Why HOG Matters
Harley-Davidson, Inc. put out its Q1 earnings this morning, and the numbers are solid. The quick view: EPS is up 45.1%; Revenue is up 20%; Gross margin rose from 33.1% to 35.9%. Retail sales are up over 20% globally and over 25% in the US. The big news to me is that the Motor Company is increasing production and revising their guidance on shipment to 245,000 - 250,000 bikes for 2012.
Good numbers. Solid growth based on RETAIL sales (not shipments). Margins improving. I love to see these things in any company, but for an American manufacturer, it holds a special place.
Harley's CEO, Keith Wandell, came on board three years ago with an aggressive turnaround plan that included some big cuts at the factories and in the corporate offices, a focus on international growth, and keeping production at or below consumer demand. With that, he's been particularly conservative with production guidance...looking back, he has not revised production guidance upwards prior to this quarter. He has previously narrowed guidance to the high end of the stated range, but he has appeared adamant that production numbers be rock solid when first announced for the year.
The turnaround has been impressive, and contentious...no one likes layoffs...but to see an American manufacturer of big ticket, discretionary items increasing production is nothing but a humongous, positive sign.
Now, the "discretionary" part of that might be debated by hard core riders (like myself), who will happily inform you that a new bike purchase is required spending, not discretionary. But it's very telling about the economy as a whole that consumers are comfortable allocating a big chunk of income towards a purchase like this. It's also very telling about the state of manufacturing in the U.S. Companies CAN succeed here if they focus on efficiency and create compelling products that consumers want. Innovation does not have to mean making everything computerized, electric, hybridized and/or solar. In the case of major manufacturing, innovation can happen at the plants...and it can happen in the corporate offices where they focus on what the market needs are.
Harley is doing both, and doing it well. They have revised their production to better respond to changing consumer demands. It's virtually to the point that a customer can custom order a bike to their specifications and have it delivered within three weeks. That allows the company to better target specific subsets of consumer groups and deliver the product they are asking for.
I think Harley is a good sign for major American manufacturing in general and believe that they will continue down a positive path for the coming 2 or 3 years.
I'm bullish on HOG and am watching other American manufacturers for similar patterns. A few that I'm following closely are Manitowoc Company (MTW) and Johnson Controls (JCI).
Disclosure