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Turfscape (45.30)

The Good and Bad of HOG Q3

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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...

3 Comments – Post Your Own

#1) On October 19, 2010 at 1:02 PM, Brent2223 (31.51) wrote:

Nice analysis.  I agree that the general idea that HOG will go down with the boomers is overplayed.  HOG is still the one to beat in the cruiser market, and I hear this from just as many young riders as old.  I'm seeing alot of v-rod's around, this was a big product for HOG as they introduced alot of new technology lacking in their other models.  And it proved that HOG can modernize their lineup without losing the classic HOG image or alienating it's existing consumers.

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#2) On October 19, 2010 at 1:11 PM, Turfscape (45.30) wrote:

Brent2223 wrote:
"I'm seeing alot of v-rod's around, this was a big product for HOG as they introduced alot of new technology lacking in their other models."

The V-Rod line is interesting. I've long been wondering if they're working on moving some of that technology to the other lines...such as a liquid-cooled touring bike.

I know, I know...the hard core folks say that you CAN'T have a liquid-cooled Harley ("real" Harley, as I've heard it said). Well, the V-Rod is still around, and doing well, from all appearances. When I see one out there, it looks and sounds like a Harley to me. I haven't spent much time on one (just not my style), but I've seen those things customized just as much as any other bike that Harley makes. So they definitely have their loyal riders.

But I am impressed with that V-Rod techology. I would love to have that clutch and a 9000rpm redline on my Dyna...

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#3) On October 19, 2010 at 1:20 PM, Brent2223 (31.51) wrote:

Hey, I still say a Harley can't have a rubber mounted engine but life goes on.  Wasn't sure on the v-rod when it came out but I agree that there's alot more custom v-rods around and they are starting to show the same Harley character.  Glad to see it didn't become the red headed step sister in the line up!

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