Polaris Inc (PII) 2015 Q1 法說會逐字稿

Good morning. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris first-quarter and earnings results conference call.

(Operator Instructions)

Mr. Richard Edwards, Director of Investor Relations, you may begin your conference.

Thank you, Suzanne. And good morning, and thank you for joining us for our first-quarter 2015 earnings conference call. A slide presentation is accessible at our website at www.polaris.com/IRhome, which has additional information for this morning's call. The speakers today are Scott Wine, our Chairman and Chief Executive Officer; Bennett Morgan, our President and Chief Operating Officer; and Mike Malone, our Chief Financial Officer. Ken Pucel, our Executive VP of Operations, Engineering and Lean, is also here and is available to answer questions.

During today's call, we will be discussing certain topics, including product demand and shipments, sales and margin trends, income and profitability levels, foreign currency movements and other matters, including more specific guidance on our expectations for 2015, which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. Now, I'll turn it over to our CEO, Scott Wine. Scott?

Thanks, Richard. Good morning, and thank you for joining us. With a great deal of ups, downs and noise impacting our business and industry, I'm simply going to refer to the start of the year's first quarter as a quarter of ex's. We exceeded our sales and earnings targets, although the beat would have been notably better ex-currency.

But once again, we did not execute nearly as well as we could or should. Retail sales were below expectations, which partially contributed to excess inventory at our dealers and on our balance sheet. We too often fell short of our own high expectations, requiring explanations of how we will improve. We will not make excuses, but we will rely on extraordinary talented team to deliver exciting performance our stakeholders expect.

First-quarter revenue was up 16% to a record $1.03 billion, as strong global demand for motorcycles and improved availability of off-road vehicles all set a volume- and currency-driven sales decline in EMEA. In North America, we saw mixed consumer demand for much of the quarter, with regional weaknesses and an elevated competitive environment combining to limit overall first-quarter retail sales growth to 8%. Which is actually our best first-quarter retail performance in the past three years.

Motorcycle retail was especially strong, with Indian and Victory combined up nearly 40%, and overall motorcycle retail, including Slingshot, up over 100%. This dramatic increase in motorcycle retail sales would have been even higher if production issues had not restricted shipments for much of the quarter. Operating profit was up 19% in the first quarter, surpassing sales growth, as we exercised control over operating expenses, still up 11%.

It felt good to reap the rewards of our heavy OpEx investment over the past few years, although no one should be concerned that we are curtailing our growth focus. We are merely slowing our operating expense growth from a torrid government-like pace. Net income rose 9%, yielding record earnings per share of $1.30.

We closed two small strategically important acquisitions earlier this week. The previously announced Hammerhead off-road vehicle business provides us with our first Chinese manufacturing facility and immediate access to the substantial global market for value-priced off-road vehicles. Dave Longren sees significant opportunities for his off-road vehicle team to leverage Hammerhead for growth and productivity in 2015 and beyond.

We are excited about yesterday's announcement of our acquisition of Timbersled, the industry leader in the emerging fast-growing snow bike market. Timbersled grants us access not only to their cool technology that complements our snow business, but also brings the founder, Allen Mangum, and his innovative and passionate team, into the Polaris family. Together, we believe we can take the sport of snowbiking mainstream and create a new platform for growth amongst our industry-leading portfolio of mountain sleds.

We are raising the bottom end of our full-year EPS guidance by $0.05, maintaining our range of up 9% to 12%, which matches our unchanged sales guidance. We are planning for an uphill battle for market share gains across our businesses and no improvement in currencies. But we do expect to continue to win with improved execution and another great year of Polaris innovation. We will accelerate the velocity of inventory through our factories and dealers, and expand the global dealer network to support the growth of Indian and Slingshot.

While overall international sales are projected to be down for the year, we expect Europe, Middle East and Africa to get moderately better as the year progresses. And forecast strong growth in Latin America and moderate growth in Asia-Pacific. Achieving the upper end of our full-year guidance will put us just over $5 billion in revenue, with net income of $500 million -- well on our way to achieving our 2020 objectives of being a highly profitable $8 billion global enterprise.

It is important to note that financial targets are a small part of our strategic objective slide. How we win over the long term matters, and we are committed to winning the right way for all stakeholders. Our leadership team and more than 8,000 employees work hard every day to create our ambitious future. And I will highlight three leaders today that offer the potential for significant impact.

Starting with customers, as any lean journey must do, I am thrilled with the progress Tim Larson and his Customer Excellence team are driving to enhance the customer experience at every touch point. Tim spearheaded the successful achievement of our goal to add our 150th retailing Indian dealer in North America by the end of the first quarter. And his interactive service and RiderX teams are building a digital competitive advantage that will delight and benefit customers, dealers and riders. He leads the best sales team in powersports, and they will guide our way to growth, market share gains and customer loyalty -- all essential to our long-term and short-term success.

Matt Homan has only been leading our Adjacent Markets business for nine months, but has built a stronger work and transportation team, with improved execution in almost every respect. His strategic vision and plans for the potential of our business outside of powersports brings our $2 billion Adjacent Market business goal clearly into focus.

Ken Pucel is off to a great start in the four months since he became our first Executive Vice President, and is not only accelerating our Lean enterprise progress, but is working to streamline our product launches, reduce our inventory and fast-track our productivity gains. Improvements have already begun, though the truly transformative impact of his leadership will be several quarters or even years in the making.

Patience is certainly not a personal strength, so I'm anxiously awaiting for Ken and his team to make us significantly better at innovation, quality, delivery and cost. I will now turn it over to our President and Chief Operating Officer, Bennett Morgan, who will provide additional insights into our performance.

Thanks, Scott. Good morning, everyone. Polaris again gained market share in powersports, driven by strengthening retail momentum and scale in Polaris motorcycle brands, as well as RZR. First-quarter Polaris retail sales in North America increased 8%, with some regional weaknesses. Canada and Texas were weaker, with the balance of US markets generally stronger.

The overall North American powersports industry remains healthy, and grew at a 4% rate. North American dealer inventory is up 17% versus 2014, with ORV inventory up mid-teens percent. Factors that contributed to this increase were our new ORV models, especially the A segment. Our Q1 retail started slow and was a bit softer than we had projected. Increased dealer-stocking, due to new ATV RFM dealer profile requirements. Level loading of our production and shipment schedule ahead of key seasonality, due to limited ORV capacity upside, until Huntsville becomes operational. And reduced order-to-ship lead times in conjunction with RFM.

