliance on China is a good guy. And it's a little bit unclear which is going to be bigger at this point, the inflation versus the efficiencies. I guess, A, is that all right? Is that all accurate? Because you just gave us a lot in the answer to Joe's questions. But then as I just look at the street for next year, which was assuming a lot of growth on a reported basis and the fact that we need to be backing out sounds like about a dollar nine of tariffs. I guess, do you think you'll be able to grow on a reported basis next year? Obviously, I think you think you can grow on an operating basis, right, X tariffs, but I'm just trying to understand if the street expectation is too aggressive as we sit here today.

Yeah, I think, so James, a couple of comments on the tariffs. I mean, I'd remind you, you know, there still is a open 301 investigation around excess manufacturing. And so that is an unknown. I think net of anything happening there, we look at tariffs as kind of a push. I mean, obviously, we're working hard and we're confident with the work that we've got underway to get sourcing out of China. So that'll take some tariff costs out. But, you know, obviously, we were in China because the costs were less. So we're moving into areas where it's going to cost a little bit more. So So I think it's going to probably be a net push when you look at just the tariff, tariff mitigation, excluding whatever happens on 301 excess manufacturing. I do think the estimates are high next year, and I think part of that is we know a number of analysts have not backed the IEPA refunds out. And that's obviously a big part of the performance this year in terms of getting the 80-plus million worth of refunds in and the impact that that's had on EPS. When you talk about can we grow next year from a top-line standpoint, obviously it's early to be giving guidance, but I do feel confident for the factors that I outlined when answering Joe's questions around promo. We've got some incredible new product in the market that we launched this year that obviously will cycle into next year. And then, you know, we've got a dealer meeting in February, so that should give you some hints that there's yet more to come. And I think that coupled with our exposure to the utility markets and specifically around some of the commercial construction activity that's going on, I feel good about that growth trajectory. It's a bit early. You know, Bob gave you some color around the commodity pressure that we're facing. What's tough for us is what's going to happen in the back half of next year from a commodity standpoint, things could move down as quickly as they came up. A lot of that's going to really depend on what's going on in the broader macro, and it's anybody's guess where we think things are at. So we're going to continue doing the things that have served us well. We're going to stay focused on everything we can control. We didn't really talk much about it, but in addition to the factories operating better, our quality, we are now either amongst the top, if not the top in power sports from a quality standpoint, and that serves us incredibly well in terms of taking warranty costs down improving you know the the satisfaction with customers and you couple that with all the new products and the exposure to the end markets we have i feel i feel good about the top line as we head into 2027. got it that's really helpful and maybe a simpler question that you may or may not choose to answer but any color you can give us on sort of as we think about retail, which, you know, RVs were up against a really difficult compare last year,

maybe just any color on sort of how that went over the course of the quarter. And then you talked about October being in line with expectations. I don't know where your expectations were, but any color there. You know, obviously we saw an interest rate hike and consumer confidence seems like it's getting worse, but it doesn't sound like you're seeing much of that in the numbers so far here in October? Thanks.

Yeah, I mean, you know, I think about October and the low single digits, which, you know, is aligned with what we were expecting. You know, I think third quarter was a tale of a different journey. I mean, we started out with a tough July. I think that was probably something that had been talked about more broadly, not just specific to power sports. And then we picked up momentum as the quarter went on. You know, I think, you know, the affordability report that you put out, I think kind of sums it up. I mean, the RV space is facing, I think, a different set of challenges. And then quite frankly, the fact that we've got 60% of our portfolio that's really outside of the rec exposure category. And that's not to say that people who buy a Ranger on their farm aren't using it to go hunting and fishing, but the vehicle has multiple uses. And then when you index that with the commercial construction that's going on and the number of vehicles that we have that are being bought by contractors as well as rental companies that are going into their fleets to support the work that they're doing on a range of projects, you know, I think that puts us in a little bit different position. So we're encouraged with what we've seen in October. And as I said in my prepared remarks, we're, you know, we believe we're set up to have a good, strong end to the year.

