Textron Off Road Struggles with Arctic Cat

Textron Off Road Wildcat XX

Textron Off Road’s Wildcat XX. Wildcat models were previously sold under the Arctic Cat brand.

Textron 2018 Q3 Earnings Results

Textron, Inc recently reported fiscal year 2018 third quarter earnings. They point to a struggling Arctic Cat brand which was acquired in early 2017. The company embedded the Arctic Cat brand under their new Textron Off Road brand in their Specialized Vehicle business, which is part of their Industrial segment. Specialized Vehicles also includes E-Z-GO golf cars, Cushman utility vehicles, towing tugs among other small, task-oriented vehicles. Management reported that poor Specialized Vehicle results hurt the Industrial segment that in turn reduced overall quarterly performance for the company.

Weak Performance but Faith in the Product

The Q&A part of the earnings call pointed to problems with products formerly sold under the Arctic Cat brand. CEO Scott Donnelly remarked that  “…the most fundamental challenge in the business is around particularly the dirt side, the consumer side of that business and that’s the area that where we need the most work”. Furthermore he noted that,

” Industrial, segment profit was breakeven primarily due to unfavorable operating performance in specialized vehicles. Specialized vehicles has undergone significant change over the past two years, as we have expanded the product portfolio. While we’ve seen increasing revenue in the segment, we haven’t seen the planned level of growth or do the operating levers necessary to support the expected returns.”

Nevertheless, management remained positive about future performance and confident of the products they are putting on the market. Donnelly further stated,

“We’ve got great feedback from customers, the performance side we don’t have a product problem I mean we have still gaps which again as I said we’re working on it as we go forward but I think the progress on what the product is and how the product is performing we’re very pleased with.”

The management expects better performance in the fourth quarter.

 

Sales Channel Issues

Additional management comments indicated other issues in the sales channel may be limiting performance. Management noted the need to manage the channel but that some dealers are doing very well. Overall the retail sell through did not meet expectations. Furthermore, management allocated more funds to product discount programs to reduce inventory. In addition, management expressed a desire to improve the sales tools that help customers get to the product.

Pricing Changes Reflect Sales Issues

The pricing changes across the Textron Off-Road vehicle lineup from 2018 to 2019 reflects the poorer than expected retail performance. Management reduced prices for nearly every model, slashing prices for the Wildcat side-by-sides the most. Wildcat price cuts ranged from $500 to $2,500 with most at least $1,000. In contrast, many other manufacturers maintained pricing or slightly increased pricing by around $200 in most cases.

Textron Earnings Call (Seekingalpha.com)

SVR’s Take:

If management likes the product and some dealers are doing well, it sounds like it may possibly be a dealer issue. Either dealers are in the wrong location or they are not performing well. The management’s comments about getting customers to the product raise additional potential issues.

“I think in general how we manage that channel is something that frankly we just haven’t done as well as we should have. And our sales tools and how easy we make it for perspective customers to figure our product, have access to the dealers, have a natural way to help customers move to our product is just something we didn’t do well.”

This could cover a lot of ground from advertising to website performance to in-store marketing material to how dealership personnel interact with customers from first contact to sale.

Marc Cesare, SVR

Can-Am Market Share Increases

2019 Can-Am Defender HD8

New models like the 2019 Can-Am Defender HD8 help increase Can-Am market share.

Can Am Defender Max

Can Am Defender Max

BRP Reports Strong Fiscal Q2 Earnings  

BRP Inc., manufacturer of Can-Am vehicles announced strong earnings for their fiscal second quarter (ending July 31, 2018) and improved Can-Am market share for their side-by-side business. Management reported an increase in revenue of 18% to $1,207 million from $1,023 million (In Canadian $) as well as increased profit margins.

Ahead of Strategic Plan 

Since implementing their strategic plan in 2015 Can-Am has steadily made inroads in the side-by-side market. Management set the goal of doubling Can-Am market share for the North American side-by-side market from approximately 10% to 20% by 2020. They are on track to reach that goal in 2019 instead of the original 2020 target year.

