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Finance-HDThe iconic “I’ll be back” catchphrase made famous by Arnold Schwarzenegger in the 1984 movie “Terminator” can now be used to describe that financially, Harley-Davidson is back! 

There is no getting around it.  Harley-Davidson had an exceptional Q3’13.

There was of course the strong financial performance, the biggest launch of new motorcycle models in the company’s history that resulted in excellent retail sales and who can forget the epic 110th anniversary in Milwaukee.  In the initial 45 days at retail since launch, the Rushmore motorcycles sparked the largest year-over-year new model sales increase in 20 years. Sales were up markedly in both the U.S. and internationally. In fact, it was the best international model year launch ever in terms of initial volume.

H-D have been telling us for quarters that they are laser focused on the international businesses. They are targeting 100-150 international new dealer points through 2014 and, over the last 3+ years, have opened 110 new dealer points, with two-thirds being in emerging markets.

Last week H-D reported Q3 revenue of $1.34B and net income of $162.7 million, or 73 cents per share.  For the motorcycles and related product segment revenue was up 8.4% in the third quarter, including a 10.7% increase in motorcycle revenue largely driven by the strong mix of the touring bikes.  U.S. sales were up 20% from July through September and profit jumped 21%.

During Q3’13, parts and accessories sales were up 7.0%, driven by the success of certain product categories such as LED lighting and audio. General Merchandise was down 12.6% compared to Q3’12 due to what H-D referred to as lapping the strong sell in of 110th anniversary apparel and accessories, which began in Q3 of 2012.

Important to the Road Glide riders is the fact that H-D discontinued the Road Glide Custom and Road Glide Ultra.  Management was quick to point out that these models, represent, on an annual basis, about 4-5% of the overall Touring volume.  In terms of retail sales, H-D had brisk retail sales of the Road Glide in the third quarter.  It will be interesting to see if there is any sales headwind from discontinuing the Road Glide in Q4.

One of the items that jumped out at me is that wholesale and MSRP prices have increased by an average of about 3.5% on the new 2014 models. By region, U.S. prices are up roughly 4.25%; EMEA, up 1.5%; and Asia-Pacific and Latin America, each up about 2.5%.  The significant new “content,” which was added to the 2014 model year motorcycles was expected to increase costs by 2.75%.

H-D did not change the 2013 forecast of motorcycle shipments of 259K-264K.  Poor weather in the U.S. during Q2 was again cited as the primary reason for challenges in hitting the high forecast number.

Photo courtesy of H-D

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H-D announced Q2’11 financial results this morning.

In a word – Booyah!

By every financial measure Harley-Davidson generated improvements in the second quarter of 2011, with strong earnings growth, increased shipments and growth in its dealers’ new motorcycle sales both in the U.S. and globally.  Here are some of the stats that CEO Keith Wandell and CFO John Olin reviewed from Anaheim, CA. where the annual dealer meeting and new product launch was in progress:

  • Revenue in Q2’11 was $1.51B (up 15%) with income up 36.8% to $190.6M
  • Motorcycle shipments up 7,769 in Q2’11 vs. Q2’10; Motorcycle segment revenue up $204.6M (18%) vs. Q2’10
  • Touring motorcycle shipments made up 38.3% in Q2’11; up 3.6%
  • International shipments were 36.2% in Q2’11 vs. Q2’10 at 42.5%
  • Shipment forecast for 2011 rose by about 8% and now H-D expects to ship between 228,000 and 235,000 motorcycles worldwide
  • Market segment share (651+cc) is 53.8%; up 0.2% from 2010
  • U.S. dealer network sales of uses motorcycles up 11% through May; Used bikes sales continue to firm up (meaning they offer the dealer a method to help offset the “sticker shock” of new bikes)

Did anything go less positive?  Well that depends on your viewpoint.  From a shareholder’s perspective it’s “Houston, we’re ready to throttle up”!   Stock price set a new 52-week high at $46.88.

As a rider/layman the touring motorcycle shipment increases were offset by the decreases in Custom and Sportster declines.  There were no age demographics quoted in the analyst call, but we’ve been told that typically “youngsters” don’t buy the higher priced baggers.  In addition, the new 2012 touring models that were announced earlier in the month have… shall we say… “lean” engineering innovation compared to previous years.  In a number of cases there we’re only paint palette changes and price increases made up the so-called “new” touring models.  There was about a 1% price increase in the U.S. market.  The lack of innovation is especially troubling (to me) given that product development spending was up $7M in the first half of 2011 which was described as a continuation of their strategy and focus on leaner engineering.  Sure metals and fuel costs are up, but the lack of stronger product changes is not always a recipe for long term success.

