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Weak sled sales affect earnings

July 28, 2003
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Polaris ATV sales up 24%
Polaris Industries Inc. (NYSE:PII)(PSE:PII), Medina, Minn., said ATV sales in its second quarter were up 24%, offsetting a sharp decline in its snowmobile sales. Snowmobile sales dropped 68% during the second quarter 2003 compared to the second quarter 2002. The lack of snowfall in the last two riding seasons, particularly in the Midwest, is the overriding factor in the anticipated decline in snowmobile sales for the full year 2003, said Polaris.
Polaris reported record net income of 94 cents per diluted share for the second quarter ended June 30, 2003, a 13% increase over prior year second quarter net income of 83 cents per diluted share.
Higher sales volume from ATVs, personal watercraft, Victory motorcycles and PG&A contributed to the second quarter earnings increase.
Reported net income for the second quarter 2003 was a record $21.0 million, a 6% increase over prior year second quarter net income of $19.9 million. Sales for the second quarter 2003 totaled a record $377.1 million, up 4% from the prior year’s second quarter sales of $362.6 million.
For the six months ended June 30, 2003, Polaris reported a 6% increase in net income to $33.4 million and a 13% increase in earnings per share to $1.49 per diluted share compared to $31.5 million or $1.32 per diluted share in the first six months of 2002. Sales for the six months ended June 30, 2003 totaled $691.1 million, up 4% from $661.8 million in the comparable period of 2002.
ATV sales growth continued to accelerate in the second quarter 2003, increasing 24% over last year’s second quarter. Dealer inventory of ATVs at June 30, 2003 is at comparable levels to a year ago, the company said.
Sales of Parts, Garments and Accessories increased 4% during the second quarter 2003 over the second quarter 2002 with sales of ATV and Victory related PG&A items showing strong double digit growth during the quarter partially offset by lower snowmobile PG&A sales.
Dealer carryover inventories of snowmobiles remain at unusually high levels and Polaris said it has adjusted current model year production downward to compensate for the high inventory and slower sales.
In order to ease the pressure of the dealer snowmobile carryover inventory, Polaris delayed initial shipments of the 2004 model year snowmobiles until late in the second quarter 2003.
Sales of Victory motorcycles increased 124% during the second quarter 2003 from last year’s second quarter on relatively small volume. Sales of Victory motorcycles for the year-to-date period ended June 30, 2003 increased 58% from the comparable period in 2002 when it sold less than 2,000 units.
Polaris’ Personal Watercraft (PWC) sales increased 157% during the second quarter 2003 compared to the second quarter 2002, primarily because of timing changes of shipments between the first and second quarter of 2003 as compared to 2002. Sales of PWC for the year-to-date period ended June 30, 2003 increased 16% from the comparable period in 2002.
ATV factory inventory was higher than a year ago because of slower than expected ATV sales growth in the first quarter of 2003, and unusually low ATV inventory at the end of the second quarter last year due to the timing of the model year changeover in 2002 compared to 2003.
Tiller said Polaris expects 3% to 5% sales growth for the fiscal 2003 and earnings per share in the current range of $4.80 to $4.90 per diluted share, a 9% to 12% increase over 2002.
Arctic Cat shifts to ATVs
Arctic Cat Inc., Thief River Falls, Minn., with 53% of its first quarter revenue coming from ATVs, is “becoming an ATV company that also produces snowmobiles,” says Christopher A. Twomey, president and chief executive officer.
“In fiscal 2004, we expect to produce more ATVs than snowmobiles and, significantly, ATV unit revenues will exceed that of snowmobiles for the first time in our company’s history. We’re proud to offer the most extensive and complete ATV line currently available,” he said.
Arctic Cat, (Nasdaq:ACAT), reported net sales of $77.2 million for the fiscal 2004 first quarter ended June 30, 2003, down from $78.3 million in the same period last year. The net earnings for the quarter were $102,000, or 0 cents per diluted share, compared to net earnings of $1.97 million, or 8 cents per diluted share, in the prior-year period.
The results were hurt by selling fewer snowmobiles, said Twomey. “For the year, we remain on track to achieve net sales growth of 2% to 4%, driven by increased ATV sales.”
Sales of ATVs grew to $31.5 million from $20.6 million in the prior-year period, a year-over-year increase of 53%.
Sales of Arctic Cat snowmobiles totaled $34.8 million in the 2004 first quarter down from $47.0 million in the comparable period last year. The lower sales comparison is primarily due to a change in the timing of shipments to dealers, in order to align snowmobile shipments with retail sales during Arctic Cat’s second and third fiscal quarters, the company said.
For the current fiscal year ending March 31, 2004, the company anticipates that its snowmobile revenues will decline approximately 2% to 3% versus last year, based upon tighter ordering by Midwest dealers following several consecutive seasons of poor snow conditions.
“This is particularly disappointing given the extensive changes in our exciting 2004 snowmobile line-up,” Twomey said.
Parts, garments and accessories sales rose 3% to $10.9 million, up from $10.6 million in the prior-year period.
The company unveiled its new model ATV line-up to dealers in June, introducing eight new models, four new engines, 14 major technology enhancements and more unique packages
for the award-winning
MultiRack Platform(TM) (MRP) ATV. This expands Arctic Cat’s offerings to more than 25 ATV models in its 2004 line-up.
(For a complete report, see the June 30 issue of Powersports Business.)
During the first quarter, the company repurchased 232,500 shares of its common stock under its current share repurchase authorization. The company has approximately 750,000 shares remaining under this authorization.
2004 Outlook
Arctic Cat said it expects 2004 second-quarter net sales for the period ending Sept. 30, 2003, to be in the range of $216 million to $220 million, compared to $211.2 million for the same period last year.
Net earnings for the quarter are estimated between 94 cents to 97 cents per diluted share versus earnings of 91 cents per diluted share in the prior-year quarter.
For the fiscal year ending March 31, 2004, Arctic Cat said it anticipates net sales will grow 2% to 4 % and be in the range of $590 million to $602 million. Diluted earnings per share are estimated to be in the range of $1.39 to $1.41.
Due to the seasonal nature of Arctic Cat’s snowmobile and ATV products, the company sells the majority of its products during its second and third fiscal quarters.

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