Recent Can-Am UTV Launches Source: Can-Am Presentation 9/10/2018

Product Development Drives Can-Am Market Share Success

The company drove this rapid growth by launching a host of new models to maintain competitiveness in existing market segments or to enter new segments. They typically launch new models every six months. The Defender lineup of UTVs is an example of entering new segments. The Defender not only attacked the work/utility segment where Can-Am needed a presence, but opened up under represented geographic markets. The company reports US side-by-side dealer network coverage increased over 50% over four years. They also added trail and sport models for the recreational segment while continuing to produce competitive high-end performance side-by-sides as well.

Can-Am Emerges as Main Polaris Competitor

While still far from the market share of market leader Polaris, Can-Am has established itself as the main competitor to Polaris, outpacing the likes of Yamaha, Honda, John Deere and others. This applies to not only to the side-by-side market but in other product segments as well including ATVs, 3-wheelers and snowmobiles. Both companies have also entered the boating market with recent acquisitions. (BRP; Polaris) Can-Am is one of the few side-by-side manufacturers that comes close to the breadth of models that Polaris offers across all the market sub-segments. Management’s intentions are to continue to build out their product lineup.

Earnings Call Highlights

The following are highlights from the earnings call and presentation. Unless noted comparisons are to the same quarter of the previous year.

  • Revenues were up in North America (NA) and all intl markets
  • NA retail sales for Seasonal and Year-round business segments increased 16%
  • All product segments are outgrowing respective industries
  • Year Round business which includes SxS, ATV and Spyder products increased by 26% from $440.4 to $554.0
  • NA side-by-side retail jumped low 30% vs. low teen % for industry for the quarter
  • NA 2018 SSV industry up high single digits percent for recently ended model year while Can-Am jumped mid 30%
  • Management reports gaining over 2.5% in market share in NA side-by-side market for the 2018 season
  • Can-Am SxS up 25% in all  international markets:  Europe/Middle East, Latin America and Asia-Pacific.
  • Management states:  “We are seeing solid growth across the lineup, and the popularity of our specialized models such as the Defender LONE STAR, the Maverick X3 rock crawler and our mud-ready Maverick X3 and Defender is helping us deliver superior profitability for us and our dealers.
  • Management increased guidance for Year Round business to up 18-21% from previously guided 12-15%
  • Can-Am has more than doubled their side-by-side retail volume since 2015 with 6 new platform introduced over the past 3 years and on target to reach 2020 goals one year in advance
  • Room to grow in the Defender side-by-side segment
  • Some cost pressures from commodity prices and freight costs

Learn more:  Earnings Call Transcript

Honda Recalls 65,000 Pioneer 1000 UTVs

The 2016 Honda Pioneer 1000 EPS is one of the models being recalled.

Honda is recalling approximately 65,000 Pioneer 1000 utility vehicles because potential muffler overheating may cause a plastic heat shield to melt or catch fire. Consumers should immediately stop using the vehicles and contact a Honda powersports dealer for a free inspection and repair. Honda is contacting all known purchasers directly. The recall involves model year 2016, 2017 and some 2018 three passenger and five passenger Pioneer 1000 vehicles. The vehicles were sold from October 2015 through April 2018. The following recall information is from the Consumer Product Safety Commission.

Hazard:  The muffler can overheat, causing the plastic heat shield to melt or catch fire, posing a fire and burn hazard to consumers.

Remedy:  Repair

Recall date:  May 15, 2018

Units:  About 65,000

Consumer Contact:  American Honda toll-free at 866-784-1870 from 8:30 a.m. to 4:30 p.m. PT Monday through Friday or online at http://powersports.honda.com and click on “Recall Information” at the bottom of the page for more information.

Recall Details

Description:  This recall involves all model year 2016 through 2017, and some model year 2018 Honda Pioneer 1000 Vehicles. The recalled vehicles were sold in various colors including: red, blue, green, gray and yellow. The name “HONDA” is on the front, sides and the rear of the vehicle. The model name Pioneer 1000 is printed on a label located on both sides of the vehicle, near the rear. The serial number (VIN #) is stamped in the frame at the left rear, below the tilt-up bed/seat. The following model numbers and serial number ranges are being recalled:

 

MY Model VIN Start
2016 Pioneer 1000 3P

(SXS10M3*)

1HFVE04**G4000001 — 1HFVE04**G4008403
2016 Pioneer 1000 5P

(SXS10M5*)

