Arctic Cat (ACAT) Posts Q2 GAAP Loss of 98c/Share; Lowers FY17 Outlook

November 9, 2016 6:34 AM EST
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Arctic Cat (NASDAQ: ACAT) reported Q2 EPS of ($0.98), $1.34 worse than the analyst estimate of $0.36. Revenue for the quarter came in at $164.2 million versus the consensus estimate of $196.42 million.

Christopher Metz, Arctic Cat’s president and chief executive officer, stated: “We expected that Arctic Cat’s second quarter would be challenging, as we continued to implement our turnaround strategies. However, we encountered a softer than anticipated powersports market in the quarter, with Arctic Cat’s and the overall industry’s sales down. We are disappointed in the company’s second-quarter results, which were impacted by lower sales volumes, unfavorable product mix and a heightened promotional environment.”

Commenting further, Metz said: “We made further progress on implementing our strategic growth initiatives in the fiscal 2017 second quarter. We recently signed two strategic partnerships – one during the fiscal 2017 second quarter and the other after quarter end – that we anticipate will contribute meaningfully to Arctic Cat’s future revenues in fiscal 2018 and beyond. We continue to expect reporting stronger financial results in the second half of this fiscal year, driven by planned new product launches and an improved product mix.”

Fiscal 2017 Full-Year Outlook

Commenting on the company’s outlook, Metz stated: “We continue to face ongoing challenges in fiscal 2017, with a soft and increasingly competitive powersports marketplace, and continued headwinds from foreign currency. We are positioning Arctic Cat to capitalize on tremendous growth opportunities through new product innovation and strategic partnerships. We are highly encouraged by our progress in these areas and we expect future contributions from each. As we invest to support our strategic initiatives, we are cutting costs and manufacturing output to improve free cash flow and earnings. We believe that our balanced approach, along with our new bank agreement, will enable us to realize Arctic Cat’s long-term growth potential.”

For the fiscal year ending March 31, 2017, Arctic Cat is lowering its estimated full-year net sales and earnings range, reflecting a weakened powersports market, unfavorable macroeconomic trends, unfavorable product mix, and a highly competitive promotional environment. The company now anticipates fiscal 2017 net sales of $600 million to $640 million, and fiscal 2017 net earnings to range from a loss of $1.00 per share to $1.40 per share, which reflects a return to profitability in the second half of the fiscal year. Previously, Arctic Cat estimated its fiscal 2017 full-year net earnings to range from a loss of $0.70 per share to a loss of $1.00 per share. Continued foreign currency exchange headwinds in fiscal 2017, driven by the year-over-year impact of foreign currency exchange hedge losses, are estimated to reduce net earnings in the range of $0.44 to $0.47 per share compared to fiscal 2016. For the prior fiscal 2016 full year, the company’s loss per share totaled $0.71 on net sales of $632.9 million.

*** The Street sees FY17 revenue of $627 million and loss of $0.92.

Arctic Cat’s fiscal 2017 financial outlook includes the following assumptions:

  • ATV/ROV wholesale sales flat to down mid-single digits; snowmobile sales flat to down high-single digits; and PG&A sales flat to up single digits;
  • Neutral to slightly negative foreign currency impact on sales for the full year of $1 million or less, assuming an average Canadian dollar of $1.31 for fiscal 2017, which reflects an average rate of $1.33 for the second half of fiscal 2017, compared to an average rate in fiscal 2016 of $1.31;
  • Negative foreign currency exchange hedge losses for the full year in the range of $1.5 million to $2.5 million, versus foreign currency exchange hedge gains of $7.6 million in fiscal 2016, are expected to result in a net year-over-year increase in operating expenses of $9 million to $10 million. The company estimates that 70 percent of the net Canadian dollar exposure is hedged at an average rate of $1.33 for the balance of fiscal 2017;
  • Gross margin in the range of approximately 13.5 percent to 15.0 percent, with the lower end of the range reflecting continued elevated promotional incentives in the second half of the fiscal year;
  • R&D expense of approximately 5.0 percent of sales, as the company continues to ramp up its investment in end-user focused new products, including products to support our new strategic partnerships; and
  • Capital expenditures in the range of $30 million to $35 million.

Added Metz: “We remain focused this fiscal year on rebuilding and repositioning the company for a return to long-term growth when macroeconomic conditions improve. We are confident in our long-term strategic plans to turn the business around.”

For earnings history and earnings-related data on Arctic Cat (ACAT) click here.

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