Really helpful.

Thank you. The next question is from Garrick Johnson from Seaport Research Partners. Please go ahead.

Great, thanks. Hey, I wanted to dig into the shifts between the third and fourth quarter. How much, you gave us the bottom line impact, but what was the top line impact of snowmobiles shipping early, as well as the ranger? And then also on inventory, I would expect seasonal inventory to grow at the dealer level, but on page five, it looks like it declined. So, talk about the dynamics in seasonal inventory and also what inventory would be without snowmobile shipping early in the third quarter.

Yeah. So, Garrick, if you think about the snow and the Ranger timing from a revenue perspective, it's about split. It's, you know, 30-ish million of snow and a little bit more. So, you know, not massive but meaningful. and like as we talked about you know that was really just performance of the factory and then the fact that we had low seasonal inventory and the reason you know the reason inventory dealer inventory is down in the quarter is purely seasonal as we cleaned out you know a fair number of the old model year sleds kind of earlier this year and what we saw in the quarter was some growth in ranger and a little bit in a channel fill on the wreck side you know ranger because of strong sales you know and and really inventory not growing quite as fast as the sales just because uh we had to deal with the new line in huntsville which you know again performed better than we expected but was still uh we knew we were going to be a little tight on ranger in the quarter and then with the channel fill on expedition starting to ship boost um that drove a little bit of rec growth we think that'll that'll level itself out by the time we get to the end of q4 okay great so on seasonal it's the fact that you cleared out way more uh non-currents than you uh shipped in currents early uh leading yeah yeah definitely that and we also we've also seen uh snow check pickups uh at a greater pace than i think we were expecting uh we were just with the dealer council uh last week and they were very appreciative of the fact that we had shipped in early uh because it allows them to spend time uh getting getting the snowmobiles set up getting them to consumers who've pre-ordered uh so it worked out it worked out well for us all around yeah i mean and you know snowmobile shipping in q3 is you know something that kind of the rest of the industry has has done for a while we you know have uh have not been able to execute to do that in the last few years, and I think now we've got our Rose Oak facility and the snow possibly received by the dealers. We still had a pretty small snow build this year, you know, with an effort of trying to keep dealer inventory. The team's executing really well on that side.

Okay, understood. And just lastly for me, international seems soft, even if you exclude Gupil and AXM. So why was that underperforming versus North America?

Yeah, I think a lot of challenges, obviously, a lot of distraction in in europe right now so the european markets were relatively slow and and then really just a little bit of timing as we you know get dealer inventory we're we're getting more sophisticated about our international dealer inventory you know we've really been focused okay great thanks bob thanks mike the next question is from craig kennison from baird

please go ahead hey good morning thanks for taking my question mike what's the latest on consumer usage trends based on ride command polaris surveys and other factors continues to be strong um you know we uh we continue to see parts consumption oil consumption wheels tires um you know for the vehicles that we can track uh riding you know we're up in the kind of low to mid single digits, which is encouraging. And, you know, that's building on last year, which, you know, last year was critical because we saw ridership up above pre-COVID levels. So, you know, people are still using the vehicles. We're doing a lot of survey work to talk with consumers, specifically on the rec side. You know, there's a high level of engagement with the product. And in fact, we're seeing even some pickup and accessories, which means, you know, the people are hanging on to these things a little bit longer, and, you know, I think a lot of it is they're waiting for the right moment to buy, and I think that has to do more with, you know, confidence in the economic backdrop, as well as just, you know, the cost of living, you know, between what it costs to put gas in your vehicle, not necessarily our vehicle, but your main driving vehicle, as well as energy costs and groceries, etc. Things are just expensive. And so taking on a new higher payment right now, which tends to be the predominant rec customer, it's just not something that they're leaning in hard to. The good news is we're putting new product out. That new Pro-R Boost is an incredible machine. The new Expedition is getting incredible reviews relative to how quiet the vehicle is. And the new Sportsman 500 that, you know, provides a nice value entry point. So, you know, we're confident with all the new products we've got coming out, we're going to put enough into the market that could stimulate that rec customer to come back in. It would be helpful to get some help from a macro perspective, but, you know, based on where things are at, I'm not expecting that to be a help anytime soon.