In summary, our ORV dealer inventory is just too high. We've already taken steps in recent weeks to improve RFM order flexibility, to better meet the needs of our individual dealers, and we have further measures in development. The objective is to lower the year-over-year physical unit box count growth in our ORV dealer network, even with our continued product expansion, by increasing dealer turn velocity.

Snowmobile inventories are up mid-20%s due to lower snowfall in key snowbelt regions, but remain at acceptable levels in the majority of dealers. Motorcycles are up about 20%, driven by Indian and Slingshot dealer and product expansion. But overall, motorcycle inventory remains too low. Lean enterprise is competitive advantage.

Product quality as measured by our customer continues to improve. We're number one in net promoter scores in motorcycles, ATVs and side-by-sides, and number two in snowmobiles. Factory inventory is up 30% year over year, driven by PG&A, raw materials, mix and acquisitions. But we expect to see reductions on the year-over-year percent increases as we move throughout 2015.

Our ORV operational performance improved in the first quarter. Our logistics team effectively managed the West Coast port strike with minimal impact to supplier, other than some elevated expedited freight expense. Over 93% of our ATV orders were shipped on time, and order variation was further reduced through RFM.

And Spirit Lake continued to improve stability of our new paint system throughout Q1, though build and supply were constrained on all motorcycle brands. Paint efficiency and throughput has increased significantly, and will continue to improve in Q2. Order-to-ship lead times are beginning to come down now. And now that we've begun shipping Scouts, all lines are operating and improving.

Our Huntsville project is progressing on schedule and on budget. Our general contractor has been selected. Earth work has begun, and we expect to be operational in less than a year. Finally, Ken Pucel and his team have developed a solid list of value-improvement process projects -- we call them VIPs -- and Lean cost-down initiatives that we expect will help offset the margin pressures we are currently seeing.

Moving to business unit performance. Off-road vehicles. Polaris' first-quarter ORV revenue increased 11%, driven primarily by strong North American demand, fueled by the strength of the industry's leading side-by-side brands, RZR and RANGER. Somewhat offset by weaker international sales associated with the strong US dollar.

Polaris first-quarter North American ORV retail sales increased mid-single digits. Our side-by-side retail was up almost 10%, thanks to strong performance from RZR XP 1000s and the new RZR XP 900 trail models. ACE and new RANGER models also contributed to ORV retail growth, which was slightly offset by a low-single-digit decline in our ATVs. The North American ORV industry also grew mid-single digits, with ATV industry up low-single digits, and side-by-sides increasing an estimated upper-single digits. For the quarter, Polaris ORV market share was flat, with modest gains in side-by-sides, offset by a modest loss in ATVs.

The Q1 ORV promotional environment escalated as Japanese and North American competitors attempt to move the competitive battle away from Polaris product superiority and innovation. We have added to our planned promotional spending in the latest forecast, so we can act decisively if necessary to complement our armada of industry-leading products. Which should continue to get even stronger with our upcoming model year 2016 new product introductions later this summer. To kick off the new model year 2016s, we recently announced another industry first -- bringing fuel injection reliability to the youth market, with our new Sportsman and Outlaw 110cc EFI models.

Motorcycles. Polaris' first-quarter motorcycle revenue surged 74%, despite continued order backlogs in all motorcycle product lines. Despite the improving production rates, we expect backlogs to continue on some models into Q3.

We had an excellent first quarter in 1400cc heavyweight motorcycles, and picked up a significant amount of market share in this North American industry that rose low-single digits. Victory retail sales slightly outperformed the market, even with increased promotional and financing activity of competitors. And both orders and retail has been excellent on our boldest bagger yet, the new Magnum X-1.

Indian 1400cc heavyweight momentum continues to accelerate, with retail up well over 60%. Dealers retailing in North America has increased to 150 by the end of the first quarter, and dealers signed rose to 200. And we introduced the new Indian Chief Dark Horse, which targets a younger rider, at an affordable $16,999 MSRP. Indian is premium brand, and our pricing and promotion strategy has remained constant since our inception.

Indian Scout retail was modest for the quarter, as all dealers were essentially sold out through most of the first quarter, due to the production delays. Both shipments and retails have increased notably in April, and we expect this to accelerate going forward.

Slingshot. Slingshot remains hot. North American retail sales significantly exceeded our expectations and accelerated throughout the quarter. Demand remains excellent, with consumer pre-sold orders increasing throughout the first quarter. And we will remain short of demand at least throughout model year 2015. As a result, in April we executed a production line rate increase to improve our full-year shipments.

Consumer Net Promoter Scores indicate high early consumer satisfaction rates. Active retail dealers increased to over 370, with more waiting. And we are making tangible progress on the remaining state and provincial licensure front. In fact, just last week, North Dakota announced approval for Slingshot, and we are confident a few more states will soon follow suit.

In March, we introduced our first Limited Edition Slingshot in Nuclear Sunset Orange, which sold out to dealers immediately. Slingshot is proving to be a strong growth catalyst, and for calendar year 2015, is already forecasted to be in excess of 20% of our motorcycle sales guidance. So to say the least, we are encouraged about each of our three unique, differentiated brands that constitute our growing motorcycle business.

Snowmobiles. First-quarter snowmobile revenue decreased 7%. Lower snowfall in key markets in the first quarter caused a mid-single-digit industry decline. However, for the just-completed 2014-2015 season, the industry increased mid-single digits, growing for the third consecutive season, and recording the strongest industry sales level in over six years.

Polaris retail sales outperformed and increased high-single digits for the season, despite being down low-double digits in the first quarter. And we grew share in every key segment, led by our new AXYS chassis. Our 800 Switchback Pro-S in the AXYS chassis was recently awarded the prestigious SnowTrax TV Real World Sled of the Year for 2015, after a full season of on-snow evaluation versus the competition.

For model year 2016, Polaris has the biggest news in the industry, led by seven all-new AXYS RMK models. At 408 pounds, the all-new RMK PRO is by far the lightest sled in the industry. These new models have been enthusiastically received, and Snow Check sales for RMK are up significantly year over year. Global dealer orders are still being finalized, but based on another strong pre-season of consumer Snow Check deposits, North American orders should be up slightly. But will be offset by weaker international orders, primarily due to Russia.

Global Adjacent Markets. Global Adjacent Markets first-quarter revenue grew 7%. North American Work & Transportation revenue was up over 30%, led by strong partnership shipments on the Airens supply vehicle, continued national account growth, and GEM's over 40% retail increase.

Brutus retail was up low-double digits, but revenue was down due to distribution erosion and additional promotion planning. EMEA work in transportation markets declined modestly, due to currency. Goupil and Mega shipments increased, and future orders are up over 20%, while Aixam gained a moderate amount of share in an industry that was flat, strengthening our number-one position in Europe.

