Lions and tigers and bears. Oh my, I think I'll be putting my money on the cats today. Bears, hunting snowmobile maker Arctic Cat (NASDAQ:ACAT), are coming away bloodied as the stock rises 7% on news of a consensus earnings-beating fiscal third quarter.
For Q3 2005, Arctic Cat reported a pair of numbers that, by all rights, should have had the bears as happy as though they'd found a hive full o' honey. Revenues were down 3% from Q3 2004, and profits were off 29% at $0.28 per diluted share. Nonetheless, this kitty was purring over the fact that Wall Street only expected it to earn $0.27. (That's right, folks. This complete non-tech stock went out and "beat by a penny.")
But hold on a sec. Aren't we in the middle of a bit of a market correction here? Is beating earnings estimates by a penny really enough to justify a 7% spike in share price? After all, Qualcomm (NASDAQ:QCOM) "beat by a penny," and Symantec (NASDAQ:SYMC) by two, and look at how well they're doing today.
So maybe, beating an arbitrary threshold number shouldn't have set investors to rolling in the catnip. But then again, Arctic Cat did a whole lot more than just exceed the income statement expectations of the four analysts who cover it. Despite the rough sales environment, this Motley Fool Hidden Gems Watch List stock also accomplished two very important tasks over on the balance sheet. I mean, when sales growth is weak, you'd expect a company to let its customers slide with their payments in order to close sales. You'd expect unsold goods to start piling up in warehouses as rosy sales expectations wilt in the harsh winter of sales reality. But that's the exact opposite of what happened at Arctic Cat.
On the contrary, accounts receivable declined 2% year on year. And rather than grow, the company drew down its inventories by a full 12%. That would be impressive in a quarter of strong growth. In a weak quarter, it's an accomplishment on a par with successfully herding cats.
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Fool contributor Rich Smith has no position in any company mentioned in this article.
