Category Archives: Management

Arctic Cat Reports Q2 2016 Financial Results

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The 2016 Wildcat 4X, a higher priced ($20,999 MSRP) model in the Arctic Cat lineup is expected to improve the company's revenue in the rest of the fiscal year.

The 2016 Wildcat 4X, a higher priced ($20,999 MSRP) model in the Arctic Cat lineup, is expected to improve the company’s revenue in the rest of the fiscal year.

Last week Arctic Cat reported their financial results for the second quarter of fiscal year 2016, which ended on September 30, 2015. Arctic Cat reported quarterly revenue of $211.2 million and net earnings of $11.2 million compared to $262.5 and $15.4 for the prior year quarter. Management noted currency headwinds, especially in Canada, a competitive market and softer than expected retail sales in the ATV/UTV market. Therefore, the company’s management lowered their fiscal 2016 full year guidance. The following are some the highlights from the earnings call related to the side-by-side/utility vehicle market.

  • Sales of ATVs and ROV side-by-sides increased 1.7% to $70.8 million from $69.6 million in the year ago quarter driven by Wildcat side-by-sides.
  • A key marketing initiative was started with a five year product development and marketing agreement with racer Robby Gordon and Todd Romano, and their SPEED RMG brand. The initiative specifically targets technology development for the Wildcat side-by-sides to produce new products and accessories.
  • For full year fiscal 2016 management expects ATV/side-by-sides sales to increase mid-single digits percent.
  • For the quarter, the industry retail sales were flat to up low single-digits for ATVs and side-by-sides and Arctic Cat was similar overall but with more strength in side-by-sides.
  • Year-to-date Arctic Cat was up low double digits for side-by-sides retail sales.
  • Management is terminating under-performing dealerships while adding dealers in open territories.

Learn more:  Seekingalpha.com (Earnings call transcript)

Comment:  Both Polaris and Arctic Cat have reported slower than expected growth in the side-by-side market, as well as, increasing competitiveness. While the market is still expected to grow, the rate of growth may be more mid-single digit percent rather than double digits or even high single digits.

BRP Announces FY2016 First-Quarter Results

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New for 2016 is the Commander Mossy Oak Hunting Edition

New for 2016 is the Commander Mossy Oak Hunting Edition which is targeting the hunting segment, an untapped segment for Can Am according to management.

BRP, manufacturer of Can-Am side-by-sides, announced their first quarter results for fiscal year 2016 which ended April 30, 2015. The following is a summary of the earnings call as it relates to the STOV market. Financial figures are in Canadian dollars and comparisons are between first quarter FY2016 and first quarter FY2015 unless otherwise noted.

  • Revenues for the quarter increased 18% to $898.1 million compared to the first quarter in FY2015 and were slightly better than planned
  • Revenue from Year-Round Products that include side-by-sides, ATVs and the Spyder increased 8.9% from $365.4 to $398.1
  • Year-Round Products was driven by the introduction of the Maverick X ds side-b-side models and overall industry growth
  • NA side-by-side retail sales up mid-single digits % for the first 10 months of the model year starting last July
  • Management estimates the NA side-by-side market increased model year to date mid-teens % with growth in the utility and sport categories but the recreation/utility segment (Can-Am Commander) is shrinking
  • Can-Am is behind plan in the the sport category but 2016 model year includes a higher horsepower models including one that fills in a lower price point
  • Management reports increased competition in the NA side-by-side market in the last six months
  • BRP is targeting the hunting segment, an untapped potential market for Can-Am, with both ATVs and UTVs and their new partnership with Mossy Oak which produces camouflage designs
  • Mossy Oak will be using Can Am products when showcasing their designs
  • Management estimates that there are 15 million hunters in NA and a high percentage use ATVs and UTVs
  • Comments by management indicate that BRP will enter the utility side-by-side segment in the relatively near future
  • Management expects Year-Round Products to grow revenue by 7-11% for FY2016

Learn more:  BRP.com

Arctic Cat Quarterly Earnings & Analysis

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The 2015 Wildcat Sport XT, a recent addition to the Arctic Cat side-by-side lineup.

The 2015 Wildcat Sport XT, a more recent addition to the Arctic Cat side-by-side lineup which is a bright spot among Arctic Cat’s business segments.

