On a conference call October 29th, the leaders of Arctic Cat spoke of their efforts to control spending and remain a solid company that continues to bring the market quality recreational vehicles in the UTV, ATV and snow segments.
Below is the official Press Release from Arctic Cat, but I thought I would cut through some of it with my notes from being on the call.
The call started with Shawn Brumbaugh opening and introducing the Chairman and CEO Chris Twomey. Twomey spoke of the business in review recognizing the US recession ending in the third quarter, but realizing that the consumer spending on recreational vehicles will still remain down for another quarter or more. Arctic Cat’s ATV sales are down 25%, but Twomey pointed out that the complete industry was down by 30%. “Arctic Cat has outperformed the industry and we have gained market share,” said Twomey. They do feel that the market has bottomed out at this time.
He then turned it over to Claude Jordan, Arctic Cat’s President and COO, who spoke of their operations success at cutting cost and remaining a lean company to outlive the economic times. Over the last nine months they have seen improvements in lowering expenses and inventory while maintaining being a company that continues to gain market share. They have worked with vendors to lower production costs and have improved their cash position by lowering fixed inventory and reducing their finished goods and engines by 23%. “We are powering production and aligning with dealer inventory allowing the dealers to be in a good position when the economy recovers,” said Jordan.
Jordan then turned over the meeting to Tim Delmore the CFO and Secretary. He spoke of the financial side and spelled out all the numbers. I will leave that recap to the press release below.
It was good to hear that Arctic Cat has such a positive outlook on the future and helping their dealers survive this very challenging time. Please read below and visit www.arcticcat.com or your local dealer.
Arctic Cat Reports Fiscal 2010 Second Quarter Results
Increased second quarter operating profit 7% on lower sales;
Continued to lower cost structure, improve gross margin percentage and strengthen balance sheet;
Company maintains annual revenue guidance, remains focused on achieving continued operational efficiencies
MINNEAPOLIS– Oct. 29, 2009– Arctic Cat Inc. (NASDAQ: ACAT) today reported net earnings of $14.8 million, or $0.81 per diluted share, on net sales of $166.3 million for the second quarter ended September 30, 2009. Arctic Cat reported net earnings in the fiscal 2008 second quarter of $16.9 million, or $0.93 per diluted share, on net sales of $204.3 million.
For the six months ended September 30, 2009, Arctic Cat’s net earnings were $8.8 million, or $0.48 per diluted share, on net sales of $235.7 million. In the first six months of last year, the company reported net earnings of $10.0 million, or $0.55 per diluted share, on net sales of $298.2 million.
Commented Arctic Cat’s chairman and chief executive officer Christopher A. Twomey: “We continued to face difficult selling conditions during the second quarter, given the global economic environment. Despite this, we are pleased with the company’s continued progress on our goals to reduce the company’s cost structure and strengthen the balance sheet.”
Among the highlights of Arctic Cat’s 2010 second quarter financial results versus the same quarter last year:
* Gross margins increased 410 basis points in the quarter and 230 basis points year to date;
* Operating expenses declined 12 percent to $23.3 million from $26.6 million, and fell 17 percent year-to-date;
* Operating profit rose 7 percent to $21.9 million from $20.5 million;
* Inventories were reduced 23 percent to $133.6 million from $172.3 million;
* Total cash and short-term investments at quarter end rose to $11.2 million from $3.7 million; and
* The company had no short-term debt at quarter end compared to $14.8 million a year ago.
“Through strong inventory management, expense controls and a rescaled business, we continue to remain on track to deliver improved operating results this fiscal year on lower sales,” said Twomey.
Arctic Cat announced on October 20, 2009 that the company has entered into an agreement for GE Capital, Commercial Distribution Finance to become the exclusive provider of floorplan financing for Arctic Cat’s U.S. dealers. The new multi-year financing program will replace Arctic Cat’s current financing agreement with Textron Financial Corporation, which had previously announced its intent to exit the dealer floorplan business. The new financing program is expected to begin December 1, 2009.
“We are very pleased to partner with GE Capital, and we expect that this agreement will continue to provide our ATV and snowmobile dealers with innovative financing programs and superior service,” said Twomey.
Business Line Results
“Our continued focus on achieving our operating efficiency initiatives has enabled Arctic Cat to increase our gross margin percentage, despite lower demand for recreational vehicle products at this time,” said Twomey. “We expect that Arctic Cat will be well-positioned as a stronger, leaner company as our markets recover.”
Snowmobile sales totaled $85.7 million in the second quarter compared to $98.4 million in the prior-year quarter. Year to date, snowmobile sales were $103.7 million versus $119.8 million in the same period last year. Although Arctic Cat continues to anticipate lower worldwide snowmobile orders in fiscal 2010 as a result of the recession, the company expects to maintain or increase its North American market share by offering consumers leading-edge technologies, such as the new powered up 800cc engine that is being used in its models across all market segments.
All-terrain vehicle (ATV) sales totaled $51.7 million in the second quarter versus $71.6 million in the prior-year quarter. Year to date ATV sales were $83.9 million compared to $125.4 million in the first six months of fiscal 2009. With retail industry ATV sales continuing to decline during the recession, Arctic Cat has worked to reduce dealer inventories and, at the same time, increase market share.
Sales of parts, garments and accessories (PG&A) in the second quarter totaled $28.8 million versus $34.3 million in the prior-year quarter. Year to date, PG&A sales were $48.1 million compared to $52.9 million in the year-ago period.
Arctic Cat is implementing operational efficiency initiatives aimed at returning the company to long-term profitability on lower anticipated sales volumes. The company’s fiscal 2010 outlook includes the following assumptions: the continuation of the weak global economic environment negatively impacting sales of recreational products; increasing gross margins up to 300 basis points through global low-cost sourcing, improved commodity pricing and greater efficiencies from lean manufacturing; achieving a 12 percent to 17 percent reduction in operating expenses; improving cash flow from operations; and ending the year with more cash on the balance sheet by lowering inventory.
Arctic Cat continues to estimate sales for its fiscal year ending March 31, 2010 in the range of $425 million to $460 million, based on achieving ATV sales of $188 million to $203 million, snowmobile sales in the range of $140 million to $152 million and PG&A sales of $97 million to $105 million. Arctic Cat has not provided fiscal 2010 earnings per share guidance, although the company expects improved per share results compared with fiscal 2009.
Commenting on the company’s outlook, Twomey said: “This is a challenging year for the recreational products industry. Near-term, we remain focused on conservatively managing our business to meet lower anticipated demand. We are continuing our efforts to improve the company’s operational performance. We also are taking appropriate actions to preserve cash and maintain dealer health, as well as developing select innovative products that position Arctic Cat to emerge as a stronger company once the economy recovers.”
About Arctic Cat
Arctic Cat Inc. designs, engineers, manufactures and markets all-terrain vehicles (ATVs) and snowmobiles under the Arctic Cat® brand name, as well as related parts, garments and accessories. Its common stock is traded on the Nasdaq Global Select Market under the ticker symbol “ACAT.” More information about Arctic Cat and its products is available at www.arcticcat.com.
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