Defense continues to grow, with revenue up double digits. DAGOR shipments to special operation forces accelerated in earnest in the first quarter, with the vehicle now in the field and receiving very positive customer reports. International sales expanded with MRZRs, and our family of ultra-light combat vehicles now deployed in 25 countries, with new customer orders coming online.

Parts, Garments and Accessories. PG&A generated record Q1 revenues again in Q1, up 12%, with strength in the US offsetting weakness in Europe and Canada. Accessories sales grew 23%, driven by motorcycle and side-by-side performance in all brands. And we had nice contributions from our growing after-market portfolio of Klim, Kolpin and Pro Armor. Apparel grew 8%, while parts sales rose just 1%, due to lower demand for snow-related parts associated with poor global snow conditions. Investments in our online shopping experience are paying dividends. E-commerce revenue was up over 100%, and traffic was up 44%.

International. Polaris international revenue declined 7% in Q1, due primarily to currency pressures across the globe and weakness in Europe and Russia. EMEA region revenue declined 15%, and European powersports industries and Polaris performances were mixed. The ORV industry grew mid-single digits, but with smaller value products and discounting driving the growth. Polaris was down mid-single digits. Motorcycle industry retail was down upper-single digits, with Polaris down more, due entirely to a lack of product availability.

Scandinavian snow industry has improved to flat now, season-to-date, with Polaris now up low-double digits and gaining a nice amount of share. Our Poland plant is on track and shipping ORV products to our EMEA customer base.

Asia-Pacific sales increased 6%, led by solid double-digit growth from China and India and New Zealand. Australian sales were flattish, despite continued market share gains, due to a very weak currency. The Eicher/Polaris JV is in the final stretch before we commercialize our new personal utility vehicle. The plant is complete, the supply chain is being pulsed, and dealers are in place, with shipments beginning in Q3.

Latin American sales were very strong, up 75%, led by our new Mexico subsidiary and growth in Brazil. Our momentum in these regions is increasing, and we continue to invest in future business and product development in these emerging markets. And with that, I'll turn it over to Mike Malone, our Chief Financial Officer.

Thanks, Bennett, and good morning to everyone. As Scott and Bennett noted, our first-quarter results, while another record, were not without challenges. However, we are making the necessary adjustments and are comfortable in maintaining our sales guidance of up 9% to 12% for the full year. And increasing the lower-end of our earnings per share guidance, and now expect it to be in the $7.27 to $7.42 per share range.

While we are maintaining our total Company sales guidance, we are making a couple of adjustments to the individual business sales expectations, as follows. Snowmobiles are now expected to be down low-single-digits percent, slightly better than prior guidance, reflecting the impact of the recent Timbersled acquisition. Motorcycles are now expected to grow 55% to 70%, up from prior guidance, driven by the strong sales for Indian and the new Slingshot.

And we are revising down slightly both Global Adjacent Markets and our international sales guidance, given the weak European markets and the currency impact of the strengthening US dollar. Global Adjacent Market sales are now expected to grow 5% to 10%, and total international sales are now expected to decline low-single-digits percent. Our previously issued sales guidance for the other businesses remains unchanged.

PG&A sales are expected to be up high-teens percent for the full year 2015. And ORVs are expected to increase mid-single-digits percent, after growing 11% in the first quarter, benefiting from a 7% increase in the average sales per ORV unit.

We are adjusting our previously issued guidance for the two following items. Income from financial services is now expected to grow mid-single-digits percent for 2015, a slight increase from previous guidance. The improved income guidance is due to the strong performance in the first quarter of both our retail and wholesale credit businesses. And the income tax provision rate for the full year is now expected to be in the range of 34.75% to 35.25% of pre-tax income. Somewhat higher than our previous guidance, due to the lower expected pre-tax income from our international operations, largely currency related.

For 2015, we are again expecting the R&D credit to eventually be extended by the US Congress, but not until later in the year. Our guidance for the remaining P&L items remain unchanged.

The gross profit margin percentage decreased by 66 basis points in the first quarter, to 28.4%. While our first-quarter gross margins benefited from product cost reductions and higher pricing, the speed and magnitude of the negative currency changes more than offset these positive benefits. In addition, product mix was unfavorable in the first quarter, as motorcycles grew significantly faster and PG&A grew less than the overall Company.

For the second quarter 2015, we expect the gross profit margin percent will again be lower than the prior year, similar to what we experienced in Q1. For the full year 2015, gross margin guidance is unchanged. We continue to expect the gross profit percentage to be in the range of flat to up 20 basis points. We expect gross margins to continue to benefit from higher selling prices and product cost reductions, along with the improved productivity in the factories after a challenging past few quarters.

The start-up costs for the Poland plant are winding down as we ramp up production. And we are moving quickly with the planning and construction of the new Alabama plant, which will add start-up costs for the balance of 2015 and 2016.

With the continued low oil prices, diesel fuel costs are expected to be beneficial to gross margins in 2015. We have about half of our diesel fuel exposure hedged for the remainder of the year. And we expect to see the benefits of other commodity prices moderate later this year, although we did not recognize that in Q1.

Foreign exchange headwinds have intensified significantly in the last 90 days. Currencies in the 2015 first quarter had a $32 million negative impact on our total Company sales versus Q1 of last year, and a $16 million negative impact on pre-tax income. On a constant currency basis, for the first quarter, our sales and net income would have each increased about 20% over the first quarter of last year.

Assuming currency rates remain in about the same range as quarter end, we expect that the appreciation of the US dollar will reduce full-year 2015 total reported sales versus last year by about $140 million to $160 million. Negatively impact gross margins by about $65 million to $75 million. Improve operating expenses by about $15 million to $17 million. Impact other expenses by about $15 million to $17 million. Thereby reducing pre-tax income by about $65 million to $75 million. Keep in mind, these currency impacts are factored into our guidance range, as I reported on earlier.

We now have about 75% of our remaining full-year 2015 Canadian dollar cash flow exposure hedged, as well as 30% of the Australian dollar, and 70% for each of the Japanese yen and Mexican peso. And I've also started to hedge the Canadian dollar and the peso for the first half of 2016.

Most of our hedging activities, gains and losses are reported below the operating line, in other expense, along with currency gains and losses related to foreign cash transfers and certain inter-company transactions. In the 2015 first quarter, this resulted in a $7.4 million of expense, compared to other income of $2.1 million reported in the first quarter of last year. Given our current hedges in place and assuming exchange rates stay in a similar range, we expect that this other expense will continue for each of the next three quarters of 2015.

