Polaris Reports Another Strong Quarter

2019 Polaris Ranger Crew XP 1000 EPS
The 2019 Polaris Ranger Crew XP 1000 EPS in Sunset Red Metallic is part of the Ranger product line that recently commemorated its 20th anniversary.

Polaris Q4 2018 Earnings Overview

Polaris reported another strong quarter and full year with 4th quarter sales of $1.6 billion, up 14% from last year. Full year sales topped $6.1 billion, up 12% from the prior year. The ORV/Snowmobile segment reported sales of $1.1 billion for the quarter, an increase of 7% year over year. The ORV portion declined 2% as the company had a tough comparable with the prior year’s quarter. On a negative note, management expects tariff and trade war costs to total between $110 to $120 million company wide for fiscal year 2019. They will hit the ORV and Motorcycle businesses the hardest. A significant portion of the Q&A on the call revolved around tariff and trade war costs. A summary of the earnings call highlights related to the STOV market follow.

Polaris Earnings Call Highlights

  • Polaris side-by-side retail sales increased mid single digits % while ATV retail sales decreased mid single digits %
  • Average selling price for the ORV segment increased by 7% but were partially offset by tariff, logistics, and commodity costs
  • Polaris gained market share in the side-by-side market for the quarter and the full year
  • Management believes they are gaining share from Japanese competitors and Arctic Cat, now owned by Textron
  • Global Adjacent Markets revenue increased 4% to $122 million on the strength of commercial, government and defense and Aixam businesses.
  • Polaris increased wholegood prices 3.5% for the ORV/Snowmobile segment at the start of 2019 to counter tariff and trade costs
  • Revenue for ORV/Snowmobile and Global Adjacent Markets segments are expected to increase mid-single digits % for fiscal year 2019
  • Management does not expect to enter into electric powered markets until there is large consumer demand. Their response pertained to motorcycles but appears to be their general philosophy.

Learn more: Earnings Call Transcript (seeking alpha.com)

Cub Cadet Recalls Challenger 400 4×4

Cub Cadet Challenger 400 4x4

The Cub Cadet Challenger 400 4×4 is being recalled due to possible cracks in the fuel tank neck.

Challenger 400 4×4 Recall Overview

Cub Cadet is recalling their 2018 Challenger 400 4×4 utility vehicle because the fuel tank neck can crack, potentially leak fuel and create a fire hazard. The recall involves approximately 350 vehicles. Consumers should immediately stop using the recalled utility vehicles, store outside and contact an authorized Cub Cadet dealer or customer service representative to arrange for a free repair.

This is a very small recall but for a smaller manufacturer like Cub Cadet it represents a larger percentage of their overall vehicle sales. The Challenger 400 4×4 was launched earlier this year.  SVR tracks recalls of golf cars, PTVs, LSVs and utility vehicles. The following detailed recall information is from the Consumer Product Safety Commission.

Challenger 400 4×4 Recall Details

Name of product:  Cub Cadet Challenger 400 utility vehicles
Hazard:  The fuel tank’s neck can crack and cause fuel to leak, posing a fire hazard.
Remedy:  Repair
Recall date:  October 24, 2018
Units:  About 350
Consumer Contact:  Cub Cadet toll-free at 888-848-6038 from 9 a.m. to 7 p.m. ET Monday through Friday, 9 a.m. to 6 p.m. ET Saturday and Sunday, or online  www.cubcadet.com and click on “Product Recalls” for more information.

Recall Details

Description:  This recall involves Cub Cadet model year 2018 Challenger 400 4×4 utility vehicles with model number 37BV3BHK010. The yellow utility vehicles have four-wheel drive with side-by-side seating for two people. “Challenger 400” and “4x4” is printed on both sides of the utility vehicle’s bed. “Cub Cadet” is printed on both sides of the front fender. The recalled vehicles were manufactured between May 2018 and August 2018. The model number and manufacture date in MM/YYYY format can be found on a label located on the seat frame under driver’s seat.
Remedy:  Consumers should immediately stop using the recalled utility vehicles, store outside and contact an authorized Cub Cadet dealer or customer service representative to arrange for a free repair. Cub Cadet is contacting all known purchasers directly.
Incidents/Injuries:  None
Sold At:  Independent Cub Cadet dealers nationwide from May 2018 through August 2018 for about $7,500.
Manufacturer(s):  Cub Cadet, of Cleveland, Ohio
Manufactured In:  United States
Recall number:  19-707

Yamaha Golf Car Recalls 145,000 Vehicles

Yamaha Golf Car Adventurer

Yamaha Golf Car’s model year 2016 to 2018 Adventurer vehicles are being recalled.