Thanks. Do you get data on commercial usage versus consumer usage? And I'm assuming commercial users are much more aggressive with your product and might have a different replacement cycle. So maybe comment on that, if you would, please.

It's a very different use case. You know, we're learning, especially as these vehicles are deployed on projects like data centers, what I can tell you is, you know, they're putting an awful lot of miles on them. They're putting even more hours because a lot of these projects are in areas that they'll leave the vehicle running. We've seen that show up in our parts data as, you know, alternator belts and things like that have to be replaced more frequently. You know, the vehicles are used in conditions where they're not able to be washed frequently. I mean, it's just a whole different use case. And so, you know, the vehicles, we're watching what redeployment rates look like. That's when, you know, a rental fleet will be pulled back in off of one project and redeployed to another. We don't necessarily have a lot of great data yet on some of the new uses. But these vehicles tend to be out in the market two to three years. If they are salvageable, they tend to be sold for a very, very low price, and they're not a consumer-oriented vehicle, if you will. But most of these vehicles are not redeployed. So a lot to be learned, and, you know, for us, it's just about staying focused on this commercial buildout. It looks like it's going to go on for a while, and we're making sure that we've got the product that these consumers are looking for. HVAC tends to be something that, you know, has become increasingly more popular, not just having heat but also having air conditioning in the vehicles. So we're working through making sure that we've got that offering as we move forward. Thank you.

And the next question will be from Robin Farley from UBS. Please go ahead.

Hi, good morning. This is Artina for Robin. And thanks for taking our question. I wanted to go back to the big picture demand drivers for 2027. You suggested shipments should be aligned with retail as we look into next year. And it sounds like we're now looking at roughly, maybe slightly better retail for this year. As you look across the consumer business, does it seem like you should see similar low single digit improvement and then maybe better shipment than that, given commercial business and data center demand and defense budget that seem to be maybe not going down year over year? Anything, any more color on that would be great.

Yeah, I don't know that we want to start getting into, you know, specifics around 27. I mean, I think I've said an awful lot about our confidence in the products we have. You know, we've effectively got dealer inventory shipments and build aligned this year. So as we head into next year, I don't necessarily see that being a tailwind like it was this year. I think, you know, our top line growth will probably be more reflective of what we ultimately see happening from a broader retail as well as what ultimately happens in the commercial construction. You know, the Dodge Momentum Index is a good gauge of what's expected in the commercial markets. It's not a one-for-one by any stretch, but it certainly looks encouraging. But we'll have more to say in January when we provide our official guidance on 2027.

Okay, thanks. And it seems like adjusted for tariff refunds for base year this year, you should be able to keep margin flattish to better year-over-year next year. If you were to sort of dial down what you were trying to say earlier on margin for 2027, is that a correct conclusion?

I think tariffs will be generally flat year over year unless there's a new 301 tariff, which we certainly don't know. I think going into the year, we're going to have operational efficiencies as a tailwind and commodities as a headwind. It's pretty difficult to say what full-year commodities looks like right now sitting here in October. So I don't think we're giving a forecast on, you know, what margins will look like next year. We've given the data we're going to give in terms of the update in January.

Okay, thank you. Thank you. And the next question will be from Noah Zatzkin from KeyBank. Please go ahead.

Hi, thanks for taking my questions. I guess first, I think you noted $0.30 of pull forward into 3Q from 4Q, But you did raise full-year operational EPS guidance by $0.35 at the midpoint. And I think you raised full-year sales guidance by $175 million. So is the driver of those increases really the low single-digit retail versus flat prior, or is there kind of any other dynamics there?

