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Posts Tagged ‘Economic Slowdown’

It’s not a good day to be a Harley-Davidson (NYSE: HOG) dealer.  The company reported that Q3 profits fell sharply and they tried to reassure investors that company management is taking prudent steps to manage the brand.  They also cut earnings outlook and lowered the estimate for motorcycle shipments for the rest of the year.

Harley reported that earnings for Q3 dropped 37% to $166.5M from $265M as compared to Q3 of 2007.  This is the fifth straight decline in quarterly earnings for Harley.  Revenue fell 8% to $1.42B from 1.54B in 2007.  Shipments of motorcycles fell 14% to 75,704 although they did report that international shipments were slightly up.  Dealer retail sales fell 10% this quarter as purchases of high-end motorcycles are often tied to consumer confidence and the credit market squeeze has compounded the problems.

Speaking of credit, the Financial Services segment of the company reported higher delinquency rates this quarter, a 28% decline in operating income and having to raise interest rates for all potential customers.

In a downturn climate Harley acquired MV Augsta Group, expanded on European operations, opened the new museum, rolled out MySpace and Facebook sites and hosted the 105th celebration all during this quarter.  So, given the daily doses of financial doom and credit circumstances Harley seems to be doing “okay” in trying to weather this slowdown.

Call transcript is HERE.

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Harley-Davidson reported out on Q1’08 earnings.  They had net income of $187.6 million or 79 cents a share down 2.5% from $192.3 million or 74 cents a share in the prior period despite revenue rising 11% to $1.31 billion, from $1.18 billion in 2007.

The impact of the economic slowdown was felt mostly at U.S. retail as dealers’ new motorcycle sales declined 12.8% compared to a year ago. As a result, Harley has taken steps to significantly reduce shipments for the rest of this calendar year and reduce the workforce.  It now plans to ship 23,000 to 27,000 fewer Harley-Davidson motorcycles in 2008 than it did in 2007.

And did you know that ALL of Harley-Davidson’s top execs including current CEO James Ziemer, were NOT paid any bonus for 2007?  It’s true!  Recently released documents show it’s the first time in several years that Harley execs have not received a bonus and is a result of the company failing to meet financial performance targets in a year in which the sales and earnings dropped.

But, before you start singing praises for the top brass let’s get the 411 (lowdown)…Harley has distributed substantial bonuses to its top execs in recent years. For example, in 2006, Ziemer was awarded a bonus — referred to as non-equity incentive plan compensation in the regulatory filing — of nearly $1 million.  A whopping $1M bonus, wow!  But wait, it gets even better because that bonus was teeny tiny in comparison to what the previous CEO, Jeff Bleustein and now chairman of the board of directors received.  Here are the numbers from the filing documents:

Year              Exec                      Amount

2007             James Ziemer          $0

2006             James Ziemer          $1 million

2005             James Ziemer          $600,000

2004             Jeff Bleustein           $3.5 million

2003             Jeff Bleustein           $3.5 million

2002             Jeff Bleustein           $3.5 million

2001             Jeff Bleustein           $2.0 million

So, how does this compare with other companies?  These obscene bonus amounts sadly aren’t a wild exception. In fact, Harley bonuses were “modest” according to a study by Graef Crystal, a business columnist and compensation expert, where CEO pay rose 22% last year, while the average worker’s pay rose by around 3%.   For further proof, it doesn’t take much of a Google search to learn that Viacom CEO Sumner Redstone took home about $28M, including a bonus of $16.5M, even as his company’s stock dropped 11% during the fiscal year. Applied Materials CEO Mike Splinter got a tidy $5M bonus, despite a stock slide of more than 22%. Rick Wagoner, CEO of General Motors, saw GM stock plunge 25%, yet he still pocketed a $2.5M bonus.

I don’t like “busting” on Harley especially when they are down, but knowing bonuses were “modest” just didn’t make me feel better.  Ziemer mixed words like “challenging” and “no signs when things will turn around” frequently during the last analyst call.  I’m not sure how a person making $480/hour from their annual bonus alone can say “challenging”…oh, wait he’s talking about the company, not his personal struggle to make ends meet!

And speaking of struggle, what about those positions getting “downsized”?  Well Thomas E. Bergmann (CFO), quantified the reduction of headcount as 370 or approx 6.5% of the N.A. workforce or if you look at it from the non-production workforce of 360 positions it’s approx 10% of the Harley’s N.A. motorcycle operations being let go.

It’s not exactly clear, but it looks like the overweight, mid-life testosterone driven, on your 3rd marriage with a trophy wife buyers are really drying up and so goes the potential profit gains of my HOG stock portfolio.  

I think it’s time to pull my shares and let the Eagle “go it alone”

 

Photo courtesy of the HD Museum.  The 1981 ad represents the company buyback from AMF ownership.

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