Yamaha Golf Car Adventurer Sport 2+2

The Adventurer Sport 2+2 is also part of the recall.

Yamaha Golf Car Drive 2

Yamaha Drive 2 is being recalled.

Yamaha Golf Car Recall Overview

Last month Yamaha Golf Car announced the recall of approximately 145,000 golf cars, personal transportation vehicles (PTVs) and utility vehicles. The accelerator pedal return spring can break on the vehicles, posing a crash hazard. The recall involves model year 2016 through 2018 gas and electric-powered golf cars, personal transportation and specialty vehicles. Model names include the Drive, Drive2, Adventurer and Adventurer Sport 2+2. Owners should immediately stop using the recalled vehicles and contact a Yamaha golf car dealer to schedule a free repair. There have been no reports of injuries related to the recall but 417 spring failures have been reported.

This is an extremely large recall and rivals those of Polaris from the past several years. Yamaha had a slightly larger recall earlier in the year involving many of the same models for a brake cable issue. SVR tracks recalls of golf cars, PTVs, PSVs and UTVs. In general, the small, task-oriented vehicle industry appears to have a recall problem. A significant number of vehicles are being recalled every year. The following detailed information on this recall is from the Consumer Product Safety Commission.

Yamaha Golf Car Recall Information from CPSC

Name of product:  Yamaha golf cars, personal transportation and specialty vehicles
Hazard:  The accelerator pedal return spring can break, posing a crash hazard.
Remedy:  Repair
Recall date:  October 3, 2018
Units:  145,000
Consumer Contact:  Yamaha toll-free at 866-747-4027 anytime or online at www.yamahagolfcar.com and click on the CPSC Recall Alerts tab for more information.

Recall Details

Description:  This recall involves the following model year 2016 through 2018 gas and electric-powered golf cars, personal transportation and specialty vehicles. The vehicles were sold in various colors including blue, green, red, white, tan and silver. The model and serial number can be found on a label under the seat on the left or right side.

Model Year

Model Name

Model Prefix

Serial Number Range

2016

Drive Models YDRA (Gas)

JW8

600101

614300

JC2

300101

312000

JC0

700101

706600

Drive Models YDRE (Electric)

JW9

600101

618100

JC3

000101

004700

JC1

700101

703500

Adventurer Model YTF1A (Gas)

JW6

800101

800600

Adventurer Model YTF2A (Gas)

JW7

700101

701250

Adventurer Model YTF2E (Electric)

JW3

100101

100300

2017

Drive² Models DR2A (Gas)

J0A

000101

010100

J0B

000101

016900

J0D

000101

007200

Drive² Models DR2E (Electric)

J0C

000101

011400

J0E

000101

002900

J0J

000101

002000

Adventurer Model YTF1A (Gas)

JW6

900101

900400

Adventurer Model YTF2A (Gas)

JW7

800101

800750

Adventurer Model YTF2E (Electric)

JW3

200101

200250

2018

Drive² Models DR2A (Gas)

J0A

100101

110400

J0B

100101

119200

J0D

100101

110600

Drive² Models DR2E (Electric)

J0C

100101

111700

J0E

100101

102600

J0J

100101

102700

Adventurer Model YTF1A (Gas)

JW6

910101

910500

Adventurer Model YTF2A (Gas)

JW7

900101

900800

Adventurer Model YTF2E (Electric)

JW3

300101

300250

 

Remedy:  Consumers should immediately stop using the recalled vehicles and contact a Yamaha golf car dealer to schedule a free repair. Yamaha is contacting all registered owners directly.

Incidents/Injuries:  Yamaha has received 417 reports of incidents involving spring failures. No injuries have been reported.
Sold Exclusively At:  Yamaha golf car dealers nationwide from June 2015 through August 2018 for between $5,500 and $12,300.
Manufacturer(s):  Yamaha Motor Manufacturing Corporation of America, of Newnan, Ga.
Distributor(s):  Yamaha Golf-Car Company, of Kennesaw, Ga.
Assembled in:  U.S.
Recall number:  19-701

Honda Recalls 56,000 Pioneer 1000 UTVs

Honda Pioneer 1000

2016 – 2018 Honda Pioneer 1000 three passenger model being recalled.

Honda Pioneer 1000-5

The 2016-2018 five passenger model is being recalled as well.

Honda Pioneer VIN

Location of the VIN on the Honda Pioneer models.