Yeah, it really is just it's the strength and utility. So, you know, $0.15 of the Q3B lives through and then another $0.20 in the fourth quarter. And it's largely driven by the strength we've seen in utility. The rec side has continued to be a, you know, a headwind relative to what we expected and are in line with what we expected, but on a year-over-year basis.

That's helpful.

And then I think, you know, some of the tariff noise maybe makes it a bit hard to discern the magnitude of operational efficiencies in the results. So wondering if you could help quantify or maybe provide some color around the structural benefits this year and how you're thinking about the remaining opportunity there.

Well, I mean, just think about the fact that our margins would be almost two points higher than where they are today if we didn't have tariffs sitting in there. And so it's a meaningful impact. And even the commodities are a pretty substantial drag right now. And we're not seeing necessarily the benefit from a foreign exchange perspective. There is some benefit, but not anywhere near the magnitude of what we're dealing with with commodities. And, look, we could sit here and, you know, adjust those out and feel great about our results all day long. But the reality is they are here and we're dealing with them. So, you know, Bob mentioned it, you know, the work we've done in Huntsville, the work we're doing in Monterey, you know, know, we're transitioning engines out of Wisconsin both to Osceola and down to Mexico. That work is going well. You know, the focus that the team has around making sure that we've got first pass yield coming out of our factories, it's not to say we don't have issues come up, but the level of performance is like I've never seen come out of this company before. And so we're going to keep working that because we can control those far better than I can do anything about commodities. You know, Bob and his team do what they can to hedge, but that only ultimately dampens the volatility. You ultimately end up getting caught up eventually with what's going on in the current markets. And, you know, unless we see some sort of resolution that drives oil down, I don't expect that to change anytime soon, which is, you know, further to the comments Bob made around the first half headwinds that we think we have. But we're going to keep working all the operational activity. And, you know, I think the sheer fact that we've pulled China content down from 14 percent down to nine and we're on a glide path to be below five within a two-year time period speaks to the capability we've developed inside the company from a supply chain standpoint. So, you know, our teams are working hard, and we're going to do everything we can to get the cost out.

Thank you.

The next question will be from Molly Baum from Morgan Stanley. Please go ahead.

Hi. Thanks for taking our questions. The first one I wanted to ask is just on the competitive landscape. You've now seen six straight quarters of share gains, but are you seeing or would you call it any notable changes in the competitive landscape heading into 2027, whether it's from a pricing standpoint, or are you seeing competitors push further into value or commercial where you've been seeing a lot of success? Thanks.

I wouldn't say we've seen any huge shifts. You know, I think there's a lot more responsible acting today than there was, say, a couple of years ago. You know, we don't see the massive discounting and wholesaling. I mean, there's still some of that activity going on. But we and the number two player in the industry who make up, you know, between the two of us, 60 percent, you know, both have inventory in a good spot. And, you know, I think we're hearing the dealers play back to us that, you know, that that's putting pressure on the others to do the same. But really, we haven't seen anything from a promo standpoint. You know, I do think you're seeing a lot of competitors follow the steps we're making from a product standpoint. And we're just going to continue to lead. That's what we do as the leader in power sports and, you know, leaves the field wide open for us to drive new product development.

Got it. Well, and, you know, off of that, and I don't want to front run the investor day too much, but where would you say you're prioritizing innovation from a new product standpoint over the next few years? Is it, you know, more on the value side, the commercial side? I know you mentioned cab units as well, or is it kind of across the board?

Yes. Well, I mean, you know, we'll talk obviously more at the investor day, But, I mean, we've really honed our focus as a company over the past several years, and we've got cycles within the business. But, yeah, we have some really – we have some cool stuff coming. We're excited and looking forward to February.

Got it. We are as well. Thanks so much.

Thank you.

And the next question is from Andrew Dodora from BOA. Please go ahead.

Hi, good morning, everyone. I guess, Mike, a lot of questions on 27 margins at this point. But I guess, you know, when we think of take a step back and think about kind of medium term margin potential in like kind of a current, you know, current state of tariff world, you know, how do you think about the margin potential of the business? And then, again, to maybe to set the 26 baseline, because I think there are a lot of moving parts in terms of sale of Indian tariff refunds, TSAs, et cetera, are like normalized EBITDA margins this year closer to seven and a half. And that's what we should base our 27 estimates on. Or are you thinking about that differently?