I'll just add a few comments on our balance sheet and liquidity. We expect cash flow provided by operating activities for the full year to increase over last year at a higher percentage rate than net income, as we are working hard to moderate factory inventory levels. We continue to expect capital expenditures for the full year to be over $250 million, which includes a portion of the cost of our Alabama plant, as well as an increase in tooling investments for the new products under development.

Polaris Acceptance receivables from dealers in the US were over $1.2 billion at the end of March, an increase of 28% from a year ago. The year-over-year increase reflects the elevated level of dealer inventory and the mix change of higher-valued side-by-sides and motorcycles. GE announced that it will be selling a large part of its GE Capital portfolio over the next 24 months, including the entity that is our joint venture partner in Polaris Acceptance. In the near term, we do not expect any change in the business or the relationship.

The retail credit environment remains stable, with approval rates of 56% for the first quarter, and the penetration rate at 32%, each of which is slightly improved from a year ago. With that, I'll turn it back over to Scott for some final thoughts.

Thanks, Mike. After starting my comments today talking about the quarter of ex's, I will finish with a few A words that are pertinent to the ongoing success of Polaris. I will start with anticipation, which is always a key part of leadership success, but is especially vital in today's dynamic, globally competitive powersports industry. Across Polaris, we are committed to anticipating more and reacting less, in order to stay ahead of the competition.

Agility can be associated with most of our vehicles, and is analogous to one of my favorite slogans -- speed wins. It is also a critical tool for Polaris corporate, where agility can overcome imperfect anticipation -- which is almost by definition, a reality -- and aid us in beating bureaucracy so we can accelerate profitable growth.

Alignment contributes to better agility and anticipation, but also enables us to better focus on and serve customers. Strong leadership, which is essential to effective alignment, is a core strength at Polaris. Our recent leadership transitions provides proof of this concept.

When Mike Jonikas, a 15-year Polaris veteran who runs our oldest and newest businesses, Snow and Slingshot, announced his intention to retire, it could have created a strain on our business and organization. Due to Mike's leadership and the processes, infrastructure and positive momentum he had built, we were able to quickly identify strong executive back-fills that enabled us to become even better aligned around our Snow and Slingshot customers.

Chris Wolf is the natural leader to step up as the next VP of Snow. He started with Polaris in 2002 and successfully rose through the ranks in sales, service and product management, before being promoted to Director of Snowmobiles in 2011. And his subsequently advancing to General Manager of Snowmobiles in 2014. Chris is respected and highly regarded in Polaris and throughout the snow industry, and we are excited for his continued leadership of our legacy Snowmobile business, and Timbersled.

Craig Scanlon is the perfect candidate to backfill Mike's role as VP of Slingshot. Craig has been with Polaris since 2004, driving aggressive growth and growing as an aggressive driver -- he's an acclaimed RZR racer -- in various leadership roles within our $3 billion off-road vehicle business. Someone compared Slingshot to RZR, in terms of growth potential, and Craig is our best bet to make that happen.

I want to thank Mike Jonikas for making Polaris a better, bigger and stronger company during his 15-year tenure. He professionalized Polaris sales, created our Dealer Council, ran almost every business in Polaris at some point, and was simply good for powersports industry, and great for Polaris. His legacy will live on with the growth and success of Snow and Slingshot, which he has aligned well.

Accountability is my final A word, but is also the most important. For me, Bennett and Ken, to the new leaders on our team, we are all accountable for the success of Polaris. That entails winning most of the short-term battles, but also doing the big and hard work to ensure we deliver and win for customers, dealers, employees, shareholders and all stakeholders, over the long term. I feel good about our ability to do that throughout the rest of 2015 and beyond. With that, I'll turn it over to Suzanne to open the line for questions.

(Operator Instructions)

Your first question comes from the line of Tim Conder of Wells Fargo Securities. Your line is open.

Thank you. So let me ask one clarification, gentlemen. Bennett, on your Slingshot comment, you're saying that, that's going to account for over 20% of the Motorcycle segment increase for this year -- is this correct?

No. That's not correct. It's 20% of our implied Motorcycle guidance for the year. Just trying to give you some idea so you didn't chase Richard and Mike around all quarter trying to get some idea of scale. So total (multiple speakers) of sales.

So, total revenue. Okay, perfect, thank you. Okay, my real two questions here. So, first and foremost on (laughter) on RFM and ATV inventories, clearly you guys aren't happy with what's going on at the Company level or in the channel; that's very clear. So, if RFM's been kicking in for ATVs, understanding it's a ramp, why do you have to -- I think I've got a little bit of an understanding. But why do you have to build the inventory so much there in the channel as that's kicking in?

Secondly relates to the competitive pricing promotional environment. We've seen in the past that the Japanese generally have March fiscal year ends. We've seen this in the past, where they do some promotions and that, to clean things up, to make the books look good at year end. How much of what we're seeing for -- in ORVs and in motorcycles is that, versus the [yen]? Clearly there's, I would think, both going on. Those are my two questions, gentlemen.

All right, I'll jump in with one, and maybe the other guys will pile on. Let's start with your most recent one, which was the competitive promo question. We would agree with you. Again, we're not inside the walls of our competitors. Certainly we've seen that trend in the past, that there is some year-end stuff that often is taken by the Japanese. But with the yen where it's at -- and, again, as I made in my comments, we did a really remarkable job with the increased new product introductions from competitors over the last couple of years, with our armada of innovation. I think we pretty effectively beat those people back. And a lot of those folks have had to solve some of their volume issues, I think, through increased promotion.

So, we are planning on the environment to potentially remain more aggressive. And we've built the flexibility in our plan going forward to make sure that we can do that. Again, it's not a shock to us. But again, we want remain nimble so that we can continue to protect our industry and leading market-share positions.

And then, in regards to RFM, I think it really -- Tim, it's a byproduct of a number of things. ATV RFM is really a model that's been designed to try to improve ship predictability, get the right product, at the right place, at the right time, to dealers. We also saw an opportunity, frankly, as we continue to get bigger and more diversified, and make sure that we have appropriate segment-stocking across all of our retailers. And I think what we're acknowledging there is, we implemented that initially -- as I think perhaps we were a little bit more rigid and it wasn't working to the individual needs of each of our dealers as well as it needed to. And we've just got to be a little bit more cognizant of box count, even as we get a much larger, broader portfolio. So I think those are the adjustments that you hear us signaling.

All right.

Thanks, Tim. Next question?

Your next question comes from the line of Greg Badishkanian of Citi. Your line is open.

