ArcitcInsider Forum
Follow ArcticInsider on YouTube Follow ArcticInsider on Facebook       

Arctic Cat Reports Fiscal 2016 2nd Quarter Results


(10/22/2015)

Arctic Cat Engine manufacturing facility in St. Cloud, MN. Photo by ArcticInsider.com

 

Arctic Cat Reports Fiscal 2016 Second Quarter Results

-Second quarter net sales totaled $211.2 million;
-Net earnings were $0.85 per diluted share;
-Progress made on strategic plans to reposition company for growth;
-Company lowers fiscal 2016 outlook, primarily on stronger currency headwinds

Arctic Cat Inc. today reported net earnings of $11.2 million, or $0.85 per diluted share, on net sales of $211.2 million for the fiscal 2016 second quarter ended September 30, 2015. In the prior-year quarter, Arctic Cat reported net earnings of $15.4 million, or $1.18 per diluted share, on net sales of $262.5 million.

Christopher Metz, Arctic Cat’s president and chief executive officer, stated: “The company executed well in the second quarter on our strategies to reposition the business for a return to growth in fiscal 2017 and beyond. However, sales and earnings in the quarter were dampened by a greater than anticipated Canadian currency exchange impact and a softer ATV/ROV retail market industry-wide.”

Commenting further, Metz said: “During the second quarter, we introduced new ATV/ROV products to dealers in August and unveiled exciting product and marketing initiatives, including our exclusive partnership with racer Robby Gordon and his SPEED brand. Under this agreement, we will bring innovative side-by-side and accessory products to market.

“Additionally, our effort to rightsize our core North America ATV dealer inventory is on track through the first six months of this fiscal year. The significant reductions we achieved in the first quarter allowed us to introduce new products in the second quarter without increasing overall inventory levels. We remain committed to further reducing non-current inventory to enable a return to wholesale and retail growth of new products next fiscal year.”

The company’s key strategies to reinvigorate growth under new management include: dramatically improving Arctic Cat’s dealer network; ramping up end-user focused new products; pursuing OEM partnerships and bolt-on acquisitions; and creating a brand marketing powerhouse.

Operating Review

Arctic Cat’s fiscal 2016 second-quarter net sales of $211.2 million were down 19.6 percent compared to strong prior-year sales of $262.5 million. Unfavorable foreign currency exchange reduced net sales by approximately 6.7 percent. Slightly higher sales in the ATV/ROV segment during the quarter primarily were driven by demand for Wildcat™ side-by-sides; this was not enough to offset lower sales of snowmobiles, and parts, garments and accessories.

Gross profit and gross profit margin in the fiscal 2016 second quarter were approximately $43.9 million and 20.8 percent, respectively, compared to $55.1 million and 21.0 percent, respectively, in the prior-year quarter, resulting mainly from lower sales volumes and foreign currency exchange impact. Approximately $14.1 million, or $0.64 per diluted share, of the year-over-year reduction in gross profit was due to unfavorable foreign currency exchange rates. Operating profit in the 2016 second quarter was $18.7 million versus operating profit of $24.1 million in the same quarter last year.

Arctic Cat ended the fiscal 2016 second quarter with cash and cash equivalents totaling $10.7 million, as planned, compared to $24.0 million a year ago. The company continued to make investments in the business to lay the foundation for future growth and improve efficiency.

For the six months ended September 30, 2015, Arctic Cat’s net earnings were $10.1 million, or $0.77 per diluted share, compared to $19.0 million, or $1.45 per diluted share, in the prior-year period. Year to date, the company’s net sales totaled $345.5 million versus $406.1 million in the year-ago first six months.

Business Line Results

ATVs/Side-by-Sides – Sales of Arctic Cat’s all-terrain vehicles (ATVs) and side-by-side recreational off-road vehicles (ROVs) in the fiscal 2016 second quarter totaled $70.8 million, up 1.7 percent compared to prior-year sales of $69.6 million. Contributing to the wholesale sales in the quarter were Wildcat side-by-sides. The company continued to curtail wholesale shipments of core ATV models to support its efforts to reduce core ATV inventory at its North America dealers.

At its dealer show in August, Arctic Cat introduced the SPEED® brand of race-inspired accessories for side-by-sides, as part of the company’s partnership with Robby Gordon and Todd Romano to co-develop innovative, industry-leading side-by-side products and accessories. Under the agreement, Gordon and Romano are providing research and development consulting on technologies for new Wildcat racing vehicles and high-performance SPEED branded accessories. The company also unveiled its first wave of 2016 model year off-road vehicles. The 2016 lineup features seven all-new products, including four Special Edition models built in limited quantities, powered-up Wildcat Sport models and the introduction of the new Alterra™ ATV brand.