1HFVE04**G4000001 — 1HFVE04**G4010507
2017 Pioneer 1000 3P

(SXS10M3*)

1HFVE04**H4100001 — 1HFVE04**H4102101
2017 Pioneer 1000 5P

(SXS10M5*)

1HFVE04**H4100001 — 1HFVE04**H4103000
2018 Pioneer 1000 3P

(SXS10M3*)

1HFVE04**G4200001 — 1HFVE04**G4203360
2018 Pioneer 1000 5P

(SXS10M5*)

1HFVE04**G4200001 — 1HFVE04**G4207379

* Variable character

Remedy:  Consumers should immediately stop using the recalled ROVs and contact an authorized Honda Powersports dealer to schedule an appointment for a free inspection and repair. Honda is contacting all known purchasers directly.

Incidents/Injuries:  The firm has received 22 reports of the muffler plastic heat shield melting and three reports of muffler plastic heat shield fires. No injuries have been reported.

Sold At:  Authorized Honda Powersports dealers nationwide from October 2015 through April 2018 for between $14,000 and $22,000.

Manufacturer(s):  American Honda Motor Company Inc., of Torrance, Calif.

Manufactured In:  United States

Recall number:  18-742

Learn More:  CPSC.gov

SVR’s Take:  This is another very large recall for the industry and once again related to an overheating and heat shield issue that can create a fire hazard. While massive recalls by Polaris have probably received the most attention in the industry, other manufacturers have had very large recalls as well.

Horsepower is one of the key vehicle specifications that manufacturers use to differentiate their offerings. This has created an atmosphere of one-upsmanship regarding engine size with each vehicle introduction trying to outdo the last in terms of horsepower. Given the large number of recalls in recent years related to overheating and/or fire hazards one has to wonder if the industry’s expertise in engine technology has outpaced their expertise in handling the additional heat output by these increasingly powerful engines. SVR has been tracking utility vehicle recalls for the past several years.

Marc Cesare, Smallvehicleresource.com

Polaris Q4 2017 Earnings

2018 Polaris Ranger XP 1000 EPS

The 2018 Polaris Ranger XP 1000 EPS helped drive sales for the quarter and the year.

Polaris Industries reported quarterly revenue of $1.431 billion and annual revenue of $5.429 billion, representing increases of 18% and 20% respectively compared to last year. Adjusted earnings per share for the quarter increased 25% driven by higher volume, lower promotional spend and operating expense leverage. For the year a 39% increase in earnings per share was driven by a combination of increased volume, an improvement in gross margins and a lower tax rate.

The following are highlights of the earnings call related to small, task-oriented vehicles.

  • ORV sales increased 14% in Q4 and 9% for the year
  • Average ORV selling price was up 4% for the quarter
  • ORV retail was up for the year but down for the 4th quarter as retail unit sales of Off-Road Vehicles were down just under 1%
  • Ranger sales were up for the quarter with strong demand for the new Ranger XP 1000 lineup
  • RZR sales declined for the quarter driven by “tapped demand and limited product availability”
  • For the quarter the ramp up of Ranger and RZR production was slower than expected in part attributed to the new quality initiative. This manifested as a production issue with a four-wheel drive component on the Ranger XP 1000, which was originally not up to the company’s quality standard.
  • Continued roll out RFM inventory and ordering system for side-by-sides and should be fully optimized by the second quarter
  • North American industry side-by-side growth was strong in Q4 but ATVs down.
  • Utility side of ORV is expected to grow but there is stiff competition on the RZR side which will not grow as much as competition increases
  • Agriculture markets were down in the fourth quarter and oil markets were up slightly, but there was no “substantial shift” in buying patterns.
  • In the side-by-side market decreased pricing is offset somewhat by decreased promotional costs and there is some commodity pricing pressures
  • Australia was a strong market as buyers switch from ATVs to UTVs
  • Global Adjacent Markets sales increased 19% in the fourth quarter, driven by strong growth in Aixam and Goupil, as well as continued strong sales growth in Government and Defense
  • For the year Global Adjacent Markets revenue reached almost $400 million including PG&A
  • Average selling price for Adjacent Markets increasing 14% for the quarter
  • For the full year Global Adjacent Markets sales increased 16% with all business lines growing
  • In Europe there is strong demand for small, inner-city delivery vehicles including electrics and that demand is increasing in the US as well
  • “More autonomous activities with both the military and Taylor-Dunn platforms than anywhere else in the company”

