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

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 an 8% rise in sales to $299.3 million.
  • Earnings. And 10% profits growth to $1.06 per share.

What management says:
Arctic Cat lost $0.23 per share on an 11% slide in sales last quarter -- and CEO Christopher Twomey called that "better than planned." Why? Because the firm postponed the release of its new-model snowmobiles into fiscal quarters No. 2 (that's the one we'll be hearing about) and No. 3, resulting in a 60% decline in snowmobile sales. In contrast, sales of newer-model ATVs soared 45%, exceeding industry growth, which got this Fool wondering whether Arctic Cat stole some market share from rival Polaris (NYSE:PII), contributing to that firm's recent dismal results.

Looking forward, and sounding optimistic about snowmobile sales this year, Twomey predicted that fiscal 2007 would be one of "record full-year sales." He did, however, warn that the huge increase in lower-margin ATV sales as opposed to snowmobile sales would hurt firmwide margins.

What management does:
Not that Arctic Cat has needed much help in that respect -- it was doing just fine shrinking its margins long before the new ATV models came in. Each of its rolling gross, operating, and net margins have been slipping for more than a year.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

19.7

20.0

19.4

19.0

18.6

18.1

Op.

5.8

5.8

5.5

5.2

4.5

3.6

Net

4.1

4.1

3.9

3.7

3.2

2.6
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:
The reason is plain to see from the last couple of quarters' results. Revenues have been down 6% year over year, while cost of goods sold fell only 3% (hurting the gross margin), and selling, general, and administrative costs have risen 7% (further damaging the operating margin).

The good news, it would appear, lies on the balance sheet, where accounts receivable are down 13% -- more than the decline in sales would account for on its own. And although inventories are up 29%, that's probably explainable by the firm stocking up on all of its new ATV and snowmobile models.

Probably. Tune in on Wednesday to find out whether Arctic Cat was as good at selling its new snowmobiles as it has been at stacking them up in its warehouses.

Competitors:

  • Deere & Co (NYSE:DE)
  • Honda (NYSE:HMC)
  • Cycle Country Accessories (AMEX:ATC)

Customers:

  • AGCO Corp (NYSE:AG)

Suppliers:

  • Hawk Corp (AMEX:HWK)

Might your best clue to what one company will say be what another has already said? Just in case, read up on Polaris' quarter in:

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