A class-action lawsuit on behalf of disgruntled shareholders has been launched against US powersports manufacturer Polaris in the US District Court of Minnesota by Pomerantz LLP, a legal firm specialising in pursuit of such claims, reports BDN financial editor Roger Willis.
This seeks to extract damages from Polaris for violations of the US Securities Exchange Act, relating to profit forecasts between January and September 2016. Unresolved technical issues with its best-selling RZR side-by-side ATV range, which have led to a series of recalls, are behind the action.
Polaris first recalled some RZR products in July 2015, citing a possible fire hazard. Three further recalls took place in October 2015, December 2015 and April 2016, without successfully fixing what transpired to be a turbo overheating problem. More than 160,000 RZR vehicles were affected.
However, the company continued to assure investors that it expected full-year 2016 net profit to represent at least $6.00 per share. A press release in January 2016 said guidance was between $6.20 and $6.80. Subsequent quarterly results unveiled in April repeated this estimate. And then half-yearly figures published in July only narrowed the guidance to $6.00 to $6.30.
But in early September, Polaris suddenly slashed its full-year earnings forecast by almost half to $3.30 to $3.80 per share, a month before third-quarter financial results were due. Justification was that the company had been unable to “sufficiently validate the initially identified RZR turbo recall repair, necessitating a more complex and expensive solution”. As reported in BDN’s weekly online motorcycle industry share price guide, Polaris stock plummeted by 12.8% following this profit-downgrade announcement.
Pomerantz lawyers are alleging that Polaris must have been aware of a potentially deleterious outcome and therefore made false or deliberately misleading statements as to the bottom-line impact.