Snowmobile-makers see cruel climate.
Posted: Tue Feb 20, 2007 2:36 pm
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Posted on Tue, Feb. 20, 2007
Snowmobile-makers see cruel climate.
It's tough sledding for winter sales
By Joshua Freed
Associated Press
MINNEAPOLIS - Here is an ironclad rule for selling snowmobiles: You need snow.
Warmer weather and thin snowfalls since the late 1990s have melted sales at Polaris Industries Inc. and Arctic Cat Inc., the only two U.S. snowmobile-makers. After one more wimpy winter in a long string of them, some dealers say they are struggling to clear out last year's sleds, let alone sell this year's. Some gave up months ago.
"When there was nothing here indicating that we were going to have a winter, by the first of October, there was a business decision. Pull the cork," said Dick Tschida, who sells sleds in Forest Lake, a suburb of Minneapolis.
Tschida returned more than 50 Arctic Cat snowmobiles and all-terrain vehicles and is switching to boats instead. The returns cost him about $7,000, but that is a far cry from the $250,000 loss he figured he would take by the time he discounted them enough to sell.
A late-season storm that socked parts of the Northeast came far too late for dealers like Tschida - and for the companies.
"The industry has been down for basically a decade straight," RBC Capital Markets analyst Edward Aaron said. This year was "probably the toughest of any of those years."
Polaris snowmobile sales have dropped more than half, from $373 million in 2001 to $157 million last year. Its 2006 profit dropped 22 percent to $107 million on revenue of $1.7 billion.
Arctic Cat snowmobile sales have been more stable over the last five years, but still dropped to $238 million during the year that ended March 31, 2006, down more than 5 percent from the previous year, and profit was battered by incentives to move sleds off dealer floors. Arctic Cat's earnings of $23.7 million for the year that ended March 31, 2006, were a 16 percent drop from the previous year, even as revenue rose 6 percent to $732.8 million.
For years, Polaris and Arctic Cat seemed like twins, synonymous with Minnesota's snowy far north. The first Polaris snowmobile was built by Edgar Hetteen and some relatives at his derrick and hoist company in the mid-1950s. He left what was by then Polaris Industries in 1960, and a year later started the company that became Arctic Cat. Its Thief River Falls, Minn., headquarters is only about 60 miles from Polaris' main plant in Roseau, and the two companies are now the only snowmobile makers in the United States. Japan's Yamaha Motor Co. Ltd. and Canada's Bombardier Recreational Products also make snowmobiles.
But demand for their sleds has been shrinking. Worldwide snowmobile sales peaked at 260,000 sleds in 1997, but they are expected to be about 160,000 this year, according to the International Snowmobile Manufacturers Association.
The two companies have reacted in different ways.
Polaris added Victory motorcycles and has tried to strengthen ATV sales to the military. It cut production of its 2007 snowmobiles by 40 percent to give dealers a shot at clearing out inventory. Last year, snowmobiles were less than 10 percent of Polaris' sales.
Arctic Cat has stuck with the snowmobiles-in-the-winter and ATVs-in-the-summer formula, and snowmobiles remain about a third of its sales. Arctic Cat cut snowmobile production far less, just 4 percent. Another weak winter made that look like a mistake. Early this month, it announced plans to lay off 65 workers, and in January it cut its full-year profit forecast to $1.07 to $1.15 a share, down from $1.13 to $1.19 a share.
A bright spot for both companies has been growth of utility ATVs in which riders sit side-by-side - think of a golf cart with a roll cage and off-road tires. Polaris added its Ranger ATV in 1998 and has said it believes sales of a new, sportier version of the vehicle can add sales of $150 million over the next three years. Arctic Cat added a side-by-side ATV in 2005.
Aaron, the analyst, said Polaris was also quicker to expand international sales.
"Arctic Cat is just starting to dabble with that," he said. "Polaris has been faster and more aggressive in terms of its diversification."
Despite the snowmobile problems, Polaris said it was a key part of its business. Polaris president and chief operating officer Bennett Morgan said the production cut last year meant the business was ready to grow again if the snow flies.
"We took some tough medicine. A lot of the other manufacturers chose not to," he said. "Surprising as it may seem, we feel much better about our snowmobile business today than we did in April."
He said Polaris had never considered spinning off its snowmobile business, despite the downturn in recent years.
"It is our heritage," he said. "It is the heart and soul of this company."
Arctic Cat, which did not make an executive available for this article, has taken some of Polaris' snowmobile sales away. But entering new markets is not cheap and can take years to pay off, said Raymond James & Associates Inc. analyst Joe Hovorka.
Tschida said his days of selling snowmobiles were over. Too many people, he said, are hesitant to spend money on a toy they might not be able to use.
"They're more apt to spend on a new aluminum boat to go fishing, because they know they can go fishing from at least the first of May until the end of September," he said. "I can't say that about... snowmobiles or any of the other winter sports."
