GE Capital’s Commercial Distribution Finance (CDF) business will provide inventory financing to motorsports dealerships that carry American SportWorks products. ??American SportWorks sells UTVs under the Landmaster brand as well as several brands of go-carts. ??The company is looking to expand their dealer network of approximately 200 dealers. ??Learn more: ??Wall Street Journal
Arctic Cat Wildcat Side-by-Side
The following are some of the highlights from Arctic Cat’s earnings call for their??fiscal 2013 fourth quarter ended March 31, 2013 with an emphasis on side-by-side related information.
Typical Polaris Ranger emergency vehicle used by a municipal fire department
The Defense Department recently awarded a number of contracts including a $382.5 million contract for??fire and emergency vehicles for the Army, Navy, Air Force, Marine Corps, and federal civilian agencies. The contract is a “maximum value, fixed-price with economic-price-adjustment contract” which gives the Polaris Defense subsidiary the right to compete with other vendors for various orders under the larger contract. ??Polaris will only get the portion of the total contract for which it wins individual orders from the various agencies. The completion date for the contract is May 17, 2018.
Polaris management has targeted military sales a key strategic driver for future revenue growth. ??According to the company, they currently sell about $50 million of products, including ATVs and UTVs, to military customers and is targeting $200 million in annual revenues. Polaris was also one of the first vendors to offer a six wheeled UTV that has been popular with Bureau of Land Management fire units which fight wild fires.??Learn more: ??Fool.com
The Light Commercial Vehicle (LCV) market in India is experiencing a slowdown. ??Industry experts point to expensive loans, reduced economic activity and challenging freight rates in several sub-markets as the reasons.??The mini-trucks which can carry up to two tons of goods has seen growth fall. According to the manufacturer’s trade association, “From an average 40,000 units a month last financial year, sales of goods-carrying light commercial vehicles (LCVs) fell have fallen to 33,721 units in April; growth slowed from 16 per cent last year to three per cent in April.”??The segment’s more recent growth had attracted more competition and new models with the main manufacturers being Tata Motors with their Ace models, Mahindra & Mahindra???s Maxximo and Ashok Leyland’s Dost??. ??Learn more: ??Business-standard.com
John Deere plans to add new models to their RSX line of utility vehicles. The current RSX 850i pictured here.
John Deere has plans to add new models to their Gator RSX line that targets the recreation/sport side-by-side segment. The current line features three models: ??the Base, Trail and Sport. The RSX line was specifically developed to appeal to recreational riders and expand John Deere’s presence in the UTV market beyond their traditional work segments. John Deere started the UTV market with their early Gators focusing on work applications and expanded their reach in 2007 with the Gator XUV line which appeals to crossover users that want vehicles for a combination of work and play. ??The Gator RSX line is a natural progression towards the pure play applications. It is also a higher priced, highly profitable and becoming a highly competitive segment. ??Management reports that the RSX models have brought in new customers to the brand and is??particularly??strong in the West Coast market, a major recreational side-by-side market. ??Learn more: ??Powersportsbusiness.com
Comment:?? It’s not surprising to see John Deere expanding the RSX line. ??This segment of the market is performance and feature driven and highly competitive. ??Polaris, Arctic Cat and Can-Am are considered the leaders and continuously trying to one-up each other so product development must be relatively fast and ongoing. ??On the other hand, vehicles in this fast growing segment sell for upwards of $15,000 to $20,000 or more and buyers frequently spend thousands more on accessories and options so there is a lot of profit to be made. ??I see two challenges for John Deere in this segment. ??First their brand is associated more with work applications than sport, especially in light of their main competitors that come from a powersports heritage. ??Second, their distribution network is, not surprisingly, designed to reach customers buying work related vehicles. However, their ??original RSX line had solid reviews, and with customers using so many online resources to research vehicle purchases, distribution alignment issues can be mitigated to a certain extent.