Guidance for 2018

  • Total company sales are expected to be up in the range of 3% to 5% with ORV market expected to be up
  • ORV market share is expected to be stable with continued momentum from Ranger and General product lines
  • ORV/Snowmobile sales are expected to be up low to mid-single digits with Snow about flat and ORV and PG&A sales up
  • Global Adjacent Markets sales are expected to be up mid single-digit percent with growth expected in all businesses.
  • The new long-term strategic targets for the company as a whole are 5% compounded annual growth rate for revenues and 15% for earnings
  • Management will be focusing on cost leadership more while maintaining innovation

Learn more:  Seekingalpha.com (Earnings Call Transcript)

Polaris Recall Issues with RZR 900 & 1000 Models Persists

2016 Polaris RZR 900 EPS

The 2016 Polaris RZR 900 EPS is one of a number of previously recalled models still experiencing issues despite being repaired.

Polaris continues to have recall issues related to their RZR 900 and 1000 which were previously recalled. According to a joint statement issued by CPSC and Polaris, some vehicles that had been repaired under the recall are still experiencing fires. In addition 2017 RZRs not included in the recall are experiencing fires as well. The original recall was initiated in April 2016  and covered model year 2013 – 2014 RZR XP 900, 2014 – 2016 RZR XP 1000, 2015 – 2016 RZR 900 & S 900, and 2016 RZR S 1000 vehicles. The recall involved approximately 133,000 vehicles.

Polaris can’t seem to shake their recall issues. According to management they have put additional manpower and resources into addressing the issue in a systematic way to improve product development, quality control and issue tracking. What is not known is if these issues are related to previous systemic problems before new processes and people were put into place or if they show that problems still persists after the changes were made, which would be more worrisome. SVR has been tracking recalls from Polaris and other manufacturers.

The following is the joint statement from the CPSC and Polaris.

12/19/2017 10:54:00 AM
Joint Statement of CPSC and Polaris on Polaris RZR 900 and 1000 Recreational Off-Highway Vehicles (ROVs)
Minneapolis, MN (December 19, 2017) – The US Consumer Product Safety Commission and Polaris are informing the public about fires on model year 2013–2017 Polaris RZR 900 and 1000 Recreational Off-Highway Vehicles (ROVs). These fires have caused death, serious injuries, and property damage.

Most of these vehicles were voluntarily recalled by Polaris in April 2016 to address fire hazards (https://www.cpsc.gov/Recalls/2016/polaris-recalls-rzr-recreational-off-highway-vehicles-due).

However, users of the vehicles that were repaired as part of the April 2016 recall continue to report fires, including total-loss fires. The 2017 RZRs were not included in the April 2016 recall, but these models have also experienced fires.

The CPSC and Polaris continue to work together to ensure fire risks in these vehicles are addressed. However, at this time, the CPSC and Polaris want to make the public aware of the fires involving these vehicles.

The CPSC advises consumers to report any fire or overheating-related incidents at: www.SaferProducts.gov or the CPSC Hotline at 1-800-638-2772.

BRP Reports Quarterly Earnings – FY2018 Q3

Can Am Defender Max

The Can Am Defender Max and the Defender line as a whole helped drive sales.

Maverick X3 X RS Turbo R

The Maverick X3 X RS Turbo R and other X# models have helped drive sales as well.

BRP reported third quarter earnings for fiscal year 2018 of $1,241million ($C), a 15% increase from last year. Sales were driven by their Year-Round Products division which includes side-by-sides and Seasonal Products division which includes snowmobiles. For the quarter, Year-Round Products revenue increased $77 million or 20.1% to $460.9 million mainly on higher volume of Maverick X3 and the newly launched Maverick Trail.

The following are highlights of the earnings call related to the side-by-side market.

