Whassup At Polaris? — Oops. Polaris reports that it will be realigning its production to reflect the real world lack of demand for its products and to reduce dealer inventories.

Polaris reported weaker-than-expected quarterly profits this week. That was offset somewhat by the company’s plan to cut production and shipments of all-terrain vehicles. Investors viewed this as good news as many analysts felt Polaris’ dealers were too stocked with product. Based on that assessment, Polaris shares went up a bit despite the news that company officials see continued lack of demand in the current quarter. Polaris officials are blaming shaky consumer confidence.

Polaris reported a profit of $42.5 million for its third quarter. That’s down from $48.3 million a year earlier.

Citing lower demand for snowmobiles and ATVs, Polaris sales fell 9.8 percent to $490.1 million, below the $506.9 million analysts had expected. The company reported strong demand for its Victory motorcycles.

Polaris now says that it expects full-year sales to be down 11 percent to 12 percent. This past July Polaris reported that it expected a decline of 3 to 5 percent.

Polaris is not alone in feeling the pinch. Others in the powersports and leisure product industry have seen overall business pressured by an uncertainty about gas prices (which have been more than $3 per gallon over the summer) and interest rate hikes, a softened housing market and offshore competition in certain segments of the powersports biz. China is currently manufacturing and importing very competitive ATVs and motorcycles that are much lower priced than domestic makers’ products.

The KTM Factor — The fallout from the failed KTM deal may haunt Polaris. As you may recall, Polaris acquired a 25 percent stake in the European motorcycle maker. The hope was that Polaris would become the “senior” partner and exercise controlling interest. At its annual shareholders meeting, Polaris executives made a big deal of the then-pending merger/partnership (whatever you want to call it) as being a major steppingstone for Polaris. The deal would take Polaris from a near $2 billion company to a $3 billion firm in less than three years. It would be a boon for its engine development programs. And a major boost to its Victory motorcycle program.

While Victory is doing well by Polaris standards, it isn’t a major threat to Harley-Davidson or even Kawasaki for that matter. But, give Victory a pre-existing line of high performance off-road and on-road sport bikes and you have turned Polaris from an ATV/snowmobile maker with a motorcycle division to a full-fledged motorcycle company with major growth prospects.

For whatever reasons, the deal fell apart and Polaris seems to lack a cohesive post-KTM fallout plan. So, it’s back to Square One and that $3 billion target in three years was missed.

With a cutback in production at the ATV and snowmobile groups, this can only lead to lowered profits as lower production numbers make it difficult to retain previous operational efficiencies in manufacturing, etc.

The Non-Current Factor — Other sled makers have already admitted —informally— that it can retain dollar volume figures (which stock followers like to see) despite lower production because the sleds are now $10,00-plus volume.

However, how many $10,000 sleds are going to be sold when these same sled makers are tagging their noncurrents with discounts/rebates and other deals worth $3,000 and more? The best selling sleds are currently noncurrents. There are some great deals on those. What will be consumer reaction to $10,000 models when the noncurrents are finally blown out?