As expected, slumping snowmobile sales caused Arctic Cat Inc. to lose money during its most recent quarter.
Expected or not, Wall Street wasn't pleased. The maker of snowmobiles and all-terrain vehicles watched as investors punished the stock Wednesday after the company reported a fourth-quarter earnings loss coupled with sales that missed analysts' expectations for both the fiscal fourth quarter and the year. Arctic shares fell 3 percent or $1.51 a share Wednesday to close at $47.23.
While the company's ATV sales surged during the quarter, it wasn't enough to overcome lackluster snowmobile sales and high dealer inventories. Although sales at the snowmobile division improved from a year ago, they still came up short despite the introduction of 10 new snowmobile models in February. Company officials blamed very slow sales in January and February. Sales picked up in March, but not enough.
Arctic Cat's snowmobile results contrasted with those of Polaris, which last month posted a record 127 percent jump in snowmobile sales for its first quarter that ended in March.
Arctic Cat officials said they generally expect lower overall results during the fiscal fourth and first quarters (January through June) because the largest division, ATVs, has its strongest sales during the summer and fall. Typically, it's those quarters that carry the year.
CEO Claude Jordan told analysts Wednesday during a conference call "Our business performed well during the quarter," noting that total sales rose 15 percent.
"We will continue to pursue our strategy to enter new growth segments and launch innovative new products including two all new Wildcat sport side-by-side [ATVs]," he said.
During the quarter, Jordan announced that Arctic Cat's snowmobile unit will expand its engine co-branding arrangement with Yamaha Motor Co. and buy its 135-horsepower, four-stroke engines, beginning in 2014. Arctic Cat also plans to build its own 600 cc, two-stroke engine in St. Cloud starting with the 2014 model year.
Feltl & Co. analyst Mark Smith noted that the margins on the new Yamaha engines will be lower than Arctic Cat traditionally sees. Joseph Hovorka, an analyst with Raymond James said that means a $6 million decrease in gross profit.
Arctic Cat will be selling more goods to Yamaha, which should improve margins, Jordan said.
Overall sales for the quarter rose 15 percent to $113.2 million, but that missed analysts' expectations of $121 million. On the plus side, the company lost just $5.1 million, or 38 cents a share. That was better than the 49 cents per share it lost a year ago and was better than the 40 cents per share loss analysts expected for the fourth quarter.
For the full fiscal year, Arctic Cat saw sales jump 15 percent to $671.6 million and earnings rise 33 percent to $39.7 million or $2.89 a share. Earnings results beat Wall Street's expectations by 4 cents, but missed revenue estimates by $8 million for the year.
Arctic Cat said it expects 2014 sales to rise 12 to 14 percent to $754 million to $768 million. Sales of its popular side-by-side ATVs are expected to deliver much of the growth. Earnings should grow 10 to 13 percent next year or $3.17 to $3.27 per share, officials said.