Great, thank you. Two questions. I'm just going to follow up on some of Tim's questions. So, if you look at second-quarter ORV sell-in versus sell-through, what are the puts and takes there? How much will that impact the second quarter? And, by the time we get through the spring selling season, will inventory levels be at your target level? That's question number one.

And then, the second question is, just comparing and contrasting -- we heard from Harley about the Motorcycle segment increasing the competition in the first quarter, seeing that accelerated competition. So maybe comparing Motorcycle heavyweight segment versus ATVs and side-by-sides, in terms of the competitiveness that we're seeing from the Japanese.

Okay. Let's take the second one first, Greg. From a motorcycle standpoint, certainly we have seen the Japanese be a little bit more aggressive. That's a smaller business for us. And, frankly, as you can see from our numbers, our numbers were good, and we're seeing a lot of momentum. I would say the impact, at least on the Polaris side, to the Indian and Victory brands, was frankly, very modest. So, we're feeling pretty good about that as we head into seasonality. Again, competitors are going to do what competitors are going to do. But we didn't really see an impact.

On the ORV side, again, it's aggressive, it's up. And we saw a lot of competitors attacking really on the value side, in the low end of the market. That's frankly where we saw most of the investments. And the other thing we saw is, we saw a fair amount of wholesale discounting in by a number of our competitors, which also has an impact and often isn't even measured in that promotion impact. So I think there was a one-two punch. And I don't expect the wholesale discounting to continue for an extended period of time. I think that was more of a short-term phenomena. I do think there's a little bit of difference going on between those two markets.

Okay.

Inventories.

Yes. Q2, again, what I would tell you is you're going to see -- I think you'll see sequential and directional improvements on our year-over-year increases throughout the year. It will be -- you'll see improvements in Q2, and I think you'll see more significant improvements as you go to Q3, and particularly to Q4, as we make those adjustments. And again, remember, we've got some capacity issues that we have to level load. And with the big Q3 coming up, there is some timing that has a little bit of impact on how quickly we manage that, along with the model year 2016 new product introductions.

Okay, great. So what you're saying is, is that the increase in retail inventory, that year-over-year increase, will moderate, and that's what you mean by getting better?

I expect it to moderate some in Q2, and to much more aggressively accelerate the year-over-year decreases, so to speak, as we go throughout Q3 and Q4.

Perfect, thank you.

Thanks, Greg. Next question?

Your next question comes from the line of Craig Kennison of Baird. Your line is open.

Good morning, thanks for taking my question. And I want to wish all the best to Mike Jonikas; he's been great to deal with, on our part. My question is on retail. Your North American retail metric improved 8% against a 7% comp. That was an improved result. But you do face low-double-digit comps for the remainder of the year. Do you think you have the product plan to drive, I think, low-double-digit North American retail growth against these tough comps, in order to meet your shipment goals?

Craig, I think you've got to look at it not just on what we've got from a product plan coming in 2016. But recognize that many of our high-demand model-year 2015 products are still -- and that includes Slingshot, includes Scout, Magnum -- there's a lot of stuff on the Motorcycle side that we still have a tremendous backlog for, and is going to help retail.

But don't ever underestimate Dave Longren and his team, and what they're going to bring for off-road vehicle innovation. It probably won't be an epic year, but it will be damn close -- and I think across the board. But it's not just -- Bennett's commented, we're going to be appropriately aggressive with our promotions, as we need to be. We are going to -- to what Tim Larson and their team are driving from sales [tactics], is going to be high. We absolutely expect to win the retail battle for the remainder of the three quarters.

Are you concerned at all, Scott, about the more challenging comparisons in the back half of the year?

If you look back, Craig, we've been facing that for five years. Like I said in my prepared remarks, I was surprised to look back. The 8% increase in this year's Q1 was higher than we've had in the last three years. So we lapped a very difficult Snow comparison for retail in the first quarter, yet we're still able to drive 8%. It is a difficult competitive battle, but I think it would be incorrect to assume that our team's not prepared for that challenge.

Thank you.

Next question?

Your next question comes from the line of David Kelley of BB&T Capital Markets. Your line is open.

Good morning, gentlemen, thanks for taking my questions. First one, just on the side-by-side segment. I have a question on the performance of RANGER versus RZR, and if you're seeing any underperformance on the utility side of the market due to West Coast drought here? Or what might be driving some delta between the two segments?

David, this is Bennett. I would tell you, there's a couple of things. RZR is notably stronger right now than RANGER, but RANGER grew nicely. RANGER is coming up against much tougher comps. Whereas the RZR comps, frankly, because we didn't have the new product in the trail segment, I would say has easier comps. There's some modest impact in a few regions. Canada is a little weak, and Texas is a little weak. But overall, utility segment's probably a little weaker than the rec side. But again, I think that has to do really with the news of the product.

Okay, great, thank you. And then, along those lines, and a quick follow-up as well. I think you noted a late start to the first-quarter selling season and some regional weakness. Are you seeing anything on the East Coast that was delaying that start, whether it was colder winter weather? Or what are your hearing from the ground troops, from the dealers, as far as the recreational market, and utility as well?

David, remember we had a blowout Snow retail on the East Coast in the first quarter. That was really good. As that transitioned -- we've got some of our best motorcycle dealers in that region. And we expect the Northeast to be a good spring selling season for us, across the board.

And actually, really, quarter to date, the East was fine on the ORV side. So I think we're feeling pretty good about that. As you're reading, I think that's even potentially more positive.

All right, great, thank you. I appreciate you taking my questions.

Thank you. Next question?

Your next question comes from the line of Robin Farley. Your line is open.

Great, thanks. Two questions. First is, with the supply constraint you have in the Motorcycle segment, would you say that today, or in April, that you're shipping at the rate where you want to be shipping for all three motorcycle brands at this point?

No. That's an emphatic no, if you didn't -- (laughter)

Stereo.

What do you really mean? Yes (laughter). But the paint system, though, it sounded like the paint system issue had been worked through. In other words, how much is it just that you're not being able to keep up with demand versus things like the paint system that, regardless of demand, were issues on the supply side?

This is Ken Pucel; I'm our new EVP. We built a lot of capacity -- good capacity in Spirit Lake. The weak link right now is our paint system. We made considerable improvements from Q1 to Q2. We're focused on all the right root-cause elements of things like downtime, rework, first-pass yields, and those types of things. And, at the same time, our model-year 2016 paint products and moving our Victory product line from our old paint system into the new paint system just -- it culminates in our paint system being a bottleneck.

We've roughly doubled the output quarter to quarter, and we've got plans to continue that. And it won't be long until that is off critical path, and then we're going to rapidly close the gap to the open orders and, through the rest of the year, catch up. So, that's the plan.