“We are executing against aggressive new product development plans,” said Metz. “Our collaboration with Robby and Todd on the SPEED brand reflects Arctic Cat’s commitment to the high-performance, off-road vehicle market with Wildcat side-by-sides and accessories. Our new 2016 side-by-sides and ATV models are just the beginning of the innovation that we intend to bring to market, as we strive to create the ultimate off-road riding experience.”

Snowmobiles – Snowmobile sales in the fiscal 2016 second quarter totaled $109.9 million, down 30.3 percent versus $157.8 million in the prior-year quarter, chiefly stemming from lower international sales to Russia, unfavorable foreign currency exchange and lack of snow in key regions last year. Year-to-date snowmobile sales are on plan to meet the company’s full-year expectations.

In September, the company previewed a prototype single-ski snow vehicle, named the Arctic Cat SVX™ 450, at the 2015 Haydays Grass Drags.

“We are pleased to develop the industry’s first-ever, purpose-built OEM snow bike,” said Metz. “Snow biking is a growing sport across western North America. Our patented SVX 450 snow bike is designed to provide an exciting new riding experience for a category of riders who want the lightest, most affordable vehicle for mountain riding. We look forward to officially introducing our snow bike in the future. This is another example of Arctic Cat’s focus on innovation.”

Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2016 second quarter were down 13.2 percent to $30.5 million versus $35.1 million in the prior-year quarter. The decline is primarily attributable to unfavorable foreign currency exchange and the timing of shipments, as the company changed its ATV/ROV PG&A preseason dealer order program at its August 2015 dealer show from one order, which created a single large shipment in the second quarter, to three order and shipment windows. The result of this change lowered PG&A shipments in the 2016 second quarter versus the prior year, but is expected to more evenly spread out the timing of shipments. Arctic Cat anticipates modest growth in its PG&A business this fiscal year, chiefly fueled by contributions from MotorFist® brand high-performance snow garments.

Fiscal 2016 Full-Year Outlook

Commented Metz: “In this rebuilding year, we are addressing many near-term challenges and we are making significant progress against our strategic plans. However, due to the intensifying impact of unfavorable foreign currency exchange rates, we are lowering our fiscal 2016 full-year revenue and earnings outlook.”

For the fiscal year ending March 31, 2016, Arctic Cat now estimates full-year net sales in the range of $665 million to $675 million, with a greater unfavorable foreign currency exchange impact in the range of $27 million to $30 million pre-tax. Arctic Cat now expects fiscal 2016 full-year net earnings to be in the range of $0.05 to $0.15 per diluted share, again reflecting unfavorable foreign currency exchange rates, particularly the Canadian dollar as approximately 30 percent of Arctic Cat’s annual sales are to Canada. Foreign currency exchange headwinds are estimated to negatively impact gross profit and reduce net earnings in the range of $1.25 to $1.39 per diluted share when compared to 2015, which will be only partially offset by the company’s hedging strategy.

Previously, the company estimated full-year net sales for fiscal 2016 in the range of $690 million to $705 million, with an unfavorable foreign currency exchange impact on sales in the range of $12 million to $15 million. At that time, Arctic Cat expected fiscal 2016 full-year net earnings to be in the range of $0.80 to $0.95 per diluted share, after factoring in negative foreign currency exchange impact on gross profit and reduced net earnings in the range of $0.60 to $0.70 per diluted share.

Stated Metz: “We are confident in our strategic plans to turn the business around. While we face ongoing challenges over the next few quarters, including continued foreign currency headwinds, we see tremendous opportunities to improve the company’s operations, expand gross margins and enhance financial performance over time. We remain excited about Arctic Cat’s long-term future.”

ARCTIC CAT INC.











Financial Highlights











($ in thousands, except per share amounts)











(Unaudited and subject to reclassification)











Three Months Ended

Six Months Ended



September 30,

September 30,
Statements of Operations:     2015

2014

2015

2014
Net Sales











Snowmobile and ATV/ROV units

$ 180,676


$ 227,382


$ 291,781


$ 347,360
Parts, Garments and Accessories

  30,481  

  35,097  

  53,757  

  58,758  
Total Net Sales


211,157



262,479



345,538



406,118
Cost of Goods Sold











Snowmobile and ATV/ROV units


147,739



185,064



244,696



282,765
Parts, Garments and Accessories

  19,500  

  22,334  

  34,362  

  37,471  
Total Cost of Goods Sold

  167,239  

  207,398  

  279,058  

  320,236  
Gross Profit


43,918



55,081



66,480



85,882
Operating Expenses











Selling and Marketing


11,842



12,074



20,797



19,055
Research and Development


6,222



6,621



12,225



11,967
General and Administrative

  7,202  

  12,325  

  16,353  

  25,229  
Total Operating Expenses

  25,266  

  31,020  

  49,375  

  56,251  
Operating Profit


18,652



24,061



17,105



29,631
Other Income (Expense)