  • Side-by-side retail increased low 30% compared to an industry up high single digits
  • Launched the new 50″ wide Maverick Trail marking entry into the trail segment
  • Announced investment to increase their manufacturing capabilities in Mexico in response to ongoing strong demand for Defender and X3 models
  • North America side-by-side industry up low teen percent for the first third of the model year
  • Can-Am’s international side-by-side retail sales were up 80% for the quarter and the Defender and Maverick MAX models grew over 100% in markets like Mexico, China and Europe
  • The management stated that they did not follow some of their competitors who were aggressive with promotions in the quarter
  • The Defender line continues to make inroads into the farm and rural markets
  • Commander sales are flat to low single digit growth and the company has lost market share in that segment but gained share in the overall market
  • The management believes that better and more feature rich products across the industry are helping to drive replacement of older vehicles

Learn more:  Finance.yahoo.com (Earnings call transcript)

This marks another strong quarter for BRP as they continue to gain market share in the side-by-side market. Management expects to continue to follow their plan of adding new models every six months until 2020. The overall market appears to remain steady and strong with solid growth.

Marc Cesare, Smallvehicleresource.com

Textron Q3 2017 Earnings Report

Textron Off Road Wildcat X LTD

The 2018 Wildcat X LTD now under the Textron Off Road brand rather than Arctic Cat.

Textron reported third quarter revenues of $3.5 billion, up 7.2% from the third quarter 2016, while profit decreased $15 million for the quarter to $295 million. “Growth in the third quarter was the result of strong commercial demand at Bell, increased deliveries at Textron Systems and higher revenues at Industrial due to the acquisition of Arctic Cat,” said Textron Chairman and CEO Scott C. Donnelly.

Textron has folded Arctic Cat into their Specialized Vehicles division which also includes E-Z-GO, Cushman and other brands. They recently merged their Stampede, Bad Boy Off Road and Arctic Cat lines under the Textron Off Road brand. This includes a pared down lineup of previous Arctic Cat models and the introduction of Bad Boy electric vehicles under the Prowler model name. The following are highlights from the earnings call that relate to STOV vehicles.

  • Management reports putting a lot of resources into the integration of Arctic Cat and the process is proceeding on plan
  • The plan involved moving dirt manufacturing to Thief River and centralizing engine manufacturing in St. Cloud, as well as, clearing dealer inventory and educating them about the new lineup of vehicles under the Textron Off Road brand
  • The launch of the lithium ion battery powered golf products has gone “extremely well”
  • Side-by-side sales year over year did well, in part from clearing out inventory
  • Management reports good uptake by dealers of non-Arctic Cat products such as the Stampede and the recently announced Prowler EVs

Learn more:  Seekingalpha.com (Earnings call transcript)

Polaris Q3 2017 Earnings Report

2018 Polaris Ranger XP 1000 EPS

The new 2018 Polaris Ranger XP 1000 EPS helped drive sales in the third quarter for Polaris.

Polaris Industries reported third quarter 2017 sales of $1,478.7 million, up 25 percent from $1,185.1 million for the third quarter of 2016. Off-Road/Snowmobile segment reported sales of $1.01 billion up 12% and Global Adjacent Markets, which includes GEM, Taylor-Dunn and Aixam among other brands, increased 17% to $91.5 million.

It was a strong quarter for Polaris, in part, because it is being compared to a weak third quarter in 2016 and aided by higher promotional spending. On the other hand, management reports that the quarter also compared favorably to their 2015 third quarter, which was the last quarter before recall issues hit them hard. Looking behind the numbers a more accurate description may be a solid quarter that shows Polaris has stemmed the tide and gaining momentum again in the side-by-side and ATV markets. The following are highlights from the earnings call related to side-by-sides and other small, task-oriented vehicles.

