Minneapolis - Arctic Cat Inc., (NASDAQ:ACAT) today reported net earnings of $12.1 million, or $0.89 per diluted share, for the fiscal third quarter ended Dec. 31, 2013, compared to prior-year record net earnings of $17.9 million, or $1.30 per diluted share. Net sales in the third quarter were $225.8 million, up from net sales of $218.0 million in the same quarter last year.
Commented Claude Jordan, Arctic Cat chairman and chief executive officer, "The company posted solid revenue growth in the third quarter that met our expectations, as we achieved double-digit sales gains in our ATV/side-by-side and our Parts, Garments and Accessories businesses. As we stated last quarter, however, we expected the second half of our fiscal year to be challenging. Profitability in the 2014 third quarter was reduced, chiefly due to anticipated lower gross margins on snowmobile models built for Yamaha, as part of our new partnership this year, and ATV product mix.
"The Yamaha gross margin impact was primarily absorbed in the fiscal 2014 third quarter compared to record earnings in the prior-year third quarter."
Jordan added, "We are expecting strong fourth-quarter sales and earnings, which will be driven by the launch of our new Wildcat Trail model. Additionally, we continue to focus on operational excellence and cost controls to maximize our efficiency and profitability."
Highlights of Arctic Cat's fiscal 2014 third-quarter and year-to-date financial results compared with the prior-year periods:
- Net sales grew approximately 4 percent for the quarter, primarily led by contributions from the new Wildcat X and Wildcat X Limited side-by-sides, and parts, garments and accessories.
- North American retail sales increased 15 percent from the prior-year quarter, with double digit retail sales gains in ATVs, Wildcat side-by-sides and snowmobiles. Year to date, these retail gains have allowed Arctic Cat's ATV business to gain market share for the 2014 fiscal year and its snowmobile business to gain the most market share in the industry for the 2014 fiscal year.
- Gross profit margins were 17.8 percent compared to 23.3 percent in the prior-year quarter due to several factors, most notably lower margin Yamaha snowmobiles supplied in the quarter and product mix. Previously, Arctic Cat expected 2014 full-year gross margins to be lower by 80 basis points. The company now anticipates that fiscal 2014 gross margins will be approximately 190 basis points lower than the prior year, primarily due to product mix and Canadian currency impact.
- Operating expenses declined to $21.8 million versus $23.1 million. The company continued to increase investment in research and development, which was up 13 percent in the third quarter and 20 percent year to date, to ensure a strong pipeline of new products and technologies while maintaining strict cost controls.
- Operating profit was $18.4 million versus $27.7 million in the year-ago quarter.
- Cash and short-term investments totaled $62.5 million. The company had no debt.
For the nine months ended Dec. 31, 2013, Arctic Cat's net earnings were $41.0 million, or $2.99 per diluted share, compared to record net earnings of $44.8 million, or $3.25 per diluted share, in the prior-year period. The company's year-to-date net sales rose 5 percent to $585.1 million versus net sales of $558.4 million in the year-ago first nine months. Year to date, Arctic Cat has repurchased approximately 96,000 shares of its common stock under its current share repurchase authorization.
Business Line Results
ATVs/side-by-sides -- Sales of Arctic Cat's all-terrain vehicles (ATVs) and side-by-sides increased 12 percent to $78.2 million, up from $69.6 million in the same period last year. Contributing to sales were orders for the new Wildcat X Limited pure-sport side-by-side model that began shipping in the 2014 third quarter and continued success of the four-seat Wildcat 4X, which began shipping in late September. Both of these models feature Arctic Cat's high horsepower X engine, as well as enhanced ride and performance technologies.
Arctic Cat remains focused on further increasing its ATV/side-by-side business as a percent of total sales. The company anticipates that this business will be approximately 50 percent of total company sales for the fiscal 2014 full year. During fiscal year 2013, 45 percent of sales were in the ATV/side-by-side segment, up from 39 percent the previous year. The company continues to advance its growth strategy through new product introductions and international expansion.
Snowmobiles -- Snowmobile sales in the fiscal 2014 third quarter decreased 4 percent to $118.1 million versus $122.4 million in the prior-year quarter.
For the 2014 model year, Arctic Cat introduced 10 snowmobiles, including the all-new ZR 6000 El Tigre performance sled, and new snowmobile engine options from Arctic Cat and Yamaha through an engine supply agreement. Arctic Cat also introduced its first designed and built snowmobile engine, the 6000 C-TEC2. This powerful, lightweight and fuel-efficient 2-stroke engine enables the company to enter the large 600cc snowmobile market segment that now accounts for 18 percent of the snowmobile industry.
