Arctic Cat is on the Right Track
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Snowmobile maker Arctic Cat (NASDAQ: ACAT) managed to beat the Street in the fourth quarter and posted a huge jump in its top line. However, the company saw its shares go the wrong way as it failed to come up with a bright outlook.
Let’s take a look at the quarter that was and how the company might perform in future.
A look at the performance
Sales for the quarter shot up 34%, reaching $98.5 million compared to last year due to high volumes in both snowmobiles and all-terrain vehicles (ATVs). The company posted a net loss of $0.49 per diluted share, which was an improvement over a loss of $0.52 per diluted share a year ago. The first and the fourth quarters are seasonal in nature, generally witnessing losses that are made up in the second and third quarters.
The increase in sales revenue was mainly because of strong demand for its ATVs and its all new Wildcat vehicles. Another driver for the ATV sales was the growth in international business. In fact, the Arctic Cat’s ATV sales for the fourth quarter were up by 58% from last year, coming in at $75.8 million in the quarter. Even the snowmobile sales surged on account of increased volumes, though an increase in sales incentives had a negative impact.
The company also witnessed growth in its prowler side by side business because of the launch of HDX heavy-duty utility vehicle.
Hitting a bump
Despite everything about the company being good this quarter, Arctic’s share price fell after its results were out. The reason was lower than expected 2013 outlook, projecting earnings of $2.4 to $2.5 per share for the coming year. The EPS estimate is not only below investor expectations but also below many of its competitors’ EPS estimates, such as Polaris Industries (NYSE: PII), which expects to earn in the range of $3.85 and $4.00 per share. This is almost 50% more than that of Arctic for the coming year. But, we need to look beyond just one quarter and see what lies in store for Arctic Cat.
Innovation: The key driver
The major contributors to Arctic’s revenue were its innovative and new products that were launched in the year. The Plymouth-based company launched 23 new models in the Snowmobiles segment during the year. Though the snow conditions were not very good in North America, the new snowmobile models attracted customers to the segment. The company also changed its pricing and product mix, which pushed sales in the industry. The increase in ATV and snowmobile sales had a positive effect on the revenue from accessories sales for the same including ATV parts and garments.
Planning for the future
Arctic Cat plans to continue to invest largely in product development going forward. The company is expected to do well in the coming months since it is on the verge of launching five new models for its snowmobile industry segment. These models, along with the 23 new models launched this year, are expected to help it increase its market share.
So, what else can be asked for? The snowmobile maker is in the growth mode, is improving its performance, and has been launching new products. Adding to that is the company’s plans to manufacture its snowmobile engines by its own from the year 2015, which will further improve its profitability by decreasing costs. Therefore, it would make sense to keep an eye on this Cat and see how it fares going ahead.
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