Pioneer 1000 Recall Overview

Honda has announced a massive recall of their Pioneer 1000 utility vehicles because an incorrectly installed throttle body poses a fire and burn hazard. The recall involves all model year 2016 and 2017 vehicles, as well as some 2018 vehicles. The three passenger and five passenger models are included in this action. Owners should stop using the recalled vehicles immediately and contact their local Honda Powersports dealer to schedule a free inspection and repair. No injuries have been reported related to this recall.

This is a very large recall. Earlier this year Honda issued a recall for most of these same vehicles because of a muffler issue. SVR tracks ongoing vehicle recalls for UTVs, golf cars and LSVs.

Detailed Recall Information

The following information is from the Consumer Products Safety Commission.

Name of product:  Recreational off-highway vehicles (ROVs)
Hazard:  An incorrectly installed throttle body can ignite, posing fire and burn hazards to consumers.
Remedy:  Repair
Recall date:  November 8, 2018
Units:  About 56,000
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 side-by-side 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**J4200001 — 1HFVE04**J4200720
2018 Pioneer 1000 5P

(SXS10M5*)

1HFVE04**J4200001 — 1HFVE04**J4200780

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 5 reports of throttle body igniting. No injuries have been reported.
Sold At:  Authorized Honda Powersports dealers nationwide from August 2015 through August 2018 for between $14,000 and $22,000.
Manufacturer(s):  Honda of South Carolina Mfg. Inc. (HSC), of Timmonsville, S.C.
Distributor(s):  American Honda Motor Company Inc., of Torrance, Calif.
Manufactured In:  United States
Recall number:  19-714

Lithium Battery Powered Golf Cars on the Rise

Trojan Trillium lithium battery

A lithium battery from Trojan’s new Trillium product line.

Trillium Lithium Battery Line from Trojan

Trojan Battery, a major player in the golf car and small task-oriented vehicle market, recently introduced their new Trillium line of Trojan Intelligent Lithium batteries. The line is targeting the aftermarket segment and is designed to be a replacement for existing lead acid batteries. According to Trojan the switch can be made “without the need for expertise in Li-ion technology or system integration.” Likewise OEMs can use the new battery line “…without significant investments in custom pack design and development.”

Sign of More Market Penetration

Trojan’s new product line is another indication of the growing use of lithium batteries in the golf car market. For a number of years there has been a lithium battery aftermarket that has largely consisted of smaller companies packaging together the various components. They either sell directly to golf car owners and/or through dealers who can install the components. However, this has been a niche market. In 2015 LiV Golf Cars tried to sell a lithium powered fleet golf car but were undercut by the big players too many times and retreated from that market. There are also smaller volume OEMs like GEM and luxury golf car maker Garia that offer lithium powered vehicles.

E-Z-GO Entry a Gamechanger

The most significant move towards lithium batteries came in 2017 when E-Z-GO, one of the major golf car manufacturers, launched their ELiTE line of lithium powered fleet golf cars. They also offer the option on some of their personal transportation vehicles. Financial reports show that E-Z-GO sold over 20,000 ELiTE vehicles in 2017. Samsung SDI is the lithium battery supplier for E-Z-GO. Rival golf car manufacturer Club Car has been linked to battery manufacturer LG Chem but has not yet introduced any lithium powered vehicles.

What Lies Ahead

The entry of a brand name such as Trojan should boost the aftermarket segment. Customers will likely have more trust in a Trojan backed product. In addition, if it is as easy to use as advertised, then this niche market should expand. The E-Z-GO product appears to have launched fairly successfully. Continued success will likely force Club Car and Yamaha to introduce their own lithium powered vehicles. Perhaps as soon as the upcoming PGA Show early in 2019. Once that happens, the move towards lithium batteries could accelerate quickly.

Marc Cesare, SVR

Arcimoto FUV: A Threat to PTVs?

Arcimoto Fun Utility Vehicle - FUV

The electric powered Arcimoto FUV (Fun Utility Vehicle) is just coming to market.

Oregon based Arcimoto is beginning to roll out their three-wheeled Fun Utility Vehicle (FUV). The combination of price point, size, electric powertrain and ability to travel public roads makes the Arcimoto FUV an intriguing alternative to golf cars, PTVs and LSVs.

Update – Arcimoto responded to a number of questions I sent them and I have added the information to the relevant sections below.