Commercial customers can now finance GEM models like the el XD through GE Capital
GE Capital’s Equipment Finance business has entered into an agreement to provide financing for GEM’s commercial purchases. GE Capital already provides financing for other product lines sold by Polaris. The agreement with GEM is for three years. The majority of sales for the GEM product line are for commercial customers such as municipalities, universities and resorts. According to GEM management adding a leasing option is an important option for their commercial base. Learn more: ??Marketwatch.com
Comment:?? Although LSVs/NEVs were originally targeted towards the consumer market, the majority of GEM’s sales through the years have been to commercial customers. SVR predicts this segment will continue to be a strong growth area for LSVs. Historically commercial customers have been more likely to look for leasing options than private customers in the STOV market. For some commercial purchasers they can more easily lease vehicles using funds from their operating budgets than purchase them from a capital budget.
If a new Congressional bill passes more of these signs may appear on Utah public lands.
A bill introduced in the House and the Senate would designate over 9 million acres of public land in Utah as Wilderness, effectively closing off that land to any off-road riding. If land is designated as Wilderness then??no vehicles, including motorcycles, ATVs, UTVs or bicycles, are allowed on that land. Called the America’s Red Rock Wilderness Act, the bill includes riding areas around Moab, the San Rafael Swell and Chimney Rock. The Utah congressional delegation opposes the legislation and some of them are working with local stakeholders to develop a separate lands bill. ??The American Motorcyclist Association is encouraging off-road riders to oppose the legislation. ??Learn more: ??Powersportsbusiness.com
Comment:?? Besides the riders themselves this legislation can impact dealers as well. In some recent interviews, dealers have told me about the negative effect on their business of local land access rules. In one case it was land use rules passed by the local municipality and in other it was a long-term trend at the state level. In the latter case the dealer stopped carrying an off-road line of UTVs because of poor sales he attributed to the very limited areas available for off-road riding.
The following are the highlights of the Polaris earnings call for their first quarter 2013 earnings report as it relates to the STOV market.
Looking Forward
Learn more: ??Seekingalpha.com??(earnings call transcript)
Ranger XP 900 helped drive Polaris sales in Q1 2013
Polaris reported strong financial results for the first quarter of 2013. Management reported sales of $745.9 million and net income of $75.5 which were 11% and 26% higher than the prior year’s first quarter, respectively. A major contributor to the record earnings was a better winter for the snowmobile business compared to the previous winter. ??The off-road division, which includes side-by-sides, increased revenue by 7% compared to the Q1 2012 on the strength of new products and mid-size utility vehicles like the Ranger XP 900. Management also raised their full year projections, forecasting an??increase of 15 to 18 percent from 2012 earnings and sales for the year to grow around 12 to 15 percent, up from its previously projected increase of 7 to 10 percent. Learn more: ??TCBmag.com
BRP, the Canadian manufacturer of powersports products including Can Am side-by-sides, ATVs and watercraft as well as Ski-Doo snowmobiles is planning an initial public offering (IPO) on the Toronto Stock Exchange. Ten years ago Bombardier sold the business lines to private investors, the largest being private equity firm Bain Capital with about a 50% stake.??The remaining shareholders include the founding family run??Beaudier Group with around 35% of the company and pension fund manager Caisse de d??p??t et placement du Qu??bec with around 15%. According to the prospectus,??“The three shareholder groups are staying invested in the near term and will control all of the company???s multiple-voting shares,….The offering is for subordinate voting shares, which have one vote each compared to the six votes for the multiple-voting stock.”
Originally an IPO was to be completed about five years ago but the recession put it on hold. ??Now, with side-by-side market leading the way, the environment is much more favorable as evidenced by the recent stock runs of Polaris and Arctic Cat. The company plans to raise $250 million with the IPO. The funds raised will primarily be used to ?? payoff debt. According to company financials BRP had sales of $2.9 billion and profit of $121 million for the last fiscal year that ended on January 31, 2013. Learn more: ??Financialpost.com