Arctic Cat recently released their financial results for the fiscal fourth quarter ended March 31, 2015.  Management reported a net loss of $21.5 million on net sales of $98.9 million for the fiscal 2015 fourth quarter. In the prior-year quarter, Arctic Cat reported a net loss of $1.6 million on net sales of $145.4 million. Full-year net sales were down approximately 4% to $698.8 million from $730.5 million in fiscal 2014. Net earnings decreased to $4.9 million. Full-year net sales include an unfavorable foreign currency impact that reduced net sales by approximately $18.1 million.

Highlights of the earnings call related to the utility vehicle market include:

  • ATV sales (includes ATVs and UTVs) for the year decreased 15% to $284.1 million from $333.2 million in the prior fiscal year.
  • Strong sales of Wildcat side-by-side models were offset by lower sales of core ATVs to North American dealers and in international regions, including Russia, as the company reduced bloated dealer inventory of core ATVs.
  • At the retail level ATV and side-by-side sales increased low 20s% for the fourth quarter.
  • Management reported gaining market share in the side-by-side segment
  • Management announced $27 million of investment in US manufacturing facilities and is investigating establishing a facility in a lower-cost region of the world
  • In the fourth quarter Arctic Cat began shipping UTVs to Toro under their OEM agreement
  • Arctic Cat ATV sales are expected to increase 9-12% at the wholesale level for the coming fiscal year, primarily from Wildcat sales. Retail sales are expected to be in the 15-20% range.
  • Dealer feedback on the newest Wildcat Trail models has been positive as well as the new 2016 Prowler HDX announced in Febuary

 Learn more:  Seekingalpha.com (earnings call transcript)

Analysis:  The new CEO Christopher Metz is moving aggressively to improve the company. One of his first moves was to take a significant write down related to excess ATV inventory. He appears to be moving more quickly to clean up inventory in the ATV as well as other business segments than his predecessor. He also created a new position, Chief Marketing Officer and added a new NA sales executive. In addition they are investing $27 million in improving manufacturing facilities.

While there will be some new products in 2016, with launches in August, the year will be dedicated more to cleaning up inventory and laying the foundation for a more efficient and productive company. Fiscal year 2017 will feature a more robust slate of product introductions. Despite some difficulties overall for the company, Arctic Cat’s side-by-side business continues to be a growth area. Expect the company to continue to aggressively buildout their product offerings in this area, targeting both the recreational sub-segments with new Wildcat vehicles and trying to expand into more areas of the work/utility segment under the Prowler product line.

Arctic Cat To Invest $27 Million In Minnesota Facilities

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Arctic Cat recently announced that they plan to invest $27 million in their Thief River Falls and St. Cloud, Minnesota manufacturing facilities. The bulk of the investment will be in Thief River Falls where a new state-of-the-art paint line will be installed and other improvements made. In St. Cloud Arctic Cat’s engine manufacturing and assembly capabilities will be expanded. The paint line will be used for the company’s recreational off-road vehicles. The investment is expected to result in an additional 50 jobs. Learn more: Arcticcat.com

Comment:  This is another sign of the aggressiveness of the new CEO Christopher Metz who came in at the end of last year. Previously, after some sales and inventory problems with their ATVs, he immediately took a write down and quickly moved to reduce inventory rather than slowly trying to reduce the inventory over the next year or more. With companies like Honda and Yamaha renewing their UTV efforts, strong competition from Chinese manufacturers like Kymco and CFMoto and continuing efforts by Polaris and Can Am, Arctic Cat needs to continue to invest in their UTV product line in order to just maintain their market position, let alone improve it.

BRP Q4 FY15 Earnings Call & Analyst Day

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The Can Am Maverick Xds Turbo was introduced in 2015.

The Can Am Maverick Xds Turbo was introduced in 2015.

BRP, manufacturer of Can-Am branded off-road vehicles recently announced their financial results for the fourth quarter of fiscal year 2015, and also made a presentation to industry analysts. The following is a summary of some of the key points from the earnings call and analyst presentation, mostly related to the utility vehicle market. (all $ figures in Canadian dollars)

