Arctic Cat reports Q3 earnings

News release

Arctic Cat Inc. (NASDAQ: ACAT) today reported net earnings of $15.4 million, or $1.18 per diluted share, on higher net sales of $262.5 million for the fiscal 2015 second quarter ended September 30, 2014. As previously announced, the company recorded a non-recurring charge of approximately $5.4 million pretax for ATV warranty expense that reduced 2015 second quarter earnings by $0.26 per diluted share. Excluding this charge, the company’s adjusted second-quarter earnings were $1.44 per diluted share. In the prior-year quarter, Arctic Cat reported net earnings of $23.4 million, or $1.70 per diluted share, on net sales of $238.5 million.

Commented Christopher Twomey, Arctic Cat’s chairman and chief executive officer: “Solid sales increases in the second quarter were led by double-digit gains in our snowmobile product line, as well as parts, garments and accessories. We also saw continued strong sales of our Wildcat side-by-side models and excitement around new Wildcat models introduced to our line-up late in the second quarter. Gross margins, however, were impacted by the significant volume of OEM partner snowmobile models that shipped in the quarter. Looking ahead, we remain focused on maintaining a robust pipeline of innovative new products and improving the company’s long-term operating efficiency.”

Second-Quarter Operating Review

Arctic Cat’s fiscal 2015 second-quarter net sales rose approximately 10 percent to $262.5 million, due to higher snowmobile sales to its OEM partner and Arctic Cat’s dealers, strong Wildcat™ sales and double-digit sales gains in the parts, garments and accessories (PG&A) business.

Gross profit margin in the 2015 second quarter was 21.0 percent, or 23.0 percent as adjusted excluding the non-recurring warranty expense, compared to 25.9 percent in the prior-year quarter. The gross profit margin decline stemmed primarily from the timing of OEM sales, ATV warranty expense and the unfavorable Canadian currency exchange, as approximately 30 percent of Arctic Cat’s annual sales are to Canada.

Operating profit in the 2015 second quarter was $24.1 million compared to $36.3 million in the same quarter last year, chiefly due to lower gross margins, primarily as a result of the non-recurring warranty expense, and increased general and administrative expenses. The company continued to invest in research and development to ensure a strong pipeline of new products and technologies.

Arctic Cat ended the 2015 second quarter with cash and short-term investments totaling $24.0 million, and no long-term debt. During the quarter, Arctic Cat’s board of directors authorized a new share repurchase program for up to $25 million of common stock.

For the six months ended September 30, 2014, Arctic Cat’s net earnings were $19.0 million, or $1.45 per diluted share, compared to $28.8 million, or $2.10 per diluted share, in the prior-year period. Arctic Cat’s adjusted earnings totaled $1.79 per diluted share, excluding an executive severance charge of $0.08 per diluted share and a warranty expense charge of $0.26 per diluted share recorded in the fiscal 2015 first half. Year to date, the company’s net sales increased 13 percent to $406.1 million versus net sales of $359.3 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-sides totaled $69.6 million, down 4 percent compared to prior-year sales of $72.7 million. During the quarter, the company unveiled 15 new 2015 models of all-terrain vehicles (ATVs) and recreational off-highway vehicles (ROVs) at its annual ATV/ROV dealer meeting in mid-September.

Expanding its high-performance line of side-by-sides, Arctic Cat introduced three Wildcat Sport models on a new 60-inch wide chassis. The new chassis’ width offers consumers a mid-sized option between the original Wildcat and the recently introduced Wildcat Trail model, with its narrower 50-inch stance. In addition, Arctic Cat debuted the Wildcat Trail Limited EPS, which is an upscale version of the Wildcat Trail with its 50-inch wide chassis, and the Prowler XT side-by-side recreation model.

In addition, new 2015 model year ATVs unveiled included the all-new XR line designed for the sport utility segment and the TRV® 1000 XT EPS, with its two-person seating for the touring category.

Snowmobiles

Snowmobile sales in the fiscal 2015 second quarter rose to $157.8 million, up from $135.4 million in the prior-year quarter. The increased snowmobile sales were largely due to Arctic Cat’s expanded OEM partnership. Following strong retail sales and market share gains in fiscal 2014, Arctic Cat anticipates higher snowmobile sales to its dealers in the current fiscal year.

Parts, Garments & Accessories

Sales of parts, garments and accessories (PG&A) in the fiscal 2015 second quarter grew 15 percent to $35.1 million, up from $30.4 million in the prior-year quarter. The increase was driven by sales of newly developed accessories for Arctic Cat’s expanding line of Wildcat models, as well as snowmobile parts, garments and accessories.

Fiscal 2015 Full-Year Outlook

Commented Twomey: “Fiscal 2015 remains a challenging year. We are working to further reduce dealer inventory levels by lowering the company’s previously planned core ATV sales to North America dealers in the current fiscal year. Similarly, we now expect lower international sales, including sales to Russia. As a result of these factors, combined with charges recorded in the first half, we are adjusting the company’s outlook for fiscal 2015 full-year sales and earnings. Going forward, we remain focused on positioning the company for improved long-term financial performance.”

For the fiscal year ending March 31, 2015, Arctic Cat now estimates fiscal 2015 full-year sales in the range of $745 to $755 million and net earnings of $1.55 to $1.65 per diluted share. Arctic Cat’s revised outlook includes an executive severance charge of $0.08 per diluted share recorded in the first quarter, warranty expense charge of $0.26 per diluted share recorded in the second quarter, and the anticipated unfavorable Canadian currency impact up to $0.79 per diluted share for the fiscal 2015 full year. Excluding first-half charges, the company anticipates fiscal 2015 earnings in the range of $1.89 to $1.99 per diluted share, as adjusted. The new earnings guidance excludes any new CEO and CFO transition costs that could be incurred in the 2015 second half. Previously, Arctic Cat anticipated net earnings of $2.25 to $2.35 per diluted share on net sales in the range of $775 million to $786 million.