Monday, April 18, 2011

Harley-Davidson Inc. (NYSE: HOG): Q1 Earnings Preview 2011

Harley-Davidson, Inc. (NYSE: HOG), the largest U.S. motorcycle maker,  is scheduled to release first-quarter earnings before the opening bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of 53 cents per share on revenue of $1.05 billion. In the year-ago period, the company posted earnings of 29 cents per share on revenue of $1.04 billion.

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 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. 

Harley is deep into its restructuring and already has taken out millions of dollars in costs.  The company has cut expenses by renegotiating labor contracts at factories in Pennsylvania and Wisconsin and introduced bikes to appeal to new riders. The company has also benefited from improving consumer confidence and renewed interest in big-ticket items like motorcycles. It  has been gaining market share in Europe and in the U.S. over the last few years. arley-Davidson will get a further boost as dealers start to restock and carry larger inventories. 

In the preceding fourth quarter, the Milwaukee, Wisconsin-based company's loss was $46.77 million or 20 cents per share, compared with a loss of $218.70 million or $0.94 per share in the previous-year quarter. Excluding the one-time charge of $85.2 million that the company’s incurred on early repurchase of senior unsecured notes, the company recorded a profit of $43.1 million or 18 cents per share during the quarter. Revenue rose to $917.08 million from $764.50 million in the year-ago period. Analysts, on average, expected the company to report earnings of 30 cents per share on revenue of $863.03 million. 

At its last earnings call in Jnuary, the company said that it expects to ship 51,000 to 56,000 motorcycles in the first quarter. In fiscal year 2011, the company expects to ship 221,000 to 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide, representing an increase of 5 percent to 8 percent compared to 2010. The company expects to ship more motorcycles to U.S. dealers than it anticipates dealers will sell at retail in 2011, to return aggregate U.S. dealer inventory to what the company believes is an appropriate level. Harley expects 2011 gross margin to be between 34% and 35% for the full year.

The company also lowered the cost estimate for previously announced restructuring activities that began in 2009 by $10 million to $25 million. The company now expects previously announced restructuring activities to result in total one-time charges of $495 million to $510 million into 2012, including charges of $85 million-$95 million in 2011. Upon completion of the restructuring activities, Harley-Davidson continues to expect to realize annual ongoing savings of $290 million to $310 million, beginning in 2013. In 2010, the company incurred restructuring charges of $164 million and realized savings of $172 million.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 14.48 and PEG ratio (5 yr expected) of 1.93.  In terms of stock performance, Harley shares have gained nearly 24 percent since the beginning of the year.

Full Disclosure: None.
Related Posts with Thumbnails

Wikinvest Wire