Nothing was noted on the call about the recent expansion in India.  Not sure why given that SG&A expenses were up about $13M on the strategy to grow 100 – 150 international dealers by 2014.  Latin America saw a decrease in retail sales which was largely due to all Brazil dealers being terminated.  There was a restart in that country and the new dealers (6) were coming up to speed.

Congrats to H-D on a great quarter!

UPDATE: Full transcript of the analyst call is HERE courtesy of SeekingAlpha.

Photo courtesy of H-D.  Full Disclosure: I don’t own H-D stock

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Severe weather conditions continued across Wisconsin. Most businesses and the ever important holiday shopping season grinded to a halt.

Power outages along with blizzard conditions, a wind-chill advisory and missing people meant Governor Jim Doyle declared a State of Emergency for all 72 counties.  The Governor’s State of Emergency calls to active duty elements of the Wisconsin National Guard as deemed necessary by Brigadier General Don Dunbar to assist authorities where needed. The declaration instructs all state agencies to assist in any response or recovery efforts that may be encountered.

But the wind and cold brought some unexpected news to help thaw the frostbite.

Harley-Davidson reported that it bought back $297 million in notes.  These were senior unsecured notes, with a face value of $297 million, that were scheduled to mature Feb. 1, 2014. If the company had held the notes until they matured, it would have cost $438 million more in principal and interest.  Harley said it repurchased the notes Dec. 10 for $380.8 million from Davis Selected Advisers LP using cash on hand and that the purchase will lower Harley’s fourth-quarter pretax profit by about $82.7 million.

Should the good folks at H-D be of the mindset to step outside and celebrate today I’m thinking they might want to brush up on their avalanche safety skills and practice using their mountaineer beacons.

Photo courtesy of Seattlest.com

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Harley-Davidson reported its first quarterly loss since 1993!

No surprise given home foreclosures, unemployment fear, stalled economy and ice-cold demand for high-end, premium priced motorcycles.

For Q4’09, H-D reported revenue of $764.5M and a loss of $147.2M.  Affecting Q4’09 results was the previously announced 53.1% reduction in motorcycle shipments from the year-ago period and $167.1M in restructuring, on the Buell end-of-life costs and the MV Agusta discontinued operations.  For all of 2009; revenue was $4.29B compared to $5.58B in 2008, a 23.1% decrease; income was $70.6M in 2009 compared to $684.2M in 2008, a decrease of 89.7%.  And don’t forget all the non-cash charges related to Harley-Davidson Financial Services (HDFS).

There was a surprise in today’s financial call.  Keith Wandell, (H-D President and CEO) stated: “We also feel good about where we’re at.” Huh?

Isn’t that the kind of thinking that would have Kodak saying that they’re relying on film, or newspapers saying they’re relying on print, or music labels saying they’re relying on CDs.  Just because you can’t see the cliff from where you are, that doesn’t mean it doesn’t exist.  Remember when everyone said no one would read a book on a hand-held electronic device, and suddenly now everyone’s saying the opposite, Kindle’s got so many new competitors and Apples yet-to-be released tablet gets more press than a starlet without panties getting into a car outside a pub.

Mr. Wandell may be referring to his reactive changes the past 8 months and the hope they will restore growth. I’m skeptical, and time will tell if they are the right decisions or if management can execute with a renewed intensity.  But isn’t that just the point.  REACTION to events vs. pro-active change?!  From the outside looking in, the majority of action the company has taken seems REACTIVE.  They curb demand, shrink manufacturing, reduce structural costs, pullback on spending, slash and cut employees, sell off businesses based more on profit margins not on the contribution to the customers soul.  Motorcycle sales are down more at H-D than other manufactures.  Why?

There is a saying: “Businesses should concentrate on their customers’ needs, not on specific products.” — “Marketing Myopia” (1960); Theodore Levitt, Harvard Business School

My opinion is that H-D needs to relearn customer needs.  If you desire to appeal to your core fans, then they’ll want to know that you are in it for the motorcycle hobby/sport, not just the money.  Stop calculating how to get to millions of revenue in a spreadsheet by maximizing this and that.  Just create something rawly desirable, then the revenue will come.  A great hit is more powerful than any marketing campaign.  People don’t need motorcycles, but they want one.  When the product is great.  When it speaks to them.  When it’s seen as integral to their lives.  You’ll have something!

Photo courtesy of JupiterImages.

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shred_dollarNot to buzz kill the summer riding season, but the current recession is the longest we’ve seen in the post-war period. 

Inclusive of the current downturn, there have been 11 recessions since WWII.  Having officially started in December 2007, this month marks the 19th month of the current “slump.”