Okay, great. And then, you guys talked about discounting the promotional environment in off-road. And I think it sounded like you were saying the mid-cc, the value segment. Without ATV specifically, are you seeing the same or similar levels in the side-by-side business, in terms of the promotional activity?

Robin, we're seeing it a little more pronounced on the ATV side, but we're also seeing it in the side-by-side segment. Promotions are up. And again, where we're seeing the more aggressive attacks, I would say, generally, is in that entry value segment.

Okay, all right, great. Thank you.

Thanks, Robin. Next question?

Your next question comes from the line of James Hardiman of Wedbush Securities. Your line is open.

Hi, guys, good morning. Thanks for taking my call. My first question, to help us distill how much of the inventory increase in ORVs was planned versus unplanned. You talked about a mid-single-digit -- I'm sorry, a mid-teen increase in ORV inventory. What should that have looked like? What did you plan for that number to be, heading into the first quarter? And, ultimately, help us understand how much you're going to then have to work down going forward.

Yes, James, I'm not going to probably give you completely our plan. What I would tell you is, with the plan we went into the year, because of some of the level loading we had to do in getting ready for key seasonality, we expected Q1 to be up. We're probably up a couple percentage points more, at most, than what our plan was -- at most. And then, the plan was to bring that -- migrate that down as we went through the year. I think what you're hearing in our remarks is, we're going to be more aggressive, and try to be a little bit more assertive on the rate and the cadence we do that with right now.

That's really helpful. That's about what we thought. And then, staying with you, Bennett, obviously, again, you're not inside the walls of your competition. But as you read the tea leaves, how do you think about this promotional environment going forward?

Pretty clear that currency plays a role, but it also seems like elevated inventory levels among your competitors also plays a role. And, while we don't know how quickly, or if ever, the currency is going to fix itself, in theory, your competitors would be sitting with better inventories once they clear some of this stuff out. So, talk through some of those issues. We know on the Arctic Cat side, it's not currency; it's inventory. But how do we just think about timing going forward?

Again, one man's opinion, for what it's worth. This isn't the Great Recession. This isn't the periods when some of our competitors literally had years' worth of supply, and we were looking at extensive, crazy levels of wholesaling and discount that we had to compete against. I think most of these guys are not way out of whack on their -- on where they are from their inventory levels to their build [schedules]. I think people are trying to get their fair share, in their minds, and they can't necessarily, per se, win on the product innovation front, so they're just going to be a little more aggressive on the promotion front. I think that's the environment we're dealing with.

I think there's a very good chance it will moderate as we go throughout the year. But, again, to what we made in our comments, we're not going to take that chance. We're going to make sure we build the flexibility so we can act decisively, if necessary.

And, James, it's important to note -- obviously it's a little inconvenient sometimes, but we firmly believe that competition makes us better. And what Tim Larson and Dave Longren and the team went out into the field to understand what's going on, we have better plans going into the second quarter. We have better product plans coming forward. We are a better Company because of -- capitalism works. It might seem like a complete negative sometimes when you look at it. But we actually recognize the value that we're getting from this increased competition, and we expect to deal with it.

Great. Thanks, Scott, and thanks, Bennett.

Next question?

Your next question comes from the line of Joe Hovorka of Raymond James. Your line is open.

Thanks, guys. My two questions are, first, your slide 10, where you've got your ORV inventory up 4%, and then your new ORV models, plus three. How much of that is ATV and how much of that is side-by-side? Is ATV driving that up-number? Or maybe the excess of what you're thinking of for the quarter?

No, I think it's reasonably balanced, Joe. We did drive up ATV inventories slightly because of some of the -- as we talked about, the segment stocking profile adherence we executed with RFM, that we're now building some more flexibility in. But side-by-side, because of the demand and being fairly tight, we've elevated those levels a little bit for the key spring season.

Okay. And then, you've talked a lot about promos and the higher promotional environment. But if you look at your slide 20 and your talked-about guidance, promos were actually a benefit to gross margins in Q1, and you've got it as a push for the full-year 2015. Can you put those two with the commentary we've got around the promotional expenses?

I'll let the guys jump in, but two factors. I think, one, again, as much as we complain about currency, particularly in Canada, there's a benefit to us in the promo line on currency that we realize in the promo line. And then, secondarily, again, we're using the strength of the Polaris armada. Strategically, as we develop more innovative and better product solutions than what's out there, our intent is to try to reduce promo. That was kind of the plan that we were running in Q1, and the way we were thinking about it. As competition does different things, we adjust appropriately.

I would say, Joe, for the full year, our guidance didn't change. We got it as neutral. I think that you've followed us long enough to know that we prepare for pressures. And when we built the plan and built the guidance, we had an expectation that competitive promotional environment might get tricky, it might get tough. And we're seeing that, but we're prepared for that. That's not --

That's what I was getting at. Because your guidance hasn't changed on that line item. And so it would you appear -- although we've got higher promotional levels right now -- it's really not in excess of what you were thinking could have occurred. Is that a fair way to say it? Is that what you're communicating?

That's fair, yes. As Bennett said, we get offset by the benefit of the currency helping us a bit here too.

Okay, great. Thanks for my two questions.

Joe, it should be noted -- I'll just add that, obviously the competitive environment in motorcycles is difficult. But we have not changed our outlook there much at all. In fact, if anything, we're seeing opportunities on a promotion line to shift it from motorcycles to other parts of the businesses we're in backlogging. It's a competitive segment, but we're doing just fine there.

Next question?

Your next question comes from the line of Scott Hamann of KeyBanc Capital Markets. Your line is open.

Great, thanks. Just to expand on some of the regional variations that you're seeing -- you called out Texas. Can you give us a little bit more color on what some of those underlying trends are by higher end, lower end, work/play, just to help us understand what you're seeing early on?

Well, again, Texas is not a train wreck. It's just down versus most of the other US markets being up. I'm seeing that really across ATVs and side-by-sides, in all segments, even in the value segment -- which just tells me there's a little pressure in that market. Because usually if there's a little pressure, sometimes they'll pop in another area. And Texas is just down, in general, across all of our segments.

The Bakken -- you read the news, there's been significant layoffs on the oil rigs up there. It actually helps us recruiting labor for our Roseau plant. But it takes away a few of our customers in parts of the upper Northwest, Northeast, Mid-central.

Okay. And then, just on the international Snow market, can you help us understand what's going on with inventory there? It sounds like orders are down. Is it mostly currency? Is underlying demand not good? And how should we think about that as a percentage of your Snow business?

