Tuesday, April 13, 2010

Harley-Davidson Inc. (NYSE: HOG): Q1 Earnings Preview 2010

Harley-Davidson is scheduled to release its Q12010 earnings before the opening bell on Tuesday, April 20, 2010. Analysts, on average, expect the company to report earnings of $0.24 per share in the first quarter with estimates ranging from a low of $0.03 per share to a high of $0.39 per share. Revenues for the quarter are estimated to be $1.02 billion. In Q12009, the company reported earnings of $0.50 per share on revenue of $1.29 billion.

Harley-Davidson, Inc., through its subsidiaries, produces heavyweight motorcycles, as well as offers motorcycle parts, accessories, and related services. It operates in two segments, Motorcycles and Related Products, and Financial Services.

Harleys continue to be largely recreational luxury vehicles not typically used as a primary method of transport. The vast majority of customers are essentially middle-aged, middle to upper class males. The average age of a Harley owner is 47 years. The major problem for Harley is that these older riders are not being replaced by a fresh batch of younger riders.

The company suffered a steep drop in motorcycles sales due to a severe recession characterized by contracting credit market and uncertain job market. The company's expensive motorcycles have failed to attract buyers amid weak spending environment. Additionally, the second hand motorcycle market is flooded with Harleys as cash strapped Harley owners look to unload their bikes for cash.Harley-Davidson's finance unit, better known as Harley Davidson Financial Services or HDFS was greatly affected by the credit crunch as the secondary market for Harley loans vanished.The finance arm's performance has also been affected by heightened competition. Moreover, long term debt has more than quadrupled in the last three years amid ongoing restructuring plan.

In the preceding Q42009, the Milwaukee, Wisconsin-based company reported that it swung to a net loss of $218.70 million or $0.94 per share, compared with a profit of $77.81 million, or $0.34 per share, in the prior-year period. Revenue slumped 40.2% to $764.50 million from $1.28 billion in the fourth quarter of fiscal year 2008. Analysts, on average, expected the company to report a loss of $0.32 per share on revenue of $764.39 million for the quarter.

The company expects to ship 201 thousand to 212 thousand Harley-Davidson motorcycles in 2010 to dealers and distributors worldwide, which is a reduction of 5% to 10% from 2009. In the first quarter of 2010, Harley-Davidson expects to ship 52 thousand to 57 thousand motorcycles, down 24% to 30% from the first quarter a year ago.

For the full year, Harley-Davidson estimates gross margin to be in a range of 32.0% to 33.5%, and capital expenditures to be between $235 million and $255 million, including $95 million to $110 million to support restructuring activities. The company expects that 2010 will continue to be a challenging year.

Harley-Davidson anticipates previously announced restructuring activities that began in 2009 to result in total one-time charges of $430 million to $460 million into 2012, including charges of $175 million to $195 million in 2010. The company also added that it continues to expect annual ongoing total savings from restructuring of nearly $240 million to $260 million upon completion of all announced restructuring activities, including savings of about $135 million to $155 million expected in 2010.

Investors are expected to pay attention to the performance of Harley Davidson Financial Services unit, which has been a major source of losses since the downturn began.

Harley's shares surged recently on speculation that the company could be a target of a leveraged buyout. The stocks of the company also got a boost after RBC Capital Markets analyst Edward Aaron raised his price target for the motorcycle maker's shares and said that the first-quarter results could reverse a recent trend of earnings disappointment.

In terms of stock performance, Harley shares have gained nearly 28 percent since the beginning of the year.

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