The Good and Bad of HOG Q3
October 19, 2010
– Comments (3) |
RELATED TICKERS: HOG
Those of you who follow my posts (all both of you) know that I follow Harley-Davidson pretty closely. You also know, then, that I'm bullish on the company long-term. So, I thought I'd give my 2-cents on HOG's Q3 earnings from this morning:
GOOD: Earnings are up year-over-year. I don't think this is a surprise for anyone, but they did beat estimates by coming in at 40-cents per share. Not bad performance given that it's a discretionary purchase in a tight economy. The best of their financial news is that the Financial Services division is profitable. They've got that albatross of bad consumer loans mostly off their neck, which had put them at an operating loss last year. Further, capital expenditures are down, SG&A is down...their restructuring is lowering the cost of goods produced, which is allowing them to hold margins. And, inventories in dealerships is down...old models are clearing out, making way for new.
GREAT: Harley-Davidson is the number one brand of motorcycles for young adults in the U.S. That's right...this "old man's" brand...this baby-boomer product...this motorcycle that is in so much trouble because young riders only want sport bikes from Japan and Italy is the market share leader for young adults. Looking at dealer showrooms, this isn't surprising. Harley-Davidson has made huge efforts over the last three years to improve their relevancy among younger riders.
BAD: Bike sales are down...again. This surprised me a little. In watching dealership activity, I expected overall bike sales to be flat year over year. Fortunately, the full year guidance for bike shipments is holding steady (and actually narrowing to the top end of the initial forecast). It's great that HOG is more profitable on fewer bikes, but they really need to see increasing sales soon.
UGLY: Market conditions don't show signs of a strong turnaround in the short-term. If bike sales continue their decline, Harley-Davidson will undoubtedly lose efficiencies and see decreasing margins.
HOG has been making the right moves (in spite of what old-time enthusiasts and union workers may think). What remains to be seen is whether unemployment in the U.S. improves in the next two or three quarters. I remain bullish on HOG, but they can only fight the economic conditions for so long...
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