  • For the year total company revenues were up 10% to $3.5 billion and net income increased to $70.1million from $59.7 million.
  • For the year, Year Round Products revenue, which includes ATVs, UTVs and the Can Am Spyder, increased to $1.3 billion from $1.2 billion.
  • Gross Profit Margins decreased by 1% to 24% because of currency issues.
  • In the Q4 2015, which ended January 31, Year Round Products increased 53% year over year to $416.0 million from $272.5 million. The large increase is attributed to continued growth, dealer shipments for new product introductions for ATVs, UTVs and the Spyder and a new dealer ordering system that shifted some shipments from Q3 to Q4.
  • The Maverick Xds and Xds Turbo were introduced but slightly behind the optimum schedule.
  • Management reports that North American industry side-by-side sales are up mid-teens percent for the season starting in June while the ATV industry remains flat.
  • Can-Am side-by-side sales were up mid-single digits. While Can AmMaverick and Commander maintained market share in their respective sport and recreation focused market segments, BRP’s lack of product in the more utility oriented segments puts their sales growth behind the overall industry pace.
  • New product introductions increased inventory for UTVs and ATVs slightly.
  • Promotional activity for the UTV market is reported to be normal.
  • UTV OEMs continue to collaborate through the ROHVA association in discussions with the CPSC regarding new UTV regulations.
  • BRP continues to expand their NA dealer network. They added 38 dealers in FY14 and 76 in FY15. Of the latter 76, 72 are carrying off-road vehicles and 31 are located in the South or Southwest. Dealer network coverage for ORV and Spyder has increased by 10%. The management is targeting 200 to 300 new dealers in total by the end of FY17. 
  • Management is focusing not only on increasing the number of dealers but improving the quality with better showrooms, as well as increasing the number of BRP product lines that existing dealers are carrying.
  • Ramp up time for new dealers is averaging about 12 months, which is slower than expected but management appears satisfied with the quality of the dealers and is taking a long-term approach.
  • The company is continuing to invest in and shift manufacturing operations with an emphasis on their facilities in Mexico, which have lower production costs, are closer to ORV and water products market and a offer a good location for international shipping.
  • Their Queretaro facility in Mexico will build engines for ORVs and other products. BRP is investing $55 million in their Juarez II facility in Mexico which will handle new ORV growth and brings chassis painting in-house. The facility is expected to have enough capacity for their growth plans through at least FY2020.
  • Capital expenditures will increase significantly from $175 million in FY2015 to $200-220 million in FY2016.
  • Guidance for Year Round Products for FY2016 is an increase in revenues of 7%-11%.

ORV Related Growth Areas

  • Management is targeting the utility segment of the UTV market as a growth area and the biggest opportunity in the Year Round Products division.
  • Overseas, China represents a sizable off-road opportunity and BRP plans to increase the number of dealerships from 19 to 30 by the end of FY16.
  • Another growth area related to ORVs that is being targeted is in Parts, Accessories and Clothing which has grown at a CAGR of 12% over the last five years.

Comment:  While not explicitly stated by the management, expect BRP to introduce new UTVs this year targeting the utility/work market segment. The challenge for the powersports UTV manufacturers is reaching the utility/work customers with their existing dealer networks. Some portions of this market segment is often reached by non-powersports distribution channels and involve different selling processes at which powersports dealers may not excel or be interested in pursuing. Nevertheless, the continued entry into other UTV segments by various powersports manufacturers as well as the expansion of dealer networks should help drive growth in the NA UTV market. Overseas, there are some currency and macro economic headwinds but BRP and other OEMs appear to be committed to the long term development of the ORV market.

Textron Acquires Douglas Equipment

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The Tugmaster DC5 - 42 from Douglas Equipment is part of the product line Textron is adding to their Specialized Vehicle division.

The Tugmaster DC5 – 42 from Douglas Equipment is part of the product line Textron is adding to their Specialized Vehicle Group with their latest acquisition.

Textron has acquired Douglas Equipment, a UK-based supplier of ground support equipment to airlines, from Curtiss-Wright Flow Controls. Douglas Equipment will become part of the Textron’s subsidiary Textron Specialized Vehicle Group which manufacturers golf cars, utility vehicles and ground support equipment under brands such as E-Z-GO, Cushman, Bad Boy Buggies and TUG. The subsidiary already sells ground support equipment to airlines under the TUG brand and Douglas Equipment products are expected to complement those products. Douglas Equipment specializes in conventional aircraft tractors and runway friction measuring devices. Textron management expects the acquisition to expand their ground support equipment product line and add customers. Learn more:  Zacks.com

Comment:  Golf car manufacturers are looking for new growth areas with the continued decline of the golf fleet market. They are attempting to do this with new product offerings to boost sales in existing markets or to target new markets. Another method is through complementary acquisitions such as this. What we haven’t seen yet is an acquisition in a completely untapped market, such as an acquisition in the recreational vehicle segment of the STOV market. While golf car manufacturers have made some moves into the off-road UTV segment, it has been primarily been with work vehicles with some light recreational crossover applications but nothing in the purely recreational segment.