Arcimoto FUVs already on the Road

The first 10 FUV prototypes hit the road this past June. The company completed another 15 vehicles, referred to as their beta series, in September. These went to five customers and the remainder to rental locations. Vehicle rental franchising in tourist locations is a key part of Arcimoto’s marketing plan. As of the end of June the company has 2,800 reservations for the FUV.

Volume Production

Management expects to begin production and delivery of their A series of vehicles during this quarter. The A series marks the move to higher volume production. Plans call for a run rate of 200 vehicles/week or roughly 10,000/year by the end of 2019. The company has deliberately designed smaller sized production facilities that can produce approximately 10,000 vehicles per year.  A production facility costs approximately $10 million. This limits initial capital costs and creates a facility that can be profitable relatively quickly. Furthermore, the facility can be easily replicated in other parts of the country or the world.

Vehicle Features and Specs

The Arcimoto FUV is a three-wheeled vehicle powered by a 67 hp electric motor and a 12 or 20 kWh lithium-ion battery for a range of 70 or 130 miles and a top speed of 80 mph. As a three-wheeler, most states classify the FUV as a motorcycle or similar vehicle. Therefore, it does need the same  safety requirements as a full-sized, highway capable vehicle. The FUV can seat two passengers, one behind the other, and features regenerative braking, hydraulic brakes, a windshield with wiper and defrost, and heated seats and hand grips. Additional options include full HVAC, soft or hard shell doors, rear cargo box, bluetooth speakers and racks for golf clubs, bikes, surfboards, etc. The target price for the base model is $11,900 with a fully decked out model reaching the $19,000 range.

Arcimoto FUV Dimensions

Arcimoto FUV Dimensions

Versatility and Price Point Creates an Alternative to PTVs

The FUV is a versatile vehicle for gated communities. The vehicle can move from golf course, to community pathways to public roads. On public roads the FUV faces none of the restrictions of a golf car, PTV or LSV since it is classified as a motorcycle. Therefore, it can travel on higher speed roads and at night. The FUV can travel faster and farther as well. In terms of speed, the FUV may need a speed limiter option for use on golf courses or within communities depending on local regulations. According to Arcimoto, the vehicle does have the capability to cap speeds to meet specific needs.

The company is targeting a $12,000 base price. Therefore, the FUV is pricier but competitive with LSVs and fancier PTVs given the trade off between price and functionality. One of the reasons LSV sales never really took off in gated communities as expected is that the additional price premium did not offer a significant benefit over new or refurbished golf cars. LSVs are most successful where regulations greatly restrict the use of PTVs or golf cars on local roads. However, if anything, municipalities are becoming less restrictive regarding golf car use. Furthermore, in states like California, Massachusetts, Maryland, Arizona, and Illinois there are tax incentives available for the FUV. There is also the possibility that electric motorcycle or similar incentives could be brought back at the federal level. The company is lobbying to have the tax credits for motorcycles and three-wheeled vehicles brought back. This additional cost reduction could further boost the attractiveness of this alternative vehicle.

Arcimoto FUV Drawbacks

There are some potential drawbacks to the Arcimoto FUV in the gated community setting.

Higher Driving Speeds

Some communities may object to the vehicle’s higher speed capabilities. Some type of speed limiter could address this, or not, depending on the locality. In addition, given the older demographic in gated communities, some drivers may not feel safe driving at higher speeds on local roads. Nevertheless, driving up to 40 to 45 mph would include a large swath of vehicle usage inside and outside a gated community. In effect, the FUV could displace both PTV miles and a sizable chunk of driving performed with highway capable vehicles.

Seating Configuration

Seating configuration is another potential drawback. The seating in an FUV is one passenger behind the other rather than side by side. Some users may feel this reduces the social aspect while riding in the vehicle, particularly on a golf course.

Vehicle Storage

For seasonal usage by vacation home owners, there is often a need to store the vehicle for several months without any usage. This can be an issue or at least require some planning for the current battery powered vehicles. According to Battery University a lithium ion battery should be stored at 40% percent charge if being stored for an extended period. Arcimoto did not answer my question directly on this subject but expect to have a battery pack with a lifetime of “…8-10 years with normal vehicle usage, and still maintain more than 80% of their original charging capacity.” The pack replacement cost is expected to be under $2,500 inclusive of the residual value.

Marketing, Pricing and Local Regulations Critical to Success

The success of the Arcimoto FUV in displacing golf cars, PTVs and LSVs will depend on three key elements:  marketing, pricing and local regulations. The last may be the most important. If gated communities object to the FUV’s higher speed capabilities, and there is no technological fix, foreclosing the market. The pricing may be the easiest to address. If Arcimoto can hit their target price at volume production, even without tax incentives there is a compelling cost benefit story for the FUV.

