Snowmobiles Offer Signs of Hope

 | Jan 27, 2012 | 10:04 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

acat

I've had my doubts about an economic recovery. It's hard to ignore the improvements in some areas of the economy we are staring to witness, but the Austrian School economist in me is skeptical and still sees some frightening longer-term headwinds.

Massive government debt, massive government spending and little will to actually address the issue, just to name a few, and that's just scratching the surface. I also don't know how you get around heavy inflation at some point.  If someone has an answer to that question, I'd love to hear it. I certainly don't mean to be a downer on a Friday, but this stuff can keep you up at night.

But I continue to see some encouraging signs, reflecting consumer spending in some of the small names that I follow. It may be small potatoes in the scheme of things, but without the consumer showing some confidence and opening up the wallet there's little chance of any type of real recovery.

On Thursday, snowmobile and all-terrain vehicle manufacturer Arctic Cat (ACAT), a member of my JIMS CRAB FEST portfolio for cheapskates, reported a blowout quarter. It does not get much more discretionary than snowmobiles and ATVs, so this is a small, but potentially positive sign that some consumers are feeling better. Unfortunately, that confidence is not being felt by all, with still ridiculously high unemployment and under-employment rates.

For the quarter, snowmobile sales rose 61% and ATV sales were up 12%.  Total revenue jumped 36.2% to $207 million, well above the $182 million consensus estimate. The bottom line jumped nearly 84% to $17 million, or $0.92 per share, destroying the $0.59 consensus estimate. Gross margins improved 154 bps to 23.1%, while the net margin jumped 213 bps to a healthy 8.2%. I'm not sure that this quarter could have been any better. The company also raised earnings guidance for the full year, which ends in March, to $1.60-1.70 from $1.10-$1.15.

The balance sheet remains very strong. Arctic Cat ended the quarter with $76.3 million, or about $6.20 per share in cash and no debt. While cash was reduced from $107 million for the same period last year, there's a good reason for that.  Near the end of the quarter, the company repurchased Suzuki Motor's 6.1 million share stake of Arctic Cat class B shares. That reduced shares outstanding by nearly one third to 12.3 million.

Arctic Cat shares jumped 20% Thursday and have more than doubled in the past year, making it the best performer in the JIMS CRAB FEST portfolio.  This company certainly has come a long way since emerging from bankruptcy in 1983. In the past year, it may have even made the leap from value to growth. We'll see if the company can sustain the run that it's been on, which has been nothing short of spectacular. I hope that success by this small snowmobile company reflects better times ahead, but remain skeptical. Don't sell your gold just yet.

Columnist Conversations

Facebook continues to look vulnerable to me. I believe the stock put in a significant high on May 11 and...
Shares of MSFT have been in the red all session. MSFT and VZ are to two big laggards in the Dow Industria...
Bloggers are not as bearish as they were last week. Last week they were about 60% bears, this week they have c...
I'm somewhat limited in the number and frequency of reports I can post via Real Money from an upcoming series ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.