I mean, look, I don't want to start trying to throw numbers out. We got a lot of math to go work on and do. You know, we're going to end this year at about 8.5% EBITDA. And, you know, if you were to factor out the tariffs, both the IEPA refunds as well as the ongoing tariffs that we're dealing with, I mean, the EBITDA margins are up around 10% operationally, organically, if you will. So we're certainly on a good path relative to the mid-cycle targets. You know, the tariff headwind is a bit frustrating. We're doing everything we can to work through it. That's obviously going to delay things a little bit as we work through, you know, resourcing to get the tariff load down, as well as then value engineer to get the incremental cost from the new supplier out. But we feel good. You know, I mentioned it, that we're working hard. We think the setup of the business is good for the mid-cycle targets. And then, obviously, when we are with everybody in February, we'll provide a little bit more context. One of the things that, you know, Bob and I want to make sure we do is walk analysts through how we get from where we are today up into that, you know, mid-teens EBITDA range and the series of things that need to occur for us to get there and the confidence level we have around that. We'll have more to share when we get to that February meeting.

Yeah, I mean, you know, to Mike's point, we certainly have an ongoing tariff headwind. Hopefully that's stable for next week. We certainly don't control that, you know, but we are controlling what we can, moving stuff out of China, you know, also there's things that have to move out of Southeast Asia, as that's the kind of, you know, we continue to focus on that. You know, the other piece, you know, so that stuff happens. We've got to work the cost down. I mean, there's a reason everybody was buying stuff in China that was cheaper. So, you know, you don't get as much of an immediate benefit from the tariff relief as you would expect, because some of it's offset with higher costs. and just take some time to work those costs down. But the positive thing, and if you think about it, going further into the future, anything we're designing today, and we have such a high degree of innovation, you know, we're designing it with those new suppliers from the start. So, you know, as new products continue to roll out over the next few years, you know, you'll have less of that impact of stuff moving from one supplier to a new supplier. We'll have started it with a North American supplier. So I feel like that's going to give us some tailwind as we get further out, but that stuff takes some time. So, you know, I think overall positioned well, I think, you know, as Mike said, you know, we'll be kind of at an eight-and-a-half-ish range for the full year, and I think that's a good place to build from.

Got a helpful color. I'll leave it there.

And the next question is from Anthony Bonadio from Wells Fargo. Please go ahead.

Yeah, hey, guys. Thanks for taking our questions. So just on commodities real quick, I know there's a lot of uncertainty, but just thinking about 27, that seems like a key variable. Can you just talk about the timing of hedging? And I guess if things were to improve, how much is locked in versus how much you'd benefit, and just vice versa, if things remain challenged?

Yeah, I mean, we typically try to be about 50% hedged as we go into the year. We are not there yet. And obviously, we're looking at what the commodity curves look like, and we'll make those decisions as we see that unravel through the fourth quarter and into the early part of next year. You know, it's not a hard and fast rule. We try to look at what the market's telling us is going to happen. It's just right now, it's just difficult. You know, you look at the steel curves and the diesel curves, and they start to look better in the second half of last year. But, you know, they have pushed quite a bit over the last couple of months. And so, you know, we'll continue to pay attention to that and see how that looks. And that'll drive, you know, how deeply we decide to hedge. But, you know, it's the opportunity if we see decreases in commodities is really going to be more in the back half of the year. As you think about the first half of the year, you know, between the hedges that are in place and the fact that we're already buying stocks next year. opportunity to impact them as you get into the end of it.

All right. I'll leave it there. Thanks, guys.

And ladies and gentlemen, this concludes today's question and answer session and thus concludes today's call. We thank you for joining Polaris' third quarter earnings conference call. At this time, you may now disconnect your lines. Take care.