Polaris Reports 2014 Q4 Earnings

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The new four passenger RZR 4 EPS in Havasu Red Pearl from Polaris.

A constant stream of new models like the new four passenger RZR 4 EPS in Havasu Red Pearl help keep Polaris growing.

Polaris continued on the path of strong growth with another record quarter. Managment reported net income was $135.4 million for the fourth quarter of 2014, up 25 percent from the previous fourth quarters net income of $108.7 million. Sales for the fourth quarter of 2014 totaled a record $1,275.0 million, an increase of 18 percent over last years fourth quarter sales of $1,083.7 million.

For the full year ended December 31, 2014, Polaris reported net income from continuing operations of $454.0 million for the full year 2014, up 19 percent from the previous years net income from continuing operations of $381.1 million. Sales for the full year 2014 totaled a record $4,479.6 million, an increase of 19 percent compared to sales of $3,777.1 million for the full year 2013. Some of the highlights related to small, task-oriented vehicles follow.

  • Off-Road Vehicle sales , which includes ATVs and UTVs or side-by-sides, increased 19% from the fourth quarter 2013 to $781.5 million. This increase reflects continued market share gains on strong demand for both ATVs and side-by-sides.
  • Polaris North American ORV unit retail sales were up low-double digits percent from the 2013 fourth quarter with consumer purchases of side-by-side vehicles up double-digits percent and ATV retail sales up high-single digits percent for the 2014 fourth quarter.
  • Polaris introduced over twenty new MY14.5 and MY15 ORV models in 2014, including the all-new RZR® XP 900 trail and RZR® XP4 900 trail, several new value models, and two models in a newly defined category of single-seat, ride-in ATVs, the Polaris ACE.
  • Polaris extended their market share lead in the North American ATV industry for the fourth straight year with retails up mid-single digits in an industry that only rose slightly.
  • ACE sales accelerated notably in the fourth quarter as marketing and the new 570 model began to impact the marketplace.
  • Four recent model year ’15 introductions include the new electronically fuel-injected RZR 170 and the new RZR 900S4, both of which have already begun to ship.
  • Commercial. Sales increased by over 80% in the fourth quarter driven by initial Ariens-Gravely supply vehicle shipments, strong national accounts growth and notably improved BRUTUS and Bobcat retail performance.
  • In the Small Vehicle division which includes GEM, Aixam and Goupil, fourth quarter revenue declined 11% due to the weak French economy afflicting both Aixam and Goupil. For the full year 2014, sales increased 28% fueled by Aixam market share gains and increased sales from both our GEM and Goupil businesses.
  • Polaris significantly outperformed in the ORV market in Europe.
  • For 2015 management expects ORV is expected to grow mid-single digits, driven by new products but offset by further implementation of RFM, their new inventory management program, and slower international demand.

Learn more:  Seekingalpha.com (earnings call transcript)

Comment:  Polaris continues to dominate the market, although like other manufacturers they have been hurt by slower sales in Europe and in countries like Russia. Expect more of the same in 2015 as they continue to rollout products to segment the market and cover a range of price points. They are likely to add more models for their push into the commercial segment as well.

Arctic Cat Announces FY2015 Q3 Earnings

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The 2015 Wildcat Sport XT, a recent addition to the Arctic Cat side-by-side lineup.

The 2015 Wildcat Sport XT, a recent addition to the Arctic Cat side-by-side lineup.

Last week Arctic Cat reported on their third quarter earnings for fiscal year 2015. For the quarter ending on December 31, 2014 net sales for the third quarter decreased to $193.7 million from $225.8 million for the same quarter last year and net earnings decreased to $7.5 million or $8.9 million as adjusted from $12.1 million. Year-to-date net sales increased 2.5% to $599.9 million from $585.1 million a year ago and net earnings decreased to $26.4 million or $32.3 million as adjusted from $41 million. Here are some highlights of the earnings call as it relates to utility vehicles.

