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Arctic Cat Misses on Earnings & Revs

Zacks Equity Research

Arctic Cat Inc. (ACAT) posted a 5.6% decline in earnings per share to $1.70 in the second quarter of fiscal 2014 (ended Sep 30, 2013) compared with $1.80 cents earned in the corresponding quarter last year. Reported earnings also missed the Zacks Consensus Estimate by 25 cents. Net income declined 6.4% to $23.4 million from $25 million in the year-ago quarter.

Revenues for the quarter ended Sep 30, 2013 increased 4.1% year over year to $238.5 million, missing the Zacks Consensus Estimate of $253 million. The year-over-year improvement was attributable to better performance by the Wildcat and Prowler HDX side-by-sides and higher sales in the snowmobiles business, partially offset by decline in ATV sales in North America and Europe.

Gross profit decreased 3.7% to $61.7 million or 25.9% of sales from $64 million or 28% of sales in the year-ago quarter. The year-over-year decline was due to product mix, adverse impact of Canadian currency and increased sales incentives due to higher retail sales in the ATV/side-by-side business.

The company recorded 6.5% decline in operating income to $36.3 million from $38.8 million in the year-ago quarter. Operating expense rose 0.6% to $25.4 million from $25.3 million a year ago.

Segment Results

Revenues from the Snowmobile & ATV business improved 5% to $208.1 million, driven by higher revenues from the ATV and Snowmobiles business.

Revenues from the ATV/Side-by-Side business rose 4% to $72.7 million. The improvement was driven by higher demand from dealers for the Wildcat X and the four-seat Wildcat 4 pure sport side-by-sides. The company remains focused on growing the ATV business through new product introductions and expansion in the international market. Revenues from the Snowmobiles business improved 5% to $135.4 million versus $128.6 million in the prior-year quarter.

Revenues from the Parts, Garments and Accessories (PG&A) business went down 1% to $30.4 million. The decrease was due to a drop in garments sales, which offset the increase in sales of parts and accessories.

Financial Position

Arctic Cat had cash and short-term investments of $40.1 million as of Sep 30, 2013, compared with $24 million as of Sep 30, 2012. The company had no debt in the reported quarter.

For fiscal year ending Mar 31, 2014, Arctic Cat expects earnings per share to be in the range of $3.27 to $3.37, reflecting a rise of 13%–17% from prior-year earnings of $2.89. The company expects revenues between $754 million and $768 million, representing a year-over-year increase of about 12% to 14%.

Our Take

Arctic Cat makes snowmobiles and ATVs under the Arctic Cat brand name and supplies related parts, garments, and accessories. The company markets its products through a network of independent dealers located throughout the U.S and Canada, and through distributors representing dealers in Europe, Middle East, Asia and other international markets. It currently holds a Zacks Rank #3 (Hold).

Smith & Wesson Holding Corporation (SWHC), Sturm, Ruger & Co. Inc. (RGR), and Polaris Industries, Inc. (PII) are performing well in the same industry where Arctic Cat operates. While Smith & Wesson is a Zacks Rank #1 (Strong Buy) stock, Polaris Industries Inc. and Sturm, Ruger & Co. carry Zacks Rank #2 (Buy).

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