The ATV manufacturer Polaris Industries was recently served with a securities class action lawsuit alleging the company misled investors over the financial impact of a series of recalls it recently undertook. For more information, visit Battea’s Polaris Industries case summary.
Between July 2015 and April 2016, Polaris was forced to undergo a number of different recalls on ATV models sold around the globe, but originally implied there would be no financial impact on the company’s net income guidance. However, in mid-September, Polaris revised that number from about $6 per share down to somewhere between $3.30 and $3.80 per share, for reasons that included the cost of dealing with the recalls. This led to a significant decline in the manufacturer’s stock price. The suit has a class period of Jan. 26, 2016, and Sept. 11, 2016.
Further details of Polaris’s problems
Beginning in July last year, Polaris was forced to recall its 2016 Youth RZR vehicle due to potential fire hazards, and subsequently had to recall RZR vehicles in October and December, then again in April of this year.
On Sept. 12, 2016, the company disclosed the drop in expected earnings guidance, as well as revising its predictions for sales figures downward as well. Originally it thought sales would rise in the mid-to-high single-digits range, but changed that to an increase of 2 percent or less. In doing so, it said that the real problem it faced came from the recall of its popular RZR Turbo model, which ended up being more expensive than it originally anticipated, and also because it voluntarily chose to stop selling that model in late July.
“Our No. 1 priority is to get our loyal owners back to riding safely,” said Scott Wine, chairman and chief executive officer at Polaris. “We share the frustration of our customers and dealers and we are working diligently to expedite the completion of the recall repairs and significantly improve the quality and safety of our products. We are providing increased support to our dealers and RZR owners so they can complete the necessary repairs with minimal disruption.”
Industry insiders generally agree, however, that when things like this happen, it can be difficult to predict how that will affect sales going forward, according to the Minneapolis Star-Tribune. When some automotive manufacturers have issued recalls, there has been little to no impact on future sales numbers. On the other hand, some companies have also faced significant longer-term effects. As such, how Polaris moves in the coming months will be scrutinized closely within the industry.
How the revised earnings guidance hit stock prices
The announcement, issued Sept. 12, 2016, led to a huge decline in the company’s stock. On Sept. 9, it held at $80.84 per share, and by Sept. 16, it reached a trough of just $70.50. But even the early September numbers were down significantly from some of the highs observed earlier this year, when the price was at more than $101 per share. Polaris’s stock price has since regained the ground it lost due to the revised guidance, but still has a long way to go before getting back to its yearly average.
For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or firstname.lastname@example.org.