  • ATV and UTV sales for the quarter increased 7.3% to $83.9 million from $78.2 million as growth in Wildcat side-by-sides were offset by decreases in core ATVs.
  • For the first three quarters to date sales of ATVs and UTVs decreased 4.3% to $217.3 million from $227.2 million. Strong sales of Wildcat side-by-side models were offset by lower than planned sales of core ATV sales to dealers in North America and international regions, including Russia.
  • A $7 million charge in the 4th quarter will be taken related to reducing core ATV inventory.
  • Wildcat models gained further market share in this category during the third quarter this year.
  • For the calendar year sales of side-by-side Wildcats grew 34% versus the industry’s 17%.
  • Three new Wildcat Sport models on a new 60-inch wide chassis were introduced. The new chassis’ width is a mid-sized option between the original Wildcat and the recently successfully introduced Wildcat Trail model, which has a narrower 50-inch stance.
  • A new 2016 model year HDX Prowler will be announced in early February
  • Arctic Cat signed an OEM agreement with a terrain company during the third quarter to build private label side-by-side vehicles for the commercial line equipment business. They expect to begin shipping products to this customer in March.

Learn more:  Seekingalpha.com (earnings call transcript)

Comment:  In search of growth many UTV manufacturers are looking to enter into other market segments either by adding new product lines or developing partnerships. Arctic Cat’s new Sport line and OEM agreement are more examples of this trend. From comments during the earnings call, the OEM agreement is with Toro. This will give Arctic Cat a distribution network into the commercial and turf markets. Their current powersports network of dealers is not the best match for tapping into the commercial market. For Toro, UTVs are a relatively small part of their business and development resources are probably better spent their core products, while they take advantage of Arctic Cat’s engineering expertise in the UTV market.

Polaris Adds Pro Armor Brand To Accessories Lineup

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A Polaris RZR 800 with a Pro Armor door.

A Polaris RZR 800 with a Pro Armor door.

Polaris Industries recently purchased the Pro Armor Brand of ATV and side-by-side accessories from California-based of LSI Products Inc. and Armor Holdings LLC. Pro Armor had sales of $15 million last year. The company will continue to operate and develop products independently at their Riverside, CA location. Polaris has been collecting brands of late for its’ Parts, Garments and Accessories (PG&A) division including acquisition of KLIM branded snowmobile and motorcycle clothing and Kolpin Outdoors, another UTV/ATV accessory manufacturer. Learn more:  Startribune.com

Comment:  Accessories account for over 50% of Polaris’ PG&A revenue which reached $611 million in 2013 and has nearly doubled since 2009 when it was $313 million. In 2014 management expects PG&A revenue to increase another 20%. Increasing sales of this division has been a strategic objective of the management and they have executed on that objective through both organic growth and acquisition of existing strong brands. Accessory spending on high performance UTVs is quite high, averaging around $1,500 and often ranging thousands of dollars higher. In a recent presentation to the investor community Polaris reported strong increases in dollars spent on accessories per vehicle for both Rangers and RZRs.

Arctic Cat Reports Earnings For Fiscal 2015 2Q

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Despite weak ATV sales, side-by-side revenue increased as Arctic Cat Wildcat Trail models continued to sell well.

Despite weak ATV sales, side-by-side sales increased as demand for Arctic Cat Wildcat Trail models remained strong.

Arctic Cat reported revenue of $262.5 million for the fiscal 2015 second quarter, an increase of about 10% from last year. Sales were driven by their snowmobile and parts, garments and accessories (PG&A) divisions which offset weakness in their ATV business that includes ATVs and side-by-sides. The ATV business declined 4% from the previous year’s quarter and 10% year to date. The company fell short of their expectations for ATV sales but strong sales continued for their Wildcat side-by-side models. There was also a significant charge for a recall of some of their older ATVs. Some highlights of the earnings call as it relates to utility vehicles/side-by-sides include:

  • 15 new 2015 model year ATVs and side-by-sides were unveiled in the quarter
  • Demand for their side-by-side products remains strong driven by the Wildcat Trail line and recently introduced Wildcat Sport
  • Wildcat sales also helped generate revenue for the PG&A business
  • Management reports Arctic Cat is outperforming the overall side-by-side market

Learn more:  Seekingalpha.com (earnings call transcript)

Comment:  Despite weakness in their ATV business Arctic Cat remains a strong competitor to Polaris in the high performance segment of the side-by-side market. They are particularly strong in the trail sub-segment where the vehicles are narrower to allow access to legacy ATV trails.