- Company Name
- Textron Inc.
- Stock Symbol
- Class Period
- January 31, 2018 to October 17, 2018
- Motion Deadline
- October 21, 2019
- Southern District of New York
The complaint charges Textron and certain of its officers with violations of the Securities Exchange Act of 1934. Textron is a global manufacturer and distributor of small aircrafts and recreational vehicles. On March 6, 2017, Textron expanded its recreational vehicle business through its $316 million acquisition of Arctic Cat Inc. (“Arctic Cat”). Upon the completion of this transaction, Arctic Cat became an indirect wholly-owned subsidiary of Textron. Arctic Cat designs and manufactures a variety of recreational vehicles, including all-terrain vehicles and snowmobiles. Arctic Cat revenues are generated through sales to independent dealers.
The complaint alleges that throughout the Class Period, defendants made false and misleading statements and/or failed to disclose adverse information regarding Textron’s business and prospects. Specifically, contrary to defendants’ repeated representations touting Arctic Cat as an important growth business for the Company and their reassurances to investors about dealer demand, end-market sales and earnings prospects for Arctic Cat products, end-market sales of Arctic Cat products were slowing, resulting in a massive glut of old Arctic Cat inventory on dealers’ floors. As a consequence, in order to clear out this excess Arctic Cat inventory, Textron would be required to provide significant price discounts, which would negatively impact its earnings. As a result of defendants’ false statements and omissions, the price of Textron common stock was artificially inflated to a high of more than $72 per share during the Class Period.
The truth about Arctic Cat’s inventory problems was revealed on October 18, 2018, when Textron reported weak third quarter 2018 earnings and cut its full-year 2018 forecast. The Company blamed the shortfall on heavy discounts issued by Textron to clear out old Arctic Cat inventory. Analysts immediately lowered their price targets on Textron stock, citing the inventory concerns at Arctic Cat. On this news, the price of Textron stock fell $7.29 per share, or more than 11%, to close at $57.49 per share on October 18, 2018.