Polaris Inc. (PII) had a decent quarter, all things considered. The powersports manufacturer posted fourth-quarter results Tuesday that topped Wall Street's expectations, with adjusted earnings per share of eight cents beating the consensus view of six cents. Quarterly sales climbed 9% year over year to $1.922 billion, comfortably ahead of the $1.807 billion analysts were expecting, thanks to higher shipment volumes meeting customer demand.

So why did the stock drop over 6% in premarket trading? Well, it's the outlook that has investors nervous. Management struck a decidedly cautious tone about the year ahead, citing margin pressure and what they described as a "meaningful tariff headwind" that's expected to hit harder in the first half of 2026.

The fourth-quarter numbers came with some significant one-time charges worth noting. Results included $288 million in impairment and other charges, mostly noncash, after the company classified its Indian Motorcycle business as held for sale. There was also an additional $54 million noncash intangible-asset impairment related to the Off Road segment.

Breaking Down the Segments

The Off Road business carried the quarter, with sales climbing 11% to $1.596 billion. The On Road segment generated $187.2 million in sales, up 4%, while Marine sales inched up 1% to $138.3 million.

Geographically, North America remains the dominant market, accounting for 84% of total revenue at $1.623 billion, up 10% from $1.481 billion in the prior-year period. International sales contributed $299 million, representing 16% of the total and rising 9% year over year.

The Margin Story

Here's where things get a bit concerning. While gross profit increased to $384.2 million from $357.9 million, and adjusted gross profit rose to $389.5 million from $369.5 million, the adjusted gross margin actually contracted 77 basis points to 20.3%. The company pointed to tariffs and net pricing as the primary culprits, though positive mix within off-road vehicles and volume gains provided some offset.

The pressure was even more pronounced further down the income statement. Adjusted EBITDA came in at $98.1 million, down sharply from $168.2 million in the year-ago quarter. The adjusted EBITDA margin compressed to 5.1% from 9.6%. Polaris ended the quarter with $138 million in cash and equivalents.

Looking Ahead to Fiscal 2026

The company expects to close the separation of its Indian Motorcycle business by the end of the first quarter. But the bigger concern for investors is the tariff situation, which management warned would create meaningful headwinds with heavier impact expected in the first half of the year.

For fiscal 2026, Polaris is guiding to adjusted earnings of $1.50 to $1.60 per share, coming in below the analyst consensus of $1.74. On the revenue side, the company projected sales of $7.224 billion to $7.367 billion, which actually sits above the Street's expectation of $7.035 billion.

Price Action: Polaris shares were trading down 6.66% at $64.51 during premarket hours on Tuesday.