Arctic Cat beats profit expectations but lowers 2015 forecast

Struggling ATV and snowmobile maker Arctic Cat Inc. significantly downgraded its 2015 forecast Wednesday, citing Canadian currency woes, slack sales in Russia and a new strategy that will slash inventories of older all-terrain vehicles.

The altered outlook came as the Plymouth-based company reported fiscal third-quarter earnings that fell from last year but still beat Wall Street's profit expectations by a wide margin.

The conflicting news prompted the stock to seesaw all day. It eventually closed at $29.96, up nearly 1 percent.

For the quarter, officials signaled slower sales of its traditional ATVs even as its newer "side-by-side" seated vehicles sold very well. Snowmobile sales fell 31 percent, hurt by reduced snowfall and delivery changes that pushed shipments into the first quarter.

As a result, third-quarter profits fell 38 percent to $7.5 million, or 57 cents a share. Excluding severance payments associated with last year's abrupt CEO change, Arctic Cat's adjusted earnings were 68 cents a share, 20 cents higher than Wall Street analysts expected.

Revenue for the quarter fell 14 percent to $193.7 million, missing analysts' expectations by more than $4 million. Officials said the high U.S. dollar negatively affected currency translations in Canada — where the company sees 30 percent of its sales — as well as hurting overall sales.

Officials cut their outlook for fiscal 2015 and now expect sales of $705 million to $715 million and earnings of 36 to 44 cents a share. Both forecasts were severely below what analysts expected.

Going forward, the company announced that it will take a $7 million charge in the fiscal fourth quarter so it can reduce older traditional ATV "inventory at a much faster pace than previously planned." In addition, sales to Russia are expected to curtail this year, officials said.

In a call to analysts Wednesday, new CEO Christopher Metz said sales of Arctic Cat's traditional ATV models have slowed, while sales of its Wildcat "side-by-side" seated vehicles catapulted, helping to pull off a combined sales gain of 7 percent for the unit. Soon, the company will offer discounts on older ATV products so they exit dealerships faster, he said.

Metz, who just took the reins of the company in December, also told analysts that Arctic Cat hopes to soon settle two patent infringement lawsuits with Polaris Industries and Bombardier Recreational Products Inc. If achieved in a "reasonable" manner as hoped, the associated legal costs are not expected to dramatically impact earnings, Metz said.

"My short time here has reinforced my belief that Arctic Cat is an iconic brand in a growing industry with significant potential to improve its top and bottom line results. We currently are developing our strategic plans," he said.

Dee DePass • 612-673-7725