--------------------------------------------------------------------------------
© 2007 Philadelphia Inquirer and wire service sources. All Rights Reserved.
http://www.philly.com
Posted on Tue, Feb. 20, 2007
Snowmobile-makers see cruel climate.
It's tough sledding for winter sales
By Joshua Freed
Associated Press
MINNEAPOLIS - Here is an ironclad rule for selling snowmobiles: You need snow.
Warmer weather and thin snowfalls since the late 1990s have melted sales at Polaris Industries Inc. and Arctic Cat Inc., the only two U.S. snowmobile-makers. After one more wimpy winter in a long string of them, some dealers say they are struggling to clear out last year's sleds, let alone sell this year's. Some gave up months ago.
"When there was nothing here indicating that we were going to have a winter, by the first of October, there was a business decision. Pull the cork," said Dick Tschida, who sells sleds in Forest Lake, a suburb of Minneapolis.
Tschida returned more than 50 Arctic Cat snowmobiles and all-terrain vehicles and is switching to boats instead. The returns cost him about $7,000, but that is a far cry from the $250,000 loss he figured he would take by the time he discounted them enough to sell.
A late-season storm that socked parts of the Northeast came far too late for dealers like Tschida - and for the companies.
"The industry has been down for basically a decade straight," RBC Capital Markets analyst Edward Aaron said. This year was "probably the toughest of any of those years."
Polaris snowmobile sales have dropped more than half, from $373 million in 2001 to $157 million last year. Its 2006 profit dropped 22 percent to $107 million on revenue of $1.7 billion.
Arctic Cat snowmobile sales have been more stable over the last five years, but still dropped to $238 million during the year that ended March 31, 2006, down more than 5 percent from the previous year, and profit was battered by incentives to move sleds off dealer floors. Arctic Cat's earnings of $23.7 million for the year that ended March 31, 2006, were a 16 percent drop from the previous year, even as revenue rose 6 percent to $732.8 million.
For years, Polaris and Arctic Cat seemed like twins, synonymous with Minnesota's snowy far north. The first Polaris snowmobile was built by Edgar Hetteen and some relatives at his derrick and hoist company in the mid-1950s. He left what was by then Polaris Industries in 1960, and a year later started the company that became Arctic Cat. Its Thief River Falls, Minn., headquarters is only about 60 miles from Polaris' main plant in Roseau, and the two companies are now the only snowmobile makers in the United States. Japan's Yamaha Motor Co. Ltd. and Canada's Bombardier Recreational Products also make snowmobiles.
But demand for their sleds has been shrinking. Worldwide snowmobile sales peaked at 260,000 sleds in 1997, but they are expected to be about 160,000 this year, according to the International Snowmobile Manufacturers Association.
The two companies have reacted in different ways.
Polaris added Victory motorcycles and has tried to strengthen ATV sales to the military. It cut production of its 2007 snowmobiles by 40 percent to give dealers a shot at clearing out inventory. Last year, snowmobiles were less than 10 percent of Polaris' sales.
Arctic Cat has stuck with the snowmobiles-in-the-winter and ATVs-in-the-summer formula, and snowmobiles remain about a third of its sales. Arctic Cat cut snowmobile production far less, just 4 percent. Another weak winter made that look like a mistake. Early this month, it announced plans to lay off 65 workers, and in January it cut its full-year profit forecast to $1.07 to $1.15 a share, down from $1.13 to $1.19 a share.
A bright spot for both companies has been growth of utility ATVs in which riders sit side-by-side - think of a golf cart with a roll cage and off-road tires. Polaris added its Ranger ATV in 1998 and has said it believes sales of a new, sportier version of the vehicle can add sales of $150 million over the next three years. Arctic Cat added a side-by-side ATV in 2005.
Aaron, the analyst, said Polaris was also quicker to expand international sales.
"Arctic Cat is just starting to dabble with that," he said. "Polaris has been faster and more aggressive in terms of its diversification."
Despite the snowmobile problems, Polaris said it was a key part of its business. Polaris president and chief operating officer Bennett Morgan said the production cut last year meant the business was ready to grow again if the snow flies.
"We took some tough medicine. A lot of the other manufacturers chose not to," he said. "Surprising as it may seem, we feel much better about our snowmobile business today than we did in April."
He said Polaris had never considered spinning off its snowmobile business, despite the downturn in recent years.
"It is our heritage," he said. "It is the heart and soul of this company."
Arctic Cat, which did not make an executive available for this article, has taken some of Polaris' snowmobile sales away. But entering new markets is not cheap and can take years to pay off, said Raymond James & Associates Inc. analyst Joe Hovorka.
Tschida said his days of selling snowmobiles were over. Too many people, he said, are hesitant to spend money on a toy they might not be able to use.
"They're more apt to spend on a new aluminum boat to go fishing, because they know they can go fishing from at least the first of May until the end of September," he said. "I can't say that about... snowmobiles or any of the other winter sports."
--------------------------------------------------------------------------------
© 2007 Philadelphia Inquirer and wire service sources. All Rights Reserved.
http://www.philly.com