The marketing element depends in part on where Arcimoto’s management wants to invest resources. The gated community market may be too small to target during the initial phases of the vehicle’s rollout. In addition, golf car dealers mainly serve this market. The company likely does not have relationships with this distribution channel. On the other hand, their rental franchise plan could overlap with these dealers as some are located in tourist oriented beach communities and have high PTV use. This angle could serve as an entry point to the market. In response to my questions Arcimoto stated that they put on a test ride event for the FUV at The Villages, a gated community in Florida, on November 12th. They also noted that the short drives and warm weather make resort communities a great market for the vehicle.

In a years time we will have a better idea whether the Arcimoto FUV has met with success, and whether it threatens the PTV market.

Marc Cesare, SVR

Tariff Questions Dominate Polaris Earnings Call

Polaris 2019 Ranger XP 1000 EPS 20th anniversary

The 2019 Ranger XP 1000 EPS 20th Anniversary edition helped drive sales despite tariff concerns.

Financial Results Overview

Tariff questions dominated the Polaris Industries earnings call to discuss their Q3 financial results for fiscal year 2018. The manufacturer of the RZR, Ranger and General side-by-sides reported adjusted revenue of $1,653 million, an increase of 12% from $1,480 million from third quarter 2017. Net income increased 21% from $98 million to $118 million. (Financial figures are compared to Q3 2017 unless noted)

STOV Segments Perform Solidly

Overall ORV/Snow segment revenue increased 3% from $1,007 million to $1,036 million. Lower snowmobile revenue was more than offset by a 12% increase in ORV revenue. ORV includes UTVs and ATVs. North American (NA) retail sales, driven by side-by-side sales, increased 1% in the quarter against a tough comparable. In comparison, management estimated that industry wide NA ORV sales improved low single digits for the quarter. Polaris side-by-side market share for the quarter remained the same.

The average selling price of ORVs overall increased 5%. Management reports that the initial launch of the 2019 model year was successful with good response from consumers and dealers. In particular, the new Ranger XP 1000 variants drove sales. Furthermore, the company’s inventory management system, RFM, is producing results with the best side-by-side delivery performance to date. In addition, lower promotional costs accompanied the stronger sales. Comments on individual markets indicated that the oil and gas customer segment improved while agriculture decreased some.

Global Adjacent Markets Gain

The Global Adjacent Markets (GAM) segment made solid gains as well. Sales increased 5% from $92 to $98 million. This segment includes vehicle sales to commercial, government and defense clients in addition to Aixam quadricycle sales in Europe. In addition, the GAM segment includes vehicles like Ranger and Brutus UTVs, military RZRs, GEM electric vehicles, Taylor-Dunn industrial vehicles and Goupil electric vehicles based in France. Management reported solid sales for  Goupil vehicles and strong orders from fire and police departments, and other government agencies.

ORV and GAM Drive International Growth

Sales to international markets jumped 10% with a strong showing from the ORV/Snow segment, up 9%, and the GAM segment, up 6%. Looking at sales by region, the Europe and Middle East drove overall international sales while Latin America increased only slightly and the Asia Pacific region decreased.

Full Year Guidance Improves

Polaris increased their guidance for the ORV/Snow segment. They now expect a low double digit increase in sales.The GAM segment should increase sales by low double digits, which is unchanged from previous guidance.

Tariff Impacts

Tariff impacts raised expenses by $8 million for the quarter and are expected to total $40 million for the year. The renegotiated NAFTA deal, the USMCA, is expected to have a neutral effect. However, the 301 tariffs, especially the upcoming List 3 tariffs could have more severe repercussions. Currently, the company is dealing with List 1 and List 2 tariff impacts. Polaris is at a disadvantage related to 301 List tariffs because their main competitors produce their vehicles in Mexico or assemble them in the US using Japanese parts. Therefore, these companies are not subject to the same tariffs.

Tariff Mitigation Plans

Management laid out a three pronged approach to mitigating the potential List 301 tariffs. First, they will try to negotiate with their suppliers to share some of the increased costs. Second, they may increase prices. Thirdly, they hope to lobby the current administration to obtain an exemption from the tariffs. Polaris argues that the tariffs are primarily hurting them, but they are the only US based manufacturer among the major players in the market. Furthermore, the company has been increasing their US based manufacturing. At this time, Polaris is not providing any specific quantitative guidance for tariff impacts for 2019.