Interest Income


12



6



12



10
Interest Expense

  (394 )

  (209 )

  (508 )

  (249 )
Total Other Expense

  (382 )

  (203 )

  (496 )

  (239 )
Earnings Before Income Taxes


18,270



23,858



16,609



29,392
Income Tax Expense

  7,099  

  8,469  

  6,494  

  10,434  
Net Earnings

$ 11,171  

$ 15,389  

$ 10,115  

$ 18,958  
Net Earnings Per Share











Basic

$ 0.86  

$ 1.19  

$ 0.78  

$ 1.47  
Diluted

$ 0.85  

$ 1.18  

$ 0.77  

$ 1.45  












 
Weighted Average Shares Outstanding:











Basic

  12,985  

  12,922  

  12,972  

  12,909  
Diluted

  13,145  

  13,074  

  13,149  

  13,078  












 












 



September 30,





Selected Balance Sheet Data:       2015  

  2014  





Cash and Cash Equivalents

$ 10,713


$ 24,022






Accounts Receivable, net


68,225



104,710






Inventories


171,267



170,084






Total Assets


352,024



379,446






Total Current Liabilities


131,182



166,595






Long-term Debt


15,794



-






Shareholders' Equity


190,380



200,223


















 

   
   
   
   



Three Months Ended




Six Months Ended





September 30,      

September 30,      
Product Line Data:     2015     2014     Change

2015     2014     Change
Snowmobiles

$ 109,918

$ 157,791

(30.3 )%

$ 168,149

$ 213,943

(21.4 )%
ATV/ROV


70,758


69,591

1.7 %


123,632


133,417

(7.3 )%
Parts, Garments and Accessories

  30,481

  35,097

(13.2 )%

  53,757

  58,758

(8.5 )%
Total Net Sales

$ 211,157

$ 262,479

(19.6 )%

$ 345,538

$ 406,118

(14.9 )%


Comments (12):

High Country Ltd says:
10/22/2015 2:42:00 PM

Not good. The headline I saw said "Arctic Cat Inc: On track for worst day ever."

Shares plummet 24.5 percent. Lost $220 million in market value.

2017 can't come soon enough!
John says:
10/22/2015 6:03:00 PM

The headline's I saw said "Arctic Cat Posts Huge Loss, Will They Make It Tough The Year Ahead? and "Arctic Cat ATV's Stuck In The Mud"
This is not good for Cat fan's as you can't lose money in every product line for very long and still stay in business. Sound's like a replay of 1981 when they went Bankrupt.........Wonder if Yamaha will buy them?
Kevin says:
10/22/2015 6:38:00 PM

Ouch. Big ouch. Anyway, did anyone read the Star Tribune article (July 22nd)? It really hurt to read that but sadly it was hard to disagree with. AC --- PLEASE PLEASE PLEASE listen to your customers and PLEASE take care of your dealers. It's hard to swallow walking into my local AC dealer and seeing the same new 2011 lime green turbo sitting there priced to never sell. 10 and 20 years ago this company was leading in innovation and there was no better company in the world. What happened? I know there are great people at this company but I hope those who have been making these short sighted decisions have been shown the door.
Mike F says:
10/22/2015 7:15:00 PM

Thanks Claude...
Bulldog says:
10/23/2015 10:15:00 AM

This is a direct result of them not staying on top of their game. The competition is kicking their ass in terms of innovation and better put together machines and its showing up in loss of sales. AC Consumers have been screaming for a 800 direct inject and better fit and finish for our sleds and they just keep ignoring us. (my 2016 zr 8000 that just came in has crappy fitting body panels just like my 2012) The Wildcat crowd has been desperate for more horsepower and AC just keeps throwing the same under powered units out there. The ATV's use single cylinder motors that to me are unimpressive when compared to what the competition offers. So why buy an AC product when you can get a better put together machine, with cutting edge innovation that all the magazines are raving about from Polaris or Ski-Doo? It's not hard to see why sales are slipping. The question is do they have a plan in place to right the ship?? I hope so because if 2017 is another BNG year I don't think they will survive. Adapt or die... its as simple as that!
John Sandberg says:
10/23/2015 11:31:00 AM

I'm no financial genius (just ask my wife), but I would say, in my humble opinion, that:

1. This is not a sky-is-falling situation. Yes, the company is down $50M in net sales compared to last year at this same time (note: it still earned $11M in the quarter). That $50M difference in sales is attributed to reduced snowmobile sales as well as PG&A. Dirt product revenue is actually up. Why is sled and PG&A revenue down? Crummy snowfall over much of the U.S. last year, as well as the Russian snowmobile market completely tanking. Factors completely out of Cat's control.