The international Snow business versus North America, it's a smaller piece of the pie. So I don't think you should be too alarmed on that. Frankly, Scandinavia looks good, and I think we'll be just fine there. Really what we're dealing with is primarily Russia. Russia is not good, as you guys have heard. And with the devaluation of the ruble, and they had another poor snow year, virtually, there's very few units going to go in that market this year. Because they've got a ton of carryover -- ours and everybody else's -- that they've got to work through. So that really is the big adjustment you're seeing on the international Snow.

And it should be noted, that's one of the areas where currency hurts us the worst. Because one of our competitors actually has a plant and builds in Europe. So they get a significant discount that they are more than willing to pass on.

We took a ton -- not ton, we took a lot of share in Scandinavia this year. We feel good about that. So we're doing just fine on the competitive front. It's really [our issue].

Okay, thanks. Next question?

Your next question comes from the line of Gerrick Johnson of BMO Capital Markets. Your line is open.

Good morning. Mike, can you talk about the other income line, and why it was such a big negative? Wouldn't the gains from Canada and Euro hedging offset losses in peso and yen? If you could just talk to that for a second.

Sure. We actually had -- there's a couple things going on there. When you say -- gains from Canada -- we don't get gains from Canada. Because it's -- we're hedging, but we're hedging at a significantly lower rate than we experienced a year ago. So hedging makes you feel better a little bit, because you've got some predictability. But the reality is, the currency's off 10% or 15%, and whether you're locked or at spot, right now, it doesn't feel good.

And then, the other piece of this is the extent that we didn't have hedged. Because if you remember, 90 days ago, we were only about 10% hedged on the Canadian dollar. Now we're at 75%. So we've taken a lot of hedges lately at pretty unattractive rates historically. So again, that makes us feel good, but we're at under $0.80 at an all-in rate on our hedges.

And, in first quarter, we actually didn't have a whole lot of hedges, and so we were moving all of our cash at the spot rates, which have been horrible. So, when you actually transfer the cash out of the international markets into US dollars, it gets hit down in other income as well. So that's what's going on, on the big piece of the $7.4-million expense.

Okay, that's really helpful. And, either Bennett or Scott, can you just talk about the agricultural market? You mentioned the energy market and its impact. What about lower corn prices and soybean prices? Thanks.

We've been dealing with that for 18, 20 months now, and certainly it's not helpful. But really, what we see with the farmers is, our product is typically at a discretionary level that really doesn't get into their capital investment thing. We know, because some of our dealers also sell farm equipment, that they're having a much harder time with the big farm equipment than they are our product. We think we're dealing with that just fine. It obviously will be helpful when that turns around. I'm a big believer that the farm economy has got great tailwinds long term. But, short term, it's not helpful, but not terribly hurtful either.

Great. Thank you very much.

Thanks, Gerrick. We've got a few -- we're at 10 o'clock, but we have a few more questions, so we're going to keep going a little bit longer here. So the next question?

Your next question comes from the line of Mike Swartz of SunTrust. Your line is open.

Thanks, good morning, guys. This is actually Mitch sitting in for Mike. Just first, did you quantify the increase in ORV dealer inventory related to the RFM?

I think we've pretty much answered that.

Okay. And then, just with regard to the EMEA region, can you speak to your confidence level that it will improve over the balance of the year?

I did say that in my prepared remarks. Obviously the quantitative easing going on in Europe has been a boost to the market optimism. We're not seeing it as much in our product categories, really. But we had such a low baseline in the first quarter, the optimism is really about our ability to ship more motorcycles over, which there's a tremendous demand for. And really across -- we've got some new distributors in Saudi Arabia. So we feel pretty good about the ability to get better. But don't pencil in tremendous growth over there. It's just coming off a bad baseline in the first quarter.

Okay, thanks, guys.

All right, thanks. Next question?

Your next question comes from the line of Mark Smith of Feltl and Company. Your line is open.

Hi, guys. Real quick -- it's been a while since we've asked. What's your outlook or thoughts on more of an entrance into the motorcycle business in dirt, adventure bike or any other things, especially with Timbersled getting you a little closer?

Mark, you know us well enough. We don't talk about future product plans. I'll leave it at that.

(Laughter) All right, that's fair, thanks.

Your next question comes from the line of Joseph Spak of RBC Capital Markets. Your line is open.

Thanks, good morning, everyone. Two questions. One, I was just wondering -- I know these things are small, but is there -- can you give us any indication as to whether Timbersled and Hammerhead, combined, add at all to this year?

They'll both be accretive, but very slightly accretive for the full year.

I wouldn't adjust your estimates on it.

Right. It's embedded into our guidance on both top and bottom line. They're both small companies right now, that are niche players, that we think can really benefit us going forward, with attracting a different customer set and different products. But the impact is pretty small. And, in fact, early on in Q2, as we get through the transition and the integration and all that, as you know, there's always those transaction costs that will hurt us in the near term. But we're excited about both of them.

Okay. And then, we've also, in talking to dealers, picked up a little bit of tension as it relates to RFM. I was wondering if you guys could even critique yourself as to that rollout. Like, do the dealers really and truly understand the benefits of potentially quicker re-order? Or are they just -- it seemed like they're more focused on -- and maybe even pushing back on -- stocking some inventory that they feel they don't need. So, is this really an education process? How does it improve? Or does it just take time, and maybe they need a couple seasons to really trust the new system?

Joe, I think we've been pretty clear on our remarks. I think we're critiquing ourselves, and I think what we're stating unequivocally is, we think we can and should have done better on that. We want to provide more flexibility. There is certainly an education process that will take time for them. And they have been asking for -- very much so -- quicker lead times and more predictable ship lead times. That's the two biggest complaints that they used to have with us.

This is addressing those issues. But I also understand that they want flexibility to run their business. And we need to be able to do all of those things. And that, frankly, is what we're undertaking to execute here in the upcoming weeks.

We have an incredibly strong dealer network. And when the system works best is when there's strong profitability in all parts of it. One of the ways that our dealers are more profitable is, they carry less inventory. And to the extent that we can reduce lead times, give them the right inventory, at the right time, to meet their customer demand, everybody wins.

The reality is, as Bennett just described, as we move towards RFM, and then ultimately, long term, towards more of a pull system -- which Huntsville will be very key in helping us get to -- we didn't execute it perfectly. And, as we set up our RFM stocking profile, there were just some units and some box counts that weren't right for some dealers, and we were too slow to adjust to that.

Okay. Thanks a lot, guys.

Next question?

Your next question comes from the line of Jimmy Baker from B. Riley Company. Your line is open.

