Arctic Cat & Polaris Execs Look Ahead

Running a small business with a few employees and heading up an international operation with thousands of employees and hundreds, if not billions, in annual sales are two distinctly different things. How about doing it with all kinds of business analysts commenting on your every move? That’s what separates the chief executives of international businesses from the rest of us and helps account for their seemingly outlandish pay, which in reality may not be enough at all.

The heads of the US-based snowmobile companies enjoy great results when snow comes early and lasts into springtime. Sales will be up and all involved will look like geniuses, even to the market analysts who know more than anyone about these weather-reliant businesses. But, what happens when a snowmobile maker anticipates a snowfall to be good and it seems to be as snows come early, but then totally dry up before Christmas in key market areas? Or what happens when currency fluctuations have a major impact on profits? Or what happens when potential buyers who are in the farm or oil production circus suddenly see their profits and jobs fall away and can’t buy that hot new sled? Well, that’s why these executives get the big bucks, right?

Special editions have been a strength for Polaris in all of its powersport model lines, including the 2016 800 Rush Pro-S Night Lightning LE.

We’ve been reviewing the latest quarterly financial statements of both Arctic Cat and Polaris, which makes us glad that we sold our snowmobile-related business a decade ago, just before the financial troubles hit the industry and overall economy like a Godzilla El Nino. Oops! Isn’t that what’s headed our way this winter? More worry for the sled company executives.

Interestingly, we noted that Polaris had a healthy third quarter, reporting better than expected results. It was the 24th consecutive quarterly earnings record. So, of course, that caused the stock price to drop. Huh?

Theories About Future Snowmobiles

Let’s see, Polaris reported a quarterly revenue of US$1.46 billion, exceeding analyst’s estimates. In the third quarter Polaris reported that its motorcycle sales were up 154 percent versus the previous year. Snowmobile sales increased 14 percent and parts and accessories were up three percent. Of course, that makes sense. W-h-a-t!

Let’s not forget that last season was odd. North American sled sales increased, although worldwide sales were down primarily due to a wild fluctuation in the once strong Russian market. Strong snow falls appeared in the East, but were not stellar in the high usage areas of the US Midwest. Even so, sled sales in the US were up more than 4,000 units and nearly 3,000 in Canada.

The success of Arctic Cat’s partnership with Yamaha encourages the company to seek other such mutually beneficial arrangements for the future.

Now as we head into the 2015-2016 snow season, the executives at both Polaris and Arctic Cat are being cautious. After all, the weather gurus are calling for a major El Nino anti-snow depression for the coming season. They’ve been calling for that since just after the last snow melted in our wood lot this past April. Of course, the many farmer’s almanacs anticipate colder and snowier weather to come. Who to believe, the Weather Channel experts or the by-guess-and-by-gosh experts at those almanacs?

During an earnings call with analysts this past October, Polaris Chief Executive Officer Scott Wine noted today’s realities as he explained the company’s caution due to what he called “slower near-term growth in the powersports industry.” Wine’s counterpart at Arctic Cat, Chris Metz, noted that Cat’s lowered expectations resulted from lower international sales to Russia, unfavorable foreign currency exchange and lack of snow in key regions last year. Regardless, both executives anticipate their company’s representative snowmobile sales will meet expectations.

Arctic Cat’s Metz specifically told analysts about its plans for its recently previewed Arctic Cat SVX 450 snow bike and how it represented the company’s focus on innovation. Metz explained, “We’ve developed the industry’s first purpose built OEM snow bike and snow biking is a growing sport class in Western North America. Our patented SVX 450 snow bike is designed to provide an exciting new riding experience for a category of riders who want the lightest, most affordable vehicle for mountain riding. We look forward to efficiently introducing our snow bike in the near future.”

Arctic Cat CEO Chris Metz said that Cat has developed the industry’s first purpose-built OEM snow bike and that the patented SVX 450 snow bike is designed to provide an exciting new riding experience for a category of riders wanting the lightest, most affordable vehicle for mountain riding.

Because Cat’s snow bike will weigh significantly less than the lightest powder snowmobile currently available, the target market for product is a Western mountain rider. Metz explained to the analysts that the SVX 450 enables an enthusiast to get into tight spots on mountains, ridges and in between trees that they would not normally be able to get to with a snowmobile. He noted that the snow bike takes riders into a “really, really fun environment.” He expects the SVX 450 to attract more of a motorcycle rider because it’s like riding a motorcycle on snow.

Inside the Snow Bike Scene

In response to a question about pricing for the snow bike, he noted, “Now our competitors are out with kitted units where you’ll buy a track, you’ll take your current dirt bike and you’ll take it apart and put the track on… and typically that would cost somebody in total for both those components well in excess of $10,000.

The versatile Bearcat series enjoyed a good reception in the Russian market until recent financial troubles slowed that economy and reduced the overall number of sleds sold there.

“We’re hopeful that we can… shape the price pretty dramatically on that and come out with a price position at a good margin for us that enables us to attract more people into this category. So we’ll be the first out there at this point with a fully built OEM product, not a kitted product but shipped from the factory as a snow bike.”

Metz further explained that Arctic Cat planned to be out testing it this year before building limited quantities. He noted Cat’s team will assess the size of the market before shifting more fully next snow season and taking orders for it at the next model year this coming spring.

Polaris President & Chief Operating Officer Bennett Morgan told analysts that shipments of its Timbersled snow bike product began in the third quarter and have been incorporated into snow revenue.

As of its recently reported third quarter results, Polaris has already begun counting its Timbersled acquisition into its sled sales revenues.

Polaris third quarter revenue increased 14 percent with year-to-date revenue up 19 percent as a result of model year 2016 shipment timing being earlier to provide dealers and consumers with access to the new RMKs and Polaris pre-season “Snow Check” orders.

Morgan cautioned “As expected, the North American snowmobile industry is off to a slower start due to last year’s snow conditions. Polaris is notably outperforming and gaining early share with retail sales declining only low-single digits, as industry retail sales declines are in the mid-teens.

Innovation Trends in Snowmobiling

“We are cautiously monitoring the risk of poor snow in the Midwest last season, the potential impact of a strong El Nino weather pattern this season and weaker Canadian and international currencies, which we expect to offset with share gains from our new AXYS RMKs and our strongest and broadest product lineup in snowmobiles in years.”

Innovative products like the AXYS line of Polaris snowmobiles is expected to continue driving future sled sales.

Of the two snowmobile manufacturing entities, Arctic Cat being smaller and more dependent on sled sales can suffer more from analyst commentary. Polaris still suffers, but can showcase its resounding successes with the Slingshot three-wheeler, Indian motorcycle brand and industry leading RZR Side-by-Side and ATV product mix where snow is not a factor – unless it continues into July!

No matter how straightforward corporate honchos can be and how positive their company’s financial results, they are dependent on how outside analysts view their end of quarter and end of year financial statements. All they can do is the best they can while battling El Nino, currency fluctuations and creating consumer demand for cool new products like snow bikes. Good luck.