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Turfscape (44.09)

Get Ready For One Helluva Ride

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April 12, 2012 – Comments (9) | RELATED TICKERS: HOG

This is the time of year that a (not quite so) young motorcyclists heart starts beating a little faster...his eyes gaze longer down that open road...warmer weather means riding season is upon us! And, April means its also Earnings Season. So, if you are a Harley-Davidson enthusiast and stock owner, times could not be better. Get ready for the good times, because they are about to roll along.

Now, HOG has had a decent run over the last year...but I'm predicting that Harley-Davidson is going to reveal a much-better-than-expected first quarter when they release earnings later this month. And, I expect that trend to continue for several quarters in a row. Why?

First, this has been an uncommonly mild winter, which undoubtedly provided a bump for dealers in the usually slow first quarter. I know that in my area, bikes have been out on the roads since February (easily two months ahead of schedule). Simple math...more time on the road means greater need for parts and accessories. But, warmer weather means that dealers in cold regions had greater opportunity to get people on bikes through test rides or demo events when they normally would have to wait a few months.

But, that's only a small part of the picture as I see it. Warm winters aren't a sustainable event (well, Vice-President Gore may disagree, but that's a different blog). And warm weather alone cannot account for the buzz of activity that I have been witnessing in visits to dealerships over the past three months. In my hometown area, I regularly stop in at four dealerships, either in the course of buying things, getting service done on my bike, or just to gauge sales activity and get a sense of what Harley is doing. I also make it a point to stop in at dealerships in any town that my business travels take me to. This quarter has been unique: each dealership (in my non-scientific opinion) was as busy as I have ever witnessed, or would reasonably expect for the first quarter of the year. Further, every staff person I talked to showed a higher level of enthusiasm than I have seen in years.

Again, this is all unscientific...this is not based on a formal survey or published data...this is my OPINION only.

But, what I see is demand that is higher than dealer inventory levels (good thing for HOG). I see fast turnover on models in the dealerships, but a consistent good mix of product (whereas in the past, if sales were strong dealers often had a glut of lesser desired models dominating their floors). And I see a higher number of younger riders in the dealerships than I've seen in the past.

To me, this means that HOGs direction is the right direction. The company is in its third year of rebuilding under CEO Keith Wandell. He set out to remake their manufacturing capabilities to better accommodate demand and provide quicker response to changes in market conditions (meaning they can change the plan for how many of each model they make with very little lead time, keeping that model mix on the dealer floor strong). And, the changes at their York facility are complete, their changes at the Milwaukee and Kansas City plants will be complete within a year (if I understand it correctly), which is all intended to provide hundreds of millions of dollars in on-going savings on manufacturing costs.

And, lastly...the company is heading into an anniversary year (110th). For most companies, that might not be a big deal, but HOGs core customer base LOVES the anniversaries, and will absolutely use it as an excuse to upgrade their bike. Any long-time rider that had been putting off a purchase because of economic uncertainty WILL be plunking down cash for a new bagger with a 110th anniversary badge on the tank (its expected that Harley will launch the anniversary models in mid-to-late summer...historically new models are released at the end of July).

Demand = up.
Costs = down.
Dealers = happy & busy.

Economic woes be damned...this HOG is about to fly.

(DISCLOSURE: I own shares of HOG, as well as many products put out by the company...and, again, ain't one bit of this blog that can be called scientific or valid in any other way. It's my opinion, and worth whatcha paid...go do some due dilligence).

9 Comments – Post Your Own

#1) On April 12, 2012 at 4:28 PM, SUPERMANSTOCKS (58.19) wrote:

Hmmmm...not bad at all

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#2) On April 12, 2012 at 11:05 PM, HarryCaraysGhost (99.67) wrote:

http://www.youtube.com/watch?v=xm5DPlNCmtk

Ride On!!

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#3) On April 13, 2012 at 11:13 AM, ikkyu2 (99.18) wrote:

Well stated, and the kind of information that doesn't show up on an income statement.  Appreciate it.

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#4) On April 16, 2012 at 12:23 AM, Starfirenv (< 20) wrote:

I don't know, man. Hogs are like houses. Huge inventory out there.  Look at Craigs list or EBay.  Window shopping is fine but I think most will opt to pay 1/2 price or less in the "desperate to liquidate" market. I have bikes myself and have been looking at "springers" lately,  but have not once considered buying from a dealer. There's just SO much out there.  They (HD) will continue to own the motor parts and apparel market but have been losing share in accessories for years. I question awesome numbers since the GAAP was changed but that's what drives share price. I hope you do well with HOG.  Best.

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#5) On April 16, 2012 at 11:00 AM, Turfscape (44.09) wrote:

The nice thing for Harley shareholder is even in the used market, Harley's dealer network holds an advantage. A few years ago the company initiated a program that provides a factory-backed warranty for "certified" used bikes. And dealers have reported a dramatically reduced inventory of used versus last year, which gives the dealer a little leverage with pricing, but also benefits customers who should see higher trade-in values. 

There will always be a private market out there, but I don't see it as too much of a threat to new sales.

I'm curious about the Accessories market share drop that you mention. I don't have any figures specific to market share breakout for Accessories, but the last three years saw revenue growth for Harley with their Parts & Accessories line of products. According to the annual reports for 2009 through 2011, P&A revenues were $749.2 million, $767.3 million, and $816.6 million respectively. That's a drop from 2007, when P&A revenue was $868 million...but everything is a drop from 2007 at Harley and elsewhere.

If you end up getting the Springer, share a picture. I'd love to see it! It's actually a bit surprising to me that Harley didn't release any Springer models in 2011 or 2012...we'll wait and see what they put out for 2013.

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#6) On April 18, 2012 at 3:42 PM, Turfscape (44.09) wrote:

Further support for my call of a decent estimate beat for HOG next week: Polaris beat estimates by a fair amount today. From Investor's Business Daily

"The ATV and snowmobile maker on Wednesday reported a 27% rise in profit to 85 cents per share, beating analyst estimates by 8 cents and continuing 10 straight quarters of double-digit EPS growth. Sales jumped 25% to $673.8 million, topping expectations of $613.7 million."

A big beat by Polaris is a fair indicator that discretionary, big ticket purchases are back on the menu for the American consumer. With Polaris showing a 25% jump in sales, I would expect that or more for HOG. Now, I'll fully admit...that's a big jump. But if sales grew that much for Polaris' wares, then Harley should definitely be in that ballpark.

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#7) On April 23, 2012 at 10:43 AM, Turfscape (44.09) wrote:

Read more about it here, but some early numbers sneaked out and Harley's sales for Q1 are up over 25%. Big win!

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#8) On April 25, 2012 at 9:28 AM, Turfscape (44.09) wrote:

And THERE it is, folks! HOG Q1 numbers are out today and they look good...very good.

EPS is up over 45%

Sales are up over 25% for the US (over 20% worldwide)

Profit is up, margin is up, and on and on...

The bit I like most, though, is that Harley is increasing its guidance on expected bike shipments for the year to 245,000 to 250,000 bikes. That's a very positive sign given the conservative course that CEO Keith Wandell has been taking since he started.

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#9) On April 25, 2012 at 4:29 PM, Starfirenv (< 20) wrote:

NICE!  Long live the King.

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