For the second time in a matter of days, a Minnesota-based snowmobile and ATV maker with years of strong performance was slipping as traders rejected its forecasts as too low.
Last week, it was Arctic Cat (ACAT) getting hit, and this time, it was Polaris Industries (PII), which fell 2.8% to $128.38 Tuesday. The decline came after the company predicted earnings from continuing operations would be $6.17 to $6.37 in 2014, up 14% to 18% from last year, while saying sales should rise 11% to 14%.
However, according to FactSet, analysts are looking for a profit of $6.65 this year on revenue of $4.31 billion. In other words, Wall Street wanted to see income growth of more than 20%. Though the sales range Polaris provided allows for it to achieve the consensus target if the high end comes to pass, the company did leave the door open for a disappointment on the sales line. As a result, the stock was selling off a bit. The good news for shareholders was that it had already come off its lows of the day. At its worst, Polaris was down 6.1% from the prior close.
Shares of both Polaris and Arctic Cat have been brilliant for five straight years — with average gains of 59.6% and 64.7%, respectively. In total over their runs, Arctic Cat has surged 883%, with Polaris bolting ahead by 1,142%. But shares have skidded in the new year as sales growth rates have continued a trend lower.
In the just-completed fourth quarter, Polaris earned $1.56 a share on sales of $1.08 billion, both slightly exceeding expectations. Along with snowmobiles and off-road vehicles, Polaris also owns the Indian and Victory motorcycle brands.
Last week, Arctic Cat had one of the worst sessions in its history after it cut its projections, saying earnings this year would be $2.90 to $3 a share with revenue of $740 million to $750 million. The company previously had foreseen a profit of $3.27 to $3.37 and sales of $754 million to $768 million.
To sum up: Neither company is predicting anything approaching a collapse in their markets, but the lofty growth needs of traders aren't being met at the moment, not after these companies' recent blazing runs. When you've got that kind of lift on your record, you have to do something extraordinary, over and over again, to keep the market on your side. Otherwise, they'll tell you double-digit-teens growth is pedestrian. Not fair perhaps, but that's life in the market.
*2013 growth is estimated for Arctic Cat. 2014 growth is estimated for both.
Polaris CEO Scott Wine doesn't sound especially worried yet. He recently told Investor's Business Daily that "despite a slightly better economic environment, consumer spending is not going to have a major jump. I don't think it's going to go down in our industry. What we've seen over the last several years is that great products and strong brands continue to attract consumers even in difficult economic times."
Bring on more snow storms, presumably.
- Consumer Discretionary
- Investment & Company Information
- Arctic Cat
- Polaris Industries