Hi, thanks for taking my questions. Just at a product planning level, given the consumer reaction to some competitive promotional activity in the industry -- in the ATV industry, specifically -- does this change your thoughts at all about how price sensitive that ATV customer has become? Perhaps because some of the more product-focused buyers have made the shift to side-by-side?

Jimmy, this is Bennett. I would say, absolutely not. We know that, in critical, important segments of the ATV and the side-by-side marketplace, price and value is a really important constituent. Again, as Scott says, I think competition makes us better. We have been actively expanding and developing our value lines over the last few years.

One of our big winners during the recession was how hard we were able to play value. And I think this is just one more reminder, as we continue to go forward, to make sure that -- ideally, you want to win with product versus promotion. That's really been the Polaris strategy for years. And I think as you go forward in the outlying product plans over the next couple of years, I think you'll see Polaris continue to be focused on this segment. It is an opportunity for us.

And recognize -- and that's part of what drove the strategic acquisition of Hammerhead. It's going to allow us to leverage that capability to play bigger in the lower end of the market. Obviously it doesn't help in the third quarter but, over time, that's going to be a nice part of our -- part of the answer to how we compete better.

Very good. Thanks, guys. Thanks, Bennett.

Your next --

We're just going to take the next two questions from Jaime and Trey.

Okay. So your next question comes from the line of Jaime Katz from Morningstar. Your line is open.

Thanks, guys, for squeezing me in. I'm curious about this Hammerhead acquisition. Can you give us your early thoughts on how you're thinking about building the brand in the Chinese market with them? And bringing the Polaris brand more widespread over there? And what your thoughts are of that market potential?

The Chinese market potential for off-road vehicles is a really long-term play. What we've seen to date -- we've got great new leadership over there. We're optimistic about it. But what we sell mostly is the high-end RZRs, the high-end motorcycles. And that is an opportunity for us to build a profitable and good-sized business there.

The opportunity to leverage Hammerhead for sales into China is probably somewhat limited. We can use it, probably over time, to assemble some of our products and reduce the cost of selling what we have there. But really the opportunity is for us to leverage their brand, and leverage really strong engineering and manufacturing capability to sell products, not only in the US through our distribution, but really, globally, into some of these markets where they just can't buy a $5,000 ATV, or a $5,000 side-by-side. We're going to have the ability to hit a much lower price point with a very good-quality product.

Okay. And then, just real quick on Brutus. It sounds like it's not improving as quickly as you guys would have thought. So, are there -- can you just talk about the evolution that's going on to better adapt to what consumers are looking for there? Thanks.

Yes, all right. Yes, the Brutus story is -- it's not as good as we want it to be is, I think, the bottom line. We have this in our adjacent markets group under Matt. They're making a number of adjustments, where we're selling in this into our work and transportation portfolio. Retail is increasing, but we're seeing some distribution erosion, which I think is a little bit inconvenient in the short run. But, long term, we need to have the right dealers that are capable and interested in retailing that. And that's the transition Matt and team are working through that. We're going out direct and selling it as part of our portfolio.

The Bobcat guys are doing fine. Again, I think the reality on this one is, we probably over sold this one a little bit, about how big it was going to be and how quickly. The product is fine, particularly at the high end with the PTO. The high-end work end, we're doing quite well. It's really the base models that we're more struggling with. So, we're making some course corrections, and I think it's going to be smaller than you guys thought it was going to be and we thought it was going to be for a while. But we still are pretty committed to Brutus being a key part of our work and transportation strategy going forward.

Great, thank you.

Next two questions, Trey and Robin. Go ahead, Kelly.

Your next question comes from the line of Trey Grooms from Stephens. Your line is open.

Hi, good morning. Thanks for squeezing me in here at the end. One question is all I have here. And, really, it has to do with the value end of the spectrum that you guys -- in the model-year 2015, it looks like you guys had a pretty strong rollout of new models in that kind of value end of the market. Can you talk about how your market share has trended on that side of the ORV segment, the more value side, given that pretty extensive rollout? But also in the environment of more promotional activity, I think you noted, on that side of the ORV business.

Trey, this is Bennett. I think it's an interesting phenomenon. Frankly, we came with a number of ETX models, and, frankly, we were constrained on supply for most of the first several months since rollout. Demand has been pretty good. But I think competitors have responded aggressively in the value segment. And frankly, our share, at least in ATVs, was down in value. Because, again, people have just changed the price-value relationship really significantly between promo and discounting on that.

And then, again, it's been most of our competitors in that segment. So, we chose not to go down completely and get that dirty and fight. Because, again, we've got some great product with ETXs. And I think that, again, those will normalize over time, and I expect that we'll continue to see share gains over the long term with that product. But, in the short term right now, we are not seeing that.

And you mentioned ATVs specifically. Have you seen similar behavior on the side-by-side part of the business on that value, the ETX-type product?

Yes, but not quite as -- again, it's a little bit more strategic, based on what products have what product entry. Whereas an ATV is -- almost everybody's in that segment, and it's a little bit of a free-for-all right now. It's a little more strategic, I would say. And our ETX has powered through that, I think, better on the RANGER side.

Great. Thanks a lot for answering my questions.

No problem. Last question, Kelly?

Your last question comes from the line of Robin Farley. Your line is open.

Thank you for squeezing in the follow-up question. I just wanted to just check the math with you. Because it looks like when you exclude the impact of FX, that you've actually raised your guidance for sales on a full-year basis. But I feel like I haven't heard you say that explicitly. But when I do the math on your currency impact, you're saying 3% to 4% on the full year. A quarter ago, you said it was 2%. If your sales guidance is unchanged at up 9% to 12%, you've actually raised your sales guidance, right, by a couple percent -- by about 2% for the full-year basis, despite the issues you're talking about. Is that -- I just want to -- I feel like you haven't said that explicitly. Is that math fair?

Robin, you're really good with your math on a quick basis. Because we hadn't really looked at it that way. We don't talk in a constant-currency basis. We recognize that our customers and dealers and shareholders and everybody else has to deal with the currency swings. So we don't really look at it that way. But, the fact is, you're right.

And you'll see that all the way down the P&L. We're battling through some pretty significant headwinds, some of which we had built into the budget, and some of which we did not. And so we are challenged, but we're powering through and making adjustments in sales and in margins, and all throughout the operation, to offset these pressures.

Great, I just wanted confirm that. So, thanks.

Okay. That's all the time we have. Thanks for everyone participating, and we look forward to talking to you next quarter. Thanks again, and good-bye.

This concludes today's conference call. You may now disconnect.