Tuesday, January 25, 2011

Harley-Davidson Inc. (NYSE: HOG): Q4 Earnings Preview 2010

Harley-Davidson, Inc. (NYSE: HOG), the largest U.S. motorcycle maker,  is scheduled to release fourth-quarter earnings before the market open on Tuesday, January 25, 2011. Analysts, on average, expect the company to post a loss of 30 cents per share on revenue of $863.03 million. In the year-ago period, the company posted a loss of 63 cents per share on revenue of $764.50 million.

Harley-Davidson, Inc. produces and sells heavyweight motorcycles, as well as offers motorcycle parts, accessories, and related services. The Motorcycles segment designs, manufactures and sells at wholesale primarily heavyweight (engine displacement of 651+cubic centimeters (cc)) touring, custom and performance motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. Furthermore, the company maintains an extremely strong franchise.

Harleys continue to be largely recreational luxury vehicles not typically used as a primary method of transport.Harley's past growth and continued success is closely tied to its customers brand loyalty 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 recession was exceptionally hard on makers of recreational vehicles like motorcycles and RVs. Not surprisingly, a big drop off in consumer spending led directly to massive revenue drops for recreational vehicle makers. Plants were closed and thousands of jobs were cut within the industry. However, the industry as a whole has taken recovery steps and has been aided by a return, albeit not a complete one, in consumer spending.

Several motorcycle manufacturers such as iconic Harley-Davidson Inc. have shifted some of their production facilities outside of the US to places like India, China and Brazil. These moves have had a two-fold benefit for motorcycle companies. They are able to lower manufacturing and labor costs, and it has facilitated establishing a retail market in those emerging markets. 

In the preceding third quarter, the Milwaukee, Wisconsin-based company's net income was $88.8 million, or 38 cents a share, from $26.5 million, or 11 cents a share, in the comparable quarter last year. Earnings from continuing operations was $93.7 million, or 40 cents a share. Revenue slipped to $1.09 billion from $1.11 billion. Analysts, on average, expected the company to report earnings of 36 cents per share on revenue of $1.10 billion. 

At its last earnings call in October, the company narrowed its forecast for 2010 shipments to between 207,000 and 212,000 Harley motorcycles, which would reflect a dip of about 5% to 7% from 2009. Harley previously forecast sales of 201,000 to 212,000 motorcycles.

Harley is deep into its restructuring and already has taken out millions of dollars in costs. The company has also benefited from improving consumer confidence and renewed interest in big-ticket items like motorcycles.

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

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

Full Disclosure: None.
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