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Arctic Cat Earnings: ATVs Are A Thorn In Its Side

Nov. 12, 2014 9:43 AM ETArctic Cat Inc. (ACAT)
William Bias profile picture
William Bias


  • Arctic Cat excels at selling snowmobiles.
  • Arctic Cat experienced warranty issues with its ATVs.
  • Management turnover could serve as a distraction for Arctic Cat.

On Nov. 6, snowmobile and ATV maker Arctic Cat (NASDAQ: NASDAQ:ACAT) came out with its Q2 FY 2015 quarterly statement which provided further detail on its earnings announcement released on Oct. 23. The company had its fair share of problems over the past few months. Let's take a look to see what is going on with them.

Revenue increases

Arctic Cat did see its year-to-date revenue increase 13% vs. the same time last year. Snowmobiles, its core competency, saw sales increase 35%. After all, its name gives you the impression that its products can help you quickly move through snow. Moreover, its parts, garments & accessories segment saw year-to-date sales expand 12% vs. the same time last year. However, its ATV segment saw sales decline 10%.

Nasty factors contributed to net income decline

Arctic Cat saw its year-to-date net income decline 34% vs. the same time last year. Artic Cat has had difficulties with its ATV product line and with management transition. Arctic Cat's ATV troubles extended to the company bottom line. A recall notice issued on Sep. 30 caused a $5.4 million warranty charge. This also probably served as the catalyst for the decline in ATV sales. A severance package for an ousted CEO as well as unspecified legal expenses also contributed to the decline in net income. Management turnover is never a good sign. This means that the company's senior management is preoccupied with leadership transitions instead of focusing on moving products.

Free cash flow declined

Arctic Cat saw its year-to-date free cash flow decline 65% vs. the same time last year. Unfavorable changes in assets and liabilities, deferred income tax expenses and a 12% increase in capital expenditures contributed to the decline.

Dividend sustainability waned

Arctic Cat paid out $3.2 million in dividends so far this year. This equated

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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