The scent of snow is in the air, and what else do I smell? Why, I do believe it's the aroma of auto exhaust, carried on the crisp winter air from snowmobile- and ATV-maker Arctic Cat (NASDAQ:ACAT). It must be earnings season once more, and time for the Cat's Q3 news. Arctic Cat reports Wednesday morning.

What analysts say:

  • Buy, sell, or waffle? Five analysts ride herd on Arctic Cat. Three of them rate it a hold, and two more a sell.
  • Revenues. On average, they're looking for a 14% rise in sales, to $222.2 million.
  • Earnings. Profits are predicted to rise 38%, to $0.33 per share.

What management says:
Two quarters ago, CEO Christopher Twomey predicted that fiscal 2007 would be a year of "record full-year sales" (but decreased margins.) Last quarter, he reiterated the sentiment, assuring investors that "we remain on track to post sales gains across all of our product lines for the fiscal year."

In other news, late last month Arctic Cat spent $10.8 million to buy back 615,000 Class B shares of its stock, previously owned by Suzuki Motor. This buyback, amounting to 3.2% of Arctic Cat's shares outstanding, will concentrate the firm's net profits and boost earnings per share. Unfortunately, however, and unusually for such bulk purchases, the shares weren't bought back at a discount to their market price; instead, they were purchased at a slight premium to the then-current (and now current) share price.

What management does:
Back at the net profit level, Arctic Cat reversed a long trend of declining gross, operating, and net margins last quarter. Thanks in large part to sales growth outpacing growth in raw materials costs for the quarter (3% to 2%), the rolling totals rose for the first time in more than a year.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

20.0

19.4

19.0

18.6

18.1

18.5

Op.

5.8

5.5

5.2

4.5

3.6

3.9

Net

4.1

3.9

3.7

3.2

2.6

2.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Twomey seemed to be relying on pent-up consumer demand to drive sales growth in Wednesday's report. In last quarter's earnings release, he noted that dealer orders for its snowmobiles have been "strong," that 80% of the vehicles for sale this year are new models, and that the timing of some shipments shifted their revenues from the second fiscal quarter into the third -- all factors that should work to Arctic Cat's advantage.

Working to its disadvantage, I suspect, will be the preternaturally warm winter we experienced in the American northeast during this fiscal quarter. Although by all accounts, glimpses of real winter weather have been had elsewhere in the nation, and the season finally arrived on the East Coast last week, I have to wonder how all this "good" weather affected demand for snowmobiles over the last couple of months. We'll find that out Wednesday.

Related companies:

  • Deere & Co (NYSE:DE)
  • Honda (NYSE:HMC)
  • Polaris (NYSE:PII)
  • Cycle Country Accessories (AMEX:ATC)
  • AGCO Corp (NYSE:AG)
  • Hawk Corp (NYSE:HWK)

Past predictions for Arctic Cat:

Fool contributor Rich Smith does not own shares of any company named above.