Arctic Cat: All-Terrain Turnaround

12/25/2015 8:00 am EST

Focus: STOCKS

George Putnam

Editor, The Turnaround Letter

Our latest featured turnaround idea was one of the pioneers of the modern snowmobile industry, producing its first vehicles in 1962, explains George Putnam, editor of The Turnaround Letter

From snowmobiles, Arctic Cat (ACAT) has expanded into all-terrain vehicles (ATVs), recreational off-highway vehicles, and related accessories.

Under previous management, Arctic Cat had underperformed for several years. It underinvested in management talent, let its dealer network stagnate, and lagged its competitors in productivity. 

However, Arctic Cat still has one of the strongest brands in the recreational vehicle market and it has recently brought in new management to reinvigorate the company. 

CEO Christopher Metz took the helm late in 2014 after a successful career in management at Black & Decker and then as a turnaround specialist at a private equity firm.
 
In short order, he brought in a new chief financial officer, the company’s first-ever chief marketing officer, and a new head of North American sales.

Metz has a multi-pronged strategy to revamp the dealer network, develop new products and reduce the company’s dependence on snow-related offerings. While still early, there are signs that the strategy is taking hold. 

The company is actively cleaning excess inventory out of the dealer network, ramping up advertising, and appearing at key trade shows from which it had been absent for several years. 

It has invested $27 million in facilities upgrades and made an acquisition to expand its accessories line. The balance sheet is strong, with little debt, giving management plenty of flexibility to implement its turnaround plan. 

Results may be soft for a few quarters as the company continues to deal with excess inventory and currency headwinds, but the future looks bright.

We like what we see in the new management team and its efforts to revive this iconic brand. We recommend buying up to $30.

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