2. What Mike F. said!

3. The current management team essentially started in January of this year. It's going to take some time to steer this ship into the direction they want it to go. A lot longer than 9 months.

4. I disagree with what Bulldog is saying about competition kicking butt with innovation and quality wrt snowmobiles. Do I want more innovation and better quality? Of course. But when you compare to competition, Cat is well-positioned. Regarding dirt products, yes we need some more innovative engines, especially for the big Wildcats and ATVs.
Bulldog says:
10/23/2015 2:02:00 PM

John,
Skidoo and Polaris both having direct inject while AC is still using the same dirty 800 they did back in 2010. It's a good motor don't get me wrong but far less advanced then the E-Tec. Ski-doo trumped everyone with the Rev when it came out and Polaris seems to have something good going with the AXYS. They also have a way better gauge with GPS and LED headlights while Cat cant even get their high and low beams figured out?? My 2016 has hi-beams that point straight up in to the trees right from the factory! (just like my 2012) If you adjust the hi-beam the low beam is as useless as tits on a fish. What ----ing good is that? Who in the hell at the factory drives these sleds and decides that is a good design and then leaves it like that for 4 years? I bleed green but even I can see the other two brands are advancing the sport while AC is stuck playing catch up.
Matt LaJoy says:
10/23/2015 3:15:00 PM

Bulldog, Polaris does not have direct injection in their snowmobile engines. Not sure where you read that. They still use their old-school semi-direct injection. While BRP's e-tec seems advanced, they have lower end lubrication issues. In my opinion, the Cat c-tec 600 is better than BRP's e-tec because the fuel spray gets injected below the piston AND on top of the piston. Also, those LED headlights that Polaris offers have had lots of electrical gremlins. Also the LED headlights are brighter than halogen, but they don't project as far as halogen. Not trying to argue, but my point is that the other manufacturers use a lot of ingenious marketing to make the general public think they are innovative. But those bells and whistles have problems. I know Cat's finances are not looking so great, and they definitely need to treat their dealers better. But as far as technology....I would not want to own an e-tec or a Poo 800 out of warranty. Just my two cents.
CRP says:
10/23/2015 3:47:00 PM

Hey John, with $11MM in earnings per quarter and little to no interest payments Cat can absolutely stay in business for the long haul, Chapter 11 is an absurd notion. This is a healthy balance sheet but most companies standards. If and when Cat starts reporting results in EBITDA you can start to worry.
Bulldog says:
10/26/2015 8:46:00 AM

Good points Matt and that's why I purchased a 2016 ZR 8000 El'Tigre. (and as I've said I bleed green) I was really hoping for a 800 C-Tech in that machine and was very disappointed when they didn't release it again this year. The team clutches were a welcomed addition as well as the new shocks but bad fitting body panels and screwed up headlights are still unacceptable. It just seems like lately AC is playing catch-up to the rest of the brands instead of the others brands scrambling to keep up with AC. I hope that changes soon and they hit a home run in 2017.
I Bleed Green! says:
10/26/2015 9:09:00 AM

I hate when these companies are publicly traded, everyone thinks the sky is falling when they don't meet some financial expectation.... when in reality, they still have no long term debt, and don't owe anyone any money! While innovation and improvement are needed, they are a long way from going anywhere, unless you look at some ******** on wall street who thinks they a-c world is falling in...
yamahabandit says:
11/15/2015 11:12:00 PM

The sky is falling! The sky is falling!

Leave A Comment


ArcticInsider Article Code
Enter the characters above: (all lowercase, no spaces)

SpeedWerx
Dempsey Off Road Adventures
Royal Sports

ArcticCat

Action Graphics

Waconia Ride-In

Blown Concepts Custom Vinyl Graphics

on Snow Magazine

US X-Country Snowmobile Racing

American Snowmobiler Magazine

Route 12 Arctic Cat

Waconia Power Sports

Thomas SnoSports

SLEDHEAD 24/7
 International Series of Champions

Road Track and Trail

SnoX365

TA Motorsports
Country Cat
SUPERTRAX International

D & D power Sports
Carver Performance Snowtech Magazine Christian Brothers Racing