As you would expect, cut-backs in consumer spending are visible throughout the economy (see below chart) and Harley-Davidson has felt the weight of the “great recession” too.  The company released its Q2’09 results today and worldwide retail unit sales of new H-D motorcycles were down 30.1% compared to the year-ago quarter. Retail new H-D motorcycle sales in the U.S. were down 35.1% and declined 18.2% in international markets compared to last year’s Q2.  On a “positive” note the company’s earnings were $19.9M on $1.15B revenue and industry-wide retail sales of heavyweight motorcycles in the U.S. declined 48.1% for the same period indicating that H-D performed better than its competition.

In his first quarterly report to the investment community as the new President and CEO Keith Wandell stated:

“While the underlying fundamentals of the Harley-Davidson brand remain strong and our dealers’ retail motorcycle sales declined less than our competitors, it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases.”  Wendell went on to say: “We plan to ship fewer Harley-Davidson motorcycles worldwide this year than we anticipate dealers will sell at retail,” which is meant to protect the brand.

consumer_spendingDue to the declines in retail motorcycle sales, the Company has lowered its 2009 shipment expectations by 25-30%.  Because of the lowered shipment volume, H-D announced further headcount reductions of approximately 700 positions in the hourly production workforce and 300 positions in non-production, primarily salaried headcount, including some at HDFS. This is in addition to the previously announced reduction of ~1200 positions bringing the total reduction to approximately 2,200.  H-D started the year with 10,100 employees and of course H-D shares rise on news of the additional layoffs.

Looking forward, the company will introduce its 2010 models on July 25th at its Summer Dealer Meeting in Denver.  I wonder if it’s time again for import duties or a Motorcycle Czar?  For now let’s just hope for a great lineup of motorcycles that will create some riding buzz and motorcycle passion!

Photo and chart courtesy CEA.

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hog-vs-spxHarley-Davidson is scheduled to report its first-quarter 2009 financial results April 16.

Even if you’ve been leveraging “guru” Cramer (Mad Money) to help make a fortune — who in my view has no more idea of what is going to happen tomorrow than the average chimp. Pessimism runs high especially after the motorcycle manufacture took the unusual action of reporting mid-quarter sales numbers earlier this quarter. With sales down 13 percent worldwide in January and February the chance of a sunny quarter and forecast is unlikely.

Clearly HOG deserves a great deal of skepticism. Over the past year, the stock’s decline of 66% has outpaced the 40% slide endured by the broader S&P 500 Index (SPX). As a stock underperforms you’ll naturally see an uptick in investor pessimism.  There are a number of indicators which suggest traders are looking for a sharp decline out of the stock prior to April expiration.  One of the better article’s deconstructing the HOG situation can be found HERE.

Chart courtesy of Schaeffers

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harley_heavenAdding fuel to the “burned out” leisure vehicle market was today’s earnings report from Harley-Davidson.

The company announced the cut of 1100 jobs and that Q4 profits fell 58% to $77.8M.  Revenue fell 6.8% to $1.29B from $1.39B in the year ago quarter.  Worldwide sales fell 13.1% in Q4 with sales in the U.S. market (it’s biggest) falling nearly 20%.  However, International sales did creeped up 0.7%.  For the full year, worldwide retail sales fell 7.1%.

Just the numbers (Q4):

  1. Revenue from motorcycles only was $1.02B (a decrease of $95.4M)
  2. Total shipments of motorcycles totaled 76,581 units (down 4,625 units)
  3. Revenue from Parts and Accessories totaled $152.1 million (down by $13.1M)
  4. Revenue from General Merchandise, (apparel etc.) totaled $69.0M (declined $4.4 million)

Harley is slicing even further new motorcycle production this year to somewhere between 264,000-273,000 to adjust to the down market.  In 2008 Harley shipped more than 303,479 motorcycles — down 8% from the 330,619 shipped in 2007.

The companies new three-part strategy is: A). to invest in the Harley-Davidson brand, B). get the company cost-structure right, and C). obtain funding for HDFS to help our dealers sell motorcycles and retail customers to buy them.  The company also plans consolidate engine and transmission plants as well paint and frame operations.  They will also close distribution facilities and discontinue domestic transportation fleet operations which will now be outsourced.

The HDFS financial arm is really struggling.  They finance more than half of the company motorcycle sales and had to write down $63M as a result of credit losses which led to a $25M operating loss in the 4th quarter alone. 

The only bright spot I could find was that the General Merchandise (apparel etc.) revenue increased 2.8% for the year to $313.8M compared to $305.4 in 2007.  I suppose people like Harley’s logo and if they can’t buy a high-priced luxury “ride” then wearing one is the next best thing?

Photo courtesy Flickr.

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