Other Future Factors

For the powersports market in general, management expects that there will be a need to increase pricing to offset inflation, tariff impacts and increasing commodity and logistics costs. Furthermore, management stated, “As the industry leader, we’re not afraid to lead on price.”

The newly launched Factory Choice program, which gives the customers and dealers an opportunity to make differentiated vehicles from the factory and has been popular, gives Polaris optimism. The program should help drive sales in the future.

The dealer inventory profiles produced under the RFM program this year for side-by-sides significantly improved product availability. The increased availability bolstered sales, raising similar expectations moving forward.

Learn more:  Polaris Earnings Call Transcript (Seekingalpha.com)

SVR’s Take

This was another solid quarter for Polaris. The sales increases for side-by-sides were not gangbusters at first glance, but they are being compared to a really strong third quarter in 2017. The new 2019 vehicle lineup should drive sales more fully in the fourth quarter. The GAM segment is slowly growing into a significant business and could become a $500 billion business in about two years. On a cautionary note, the tariff impacts could slow progress for Polaris, especially in contrast to fast growing and Canadian based Can-Am. Increased pricing could potentially hurt sales, although as a premium brand Polaris can pass on some pricing. The other alternative is that they will take hit to their margins and generate less income.

 

 

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

American Landmaster Recalls UTVs

LandMaster Crossroad

American Landmaster is recalling Crossroad UTVs because of a potential gas leak.

Landmaster Landstar utility vehicle

Landstar models are part of the recall.

Landmaster Trailwagon models are also part of the recall.

American Landmaster has recalled approximately 1,500 model year 2018 UTVs including Landstar, Crossroad and Trailwagon models due to a potential gas leak from the vehicle’s gas tank which can potentially create a fire and burn hazard. Owners have not reported any injuries related to this recall. Owners should immediately stop using the vehicles and contact their American Landmaster for a free repair. The recall information below is from the Consumer Product Safety Commission. SVR maintains an ongoing list of recalls related to utility vehicles, golf cars and LSVs with links to detailed recall information.

Name of product:  Off-road utility vehicles
Hazard:  Gas can leak from the utility vehicle’s gas tank, posing fire and burn hazards.
Remedy:  Repair
Recall date:  August 23, 2018
Units:  About 1,500
Consumer Contact:  American Landmaster at 800-643-7332 from 8 a.m. to 5 p.m. ET Monday through Friday, email at recall@AmericanLandmaster.com or online at www.AmericanLandmaster.com and click on the “Notice to UTV Owners Important Recall Information” icon or www.AmericanLandmaster.com/recall for more information.

American LandMaster Recall Details

Description:  This recall involves model year 2018 gasoline-powered Landstar, Crossroad and Trailwagon models of American Landmaster four-wheel off-road utility vehicles. The recalled vehicles were sold in a variety of colors. The model name and number are printed on the hood of each front fender. The American Landmaster logo is printed on the center of the hood of the vehicle. The VIN is located behind the pedals and below the steering wheel.

Model Number

VIN range start

VIN range end

CR350, LS350, LS350DL

A4PUTYFB1JBA00023

A4PUTYFB9JBA00304

A4PUTYFB1JBA00751

A4PUTYFB7JBA00754

LS450

A4PUTYJC4JBA00422

A4PUTYJC6JBA00499

A4PUTYJC3JBA00749

A4PUTYJCXJBA01512

TW450

A4PUTYJCXJBA00358

A4PUTYJC0JBA00496

A4PUTYJC2JBA00760

A4PUTYJC2JBA01147

TW750

A4PUTYPD0JBA00014

A4PUTYPD8JBB00149

LS477

A4PUVTKD7JBB00003

A4PUVTKD9JBB00049

LS550

A4PUTVKD9JBA00003

A4PUTVKD9JBA00308

LS670, 677EFI, 677EPS

A4PUTYPD6JBB00005

A4PUTYPD7JBB00224

Crew2, Crew4, Crew4X

A4PUFYPD0JBA00005

A4PUFYPD5JBA00078

Remedy:  Consumers should immediately stop using the recalled vehicles and contact American Landmaster for a free repair.
Incidents/Injuries:  None reported
Sold At:  Atwood Distributing, Tractor Supply Company, Orscheln Farm and Home stores and other distributors nationwide from January 2018 through July 2018 for between $4,300 and $10,300.
Manufacturer(s):  ASW, LLC d/b/a American Landmaster, of Columbia City, Ind.
Manufactured In:  U.S.
Recall number:  18-207