Polaris (NYSE:PII) executives said the company closed out a challenging 2025 with share gains across its major categories, improving operations and quality, and strong cash generation, while continuing to face significant tariff-related cost pressure. On the company’s fourth-quarter earnings call, management also introduced 2026 guidance that assumes the separation of Indian Motorcycle closes by the end of the first quarter and that current tariff and regulatory policies remain in place.
Fourth-quarter results shaped by tariffs and mix
In the fourth quarter, Polaris reported adjusted sales up 9% and North American retail up 9% excluding youth products. CEO Mike Speetzen said the company focuses on retail excluding youth because youth “has very little impact on profitability” and because Polaris is in the final stages of shifting youth manufacturing from China to Mexico, which temporarily constrained dealer inventory in the quarter. Management said it expects that to reverse in 2026.
Segment commentary: utility strength, cautious snow outlook
Management said Polaris gained share in all segments during 2025, including off-road vehicles, snowmobiles, pontoons and motorcycles. In off-road vehicles, Speetzen said retail trends remained positive and were led by utility. He highlighted the Ranger 500 as the “highest retailing midsize side-by-side in the industry” during the quarter and said the premium Ranger XP 1000 NorthStar posted its highest retail month ever in December.
Recreational consumers, however, were described as still “somewhat on the sidelines,” though Speetzen said Polaris continued to take share in crossover with its XPEDITION platform. On-road retail was down “low double digits,” which management attributed to lapping the prior-year launch of the new Indian Scout motorcycle.
In marine, Speetzen said retail declined about 13%, but that Bennington and Godfrey outperformed the industry. CFO Bob Mack said marine sales rose 1% in the quarter and emphasized what he called next-season “order book strength,” including increased demand for entry-level Bennington models and the redesigned Bennington QX lineup. He also said December SSI data showed market share gains across Polaris’ pontoon brands and that dealer inventory actions over the past 18 months have aligned marine inventory with demand.
For snowmobiles, management said early flatland snowfall helped the season start and reduced non-current dealer inventory, but the industry has moderated due to a lack of mountain snowfall and lighter Midwest coverage in recent weeks. Polaris said it remains cautious and plans to keep its snowmobile build schedule lower as it prepares for the 2026–2027 season.
Inventory, operational progress, and quality improvements
Polaris said dealer inventory is at a healthy level, with “just under 100 days” across the network, and that it believes it has the healthiest mix of current versus non-current inventory among OEMs. Mack added that ORV dealer inventory was down 9% excluding youth, and snow inventory was down more than 40%.
On operations, Speetzen said the company delivered more than $60 million in savings in 2025 as its manufacturing transformation continued, with improvements in clean build, rework, labor efficiency, and inventory. He also said quality improvements drove a $25 million reduction in warranty expense last year, with early model-year 2026 metrics improving versus the prior year.
During the Q&A, Mack said that without the impact of tariffs and after accounting for about $20 million of commodity headwind, incremental flow-through on the company’s expected wholesale/retail alignment benefit would be closer to 40%, which he said reflects progress in Polaris’ plants.
Cash flow, debt paydown, and leverage priorities
Mack said the company generated about $180 million of operating cash flow in the fourth quarter, translating into $120 million of free cash flow. For the full year, he reported $605 million of free cash flow and said Polaris paid down about $530 million of debt in 2025. He attributed working capital improvements to lower finished goods supported by “Clean Build,” Lean initiatives, improved forecasting tools, and stronger-than-planned retail.
Looking ahead, Mack said Polaris expects 2026 operating cash flow of about $160 million and free cash flow of about $120 million, noting it will be “tough to repeat” the level of working capital progress achieved in 2025.
On leverage, Mack said the most challenging quarters for covenant compliance are expected to be the first half of 2026 due to tariff headwinds and rolling comparables, but he expects Polaris to be under its “normal” covenant levels (around 3.5x) in the back half of the year. He reiterated a longer-term target of returning to the 1x–2x leverage range consistent with investment-grade metrics. Mack also said the company remains committed to its dividend and highlighted that Polaris completed its 30th consecutive year of dividend increases.
2026 guidance: Indian separation, tariffs, and TSA accounting
Polaris introduced full-year 2026 guidance with two stated assumptions:
- The Indian Motorcycle separation closes by the end of the first quarter.
- No changes to regulatory policy, including tariffs, relative to policies in place at the time of the call.
With those assumptions, the company expects total sales to grow 1% to 3% in 2026. Mack said this outlook reflects a difficult year-over-year comparison from more than $300 million of Indian Motorcycle sales included in portions of 2025 that will not recur, offset by more than $400 million of tailwinds from aligning shipments with retail. He added that removing Indian Motorcycle from both periods would imply 7% to 9% organic sales growth.
Polaris expects adjusted EBITDA margin to expand 80 to 120 basis points year over year, driven by volume benefits and Lean initiatives, partially offset by approximately $90 million of incremental tariffs. Mack also said operating expenses are expected to decline about 4% due to the Indian separation, while the company plans modest strategic investment increases in IT and innovation.
Mack highlighted that transition service agreements (TSAs) related to the Indian separation are expected to generate $30 million to $35 million of other income in 2026 and said the accounting treatment will distort gross profit. He described roughly $90 million flowing through cost of sales and additional costs through operating expenses, with recoveries split across sales, cost of sales, and other income. Most TSAs are expected to expire within nine to 12 months.
For 2026, Polaris guided to adjusted EPS of $1.50 to $1.60. Mack said the Indian separation is expected to provide a 2026 benefit of about $0.75 to $0.80 per share versus an annualized $1 benefit, reflecting that Indian results will still be included for part of the first quarter. For the first quarter specifically, Polaris expects sales growth of more than 10%, a tariff headwind of about $45 million, and adjusted EPS of approximately negative $0.45.
Speetzen said the company plans to manage through what it expects to be a “flattish” retail environment, with utility growth offsetting pressure in recreation. He also reiterated Polaris’ goal to cut China-based spend from roughly 18% of material cost of goods sold in 2024 to below 5% by the end of 2027, noting the company ended 2025 at approximately 14% and expects further progress in 2026.
About Polaris (NYSE:PII)
Polaris Inc, founded in 1954 and headquartered in Medina, Minnesota, is a diversified manufacturer of powersports vehicles and related products. Initially gaining prominence with its snowmobiles, Polaris expanded its portfolio over the decades to include all-terrain vehicles (ATVs), side-by-side off-road vehicles, and motorcycles. The company’s legacy in recreational and utility vehicle innovation stems from early engineering breakthroughs that established Polaris as a leading name in off-road mobility.
Today, Polaris offers a broad range of products under well-known brands such as Polaris RANGER and POLARIS SPORTSMAN for utility and recreation markets, Slingshot three-wheel roadsters for on-road enthusiasts, and the Indian Motorcycle brand for premium two-wheeled touring and cruiser segments.
