Arctic Cat's CEO Discusses F4Q 2012 Results - Earnings Call Transcript

Arctic Cat, Inc. (ACAT)

F4Q 2012 Earnings Call

May 15, 2012 11:30 a.m. ET

Executives

Shawn Brumbaugh – Director, IR

Claude Jordan – President, CEO

Tim Delmore – CFO, Secretary

Analysts

James Hardiman – Longbow Research

Craig Kennison – Robert W Baird

Joe Hovorka – Raymond James

Rommel Dionisio – Wedbush Securities

Mark Smith – Feltl & Company

Stephen Roseman – Thesis Fund Management

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Arctic Cat Fiscal 2012 Fourth Quarter Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, May 15, 2012.

I’d now like to turn the conference over to Shawn Brumbaugh. Please go ahead.

Shawn Brumbaugh

Thank you. And thank you for joining us this morning. I’m Shawn Brumbaugh with Padilla Speer Beardsley. Before the market opened this morning, Arctic Cat released results for its fiscal 2012 fourth quarter and full year ended March 31, 2012.

Participating in our call today to discuss the company’s performance and outlook will be President and Chief Executive Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we’ll have time for any questions.

Before we begin, please note that some of the comments today will be forward-looking statements regarding the company’s expectations of future performance. Such statements are subject to risks and uncertainties, and actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and in the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors that may affect results.

Now I’ll turn the call over to Arctic Cat’s CEO, Claude Jordan. Claude?

Claude Jordan

Thanks, Shawn. Good morning, everyone, and thanks for joining us today. This morning, I will cover the individual performance of our three businesses during fiscal year 2012, as well as the progress we have made in operations as we continue to focus on profitability and operational excellence. Following my comments, Tim Delmore, our CFO, will review our financial performance.

Overall, we are pleased with our financial performance for the quarter and full year. Throughout the year, we have focused on growing the sales, improving gross margins, decreasing operating expenses as a percent of sales, improving earnings per share and strengthening our balance sheet. We were successful in improving our performance in each area.

In regard to the individual businesses, during fiscal year 2012, Snowmobile sales were up 38%, driven primarily by increased volume and, to a lesser degree, pricing and product mix. During the year, we launched 23 new ProCross and ProClimb models, which allowed us to win Snowmobile of the Year from Snow Goer and Sledhead 24-7. Additionally, we had five of the top 10 selling models during the year.

We did experience poor snow conditions in parts of North America during the fourth quarter, which impacted North American retail sales for the snowmobile industry and resulted in overall industry retail sales decreasing by 4% for the year. However, with the 23 new snowmobile models we launched during the year, we were able to increase our year-over-year North American retail sales slightly. We also experienced strong sales in our international markets.

The one area negatively impacted due to the snow conditions, was our North American dealer inventory, where we did see a 4% increase in year-over-year inventory, as retail sales were not as strong as expected in the fourth quarter. The entire increase in inventory was in the U.S. market, as our Canadian dealers did see a year-over-year decrease in their inventory.

As we look forward to next year, we believe snowmobile industry retail sales will grow between 0% and 2%. The expected increase in industry retail sales and the launch of five new snowmobile models that were launched at our Dealer Show in March, combined with 23 new models we launched this year, we would expect to take additional market share during the upcoming year.

On the ATV business, sales increased 58% for the quarter, driven by the launch of the Wildcat and all-new sport side-by-side. For the year, sales increased 25% due to the Wildcat launch and continued growth of our International business. Reducing dealer inventory was again a key focus during the year and we were successful in reducing our North American dealer inventory of ATVs and Prowlers by 26% excluding the Wildcat.

Including the Wildcat, overall dealer inventory was reduced year-over-year by 22%. With the continued decrease in dealer inventory and the new monthly ordering process we implemented in the third quarter, we feel as though dealer inventory is nearing the level where further decreases will not be necessary. As we look ahead to fiscal year 2013, we will not be looking to further reduce our dealer inventory.

ATV industry retail sales for North America had another down year, as retail sales decreased by 8% during fiscal year 2012. However, the industry did see positive growth in the fourth quarter as industry sales increased 7% for the first time since prior to the recession. For the fourth quarter, our retail sales grew faster than the market and we gained market share.

Our Prowler side-by-side business, excluding the Wildcat, continued to perform well and achieved double-digit year-over-year growth for both the quarter and for the year. The key driver in the side-by-side growth was the HDX heavy-duty utility vehicle, which was launched in the fiscal year 2011.

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