  • Side-by-side wholesale sales were strong worldwide
  • ORV retail sales in North America were up mid-teens percent with both side-by-sides and ATVs up mid-teens
  • Management reports gaining market share in RZR, Ranger and ATV segments
  • ORV industry sales in North America increased high single digits percent for the quarter
  • The oil & gas and farm markets improved but are neither a drag or driving industry growth
  • ORV retail was up double digits in September as momentum carried through the quarter
  • RZR retail sales were very strong in the quarter as well as ATV sales
  • The Ranger XP 1000 was launched during the quarter
  • Strong promotional spending helped drive sales during the quarter but Polaris performed well relative to other manufacturers with similar spending.
  • Promotional spending was also used to help clear out inventory before new model year arrivals.
  • Management reports strong dealer orders for the Ranger XP 1000 and the RZR Dynamics products
  • In Europe Aixam quadricycles and Goupil light utility vehicles grew 17% for the quarter at the wholesale level
  • Guidance:
    • Total company sales are expected to be up in the range of 18% to 19% with increased guidance for ORV/Snowmobile sales, which are now expected to increase in the mid-single digit range year-over-year
    • Global Adjacent Markets guidance is increased to low double digits due to strong sales across the portfolio
    • Lower promotional spending is expected in the 4th quarter compared to previous year and quarter

Learn more:  Seekingalpha.com (Earnings call transcript)

Marc Cesare, Smallvehicleresource.com

Caterpillar Partners with Textron Specialized Vehicles for UTVs

Cushman Hauler 1200

Textron Specialized Vehicles, which makes utility vehicles like the Cushman Hauler 1200, is partnering with Caterpillar to manufacturer CAT branded UTVs.

Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, has entered into a manufacturing and supply agreement with Textron Specialized Vehicles to develop CAT branded utility vehicles.

The CAT utility vehicles will feature a steel cargo bed with a 1,000 lb. capacity and be able to tow up to 2,000 lbs. According to Cat product manager Steve Schoening, “Cat utility vehicles will offer exceptional performance and stability at full load, superior reliability, and a quiet, spacious operator environment”. There will also be ample headroom and legroom for tall operators.

Those specs are similar to the Cushman Hauler 1200 and Hauler 4×4 Diesel although the Haulers have slightly more cargo bed capacity by significantly less towing capacity. Caterpillar has 49 independent dealers in the US and another 123 worldwide. The CAT UTV will be available in 2018.

This is another example of utility vehicle manufacturers expanding their distribution through partnerships to reach additional market segments or geographic areas. Textron Speciality Vehicles has their Cushman product line that touches on the construction equipment market segment, but Caterpillar’s brand and dealer network provides access to the heart of heavy equipment markets. The partnership also helps increase production volume for Textron that can further reduce their manufacturing costs. For Caterpillar the partnership provides an easy add-on to their product line for a type of vehicle that many of their heavy equipment customers are likely already buying, but from other brands. In addition, they do not have to spend as much non-monetary resources developing and producing a type of vehicle that is not core to their mission or expertise. Learn more:  Constructionequipment.com

Marc Cesare, SmallVehicleResource.com

BRP Announces FY18 Q2 Quarterly Results

Maverick X3 X RS Turbo R

The Maverick X3 X RS Turbo R helped drive strong sales in the second quarter.

BRP, manufacturer of Can-Am products, recently announced their financial results for the second quarter of their 2018 fiscal year which ended July 31, 2017. (All dollar amounts are in Canadian dollars.) Revenues increased 20% for the quarter to $1,027 million driven by strong demand in side-by-side and personal watercraft. Net income increased $168.9 million to $100.1 million.

It was a strong quarter for BRP and they continue to make solid gains in the UTV market and continue to take market share. The Defender line continues to meet with success on a quarter to quarter basis. The company has built out their dealer network and are looking to improve dealer performance. Look for them to introduce additional models on a regular basis.

The following are additional highlights from the earnings call and presentation that relate to the utility vehicle market.

  • Company introduced the 172hp Can-Am Maverick X3 Turbo R model during the quarter
  • North American retail sales for side-by-sides increased 50% for the quarter in an industry that grew low teens %.
  • North American ATV retail sales grew high teen % in an industry that grew low single digit %.
  • For side-by-side model year ending June 30, Can-Am retail sales grew mid-thirties % in an industry up mid-single digit %.
  • The X3 and the Defender line are particularly strong performers.
  • Side-by-side sales are driving parts, accessories and clothing revenue hire
  • Management is seeing results from improving dealer performance and is concentrating on that area rather than looking to add new dealers. Nearly 300 dealers were added in the last four years.
  • Side-by-side sales outside of North America are very strong as well.
  • Management reports that promotional activity in the ATV and side-by-side market is high with many new models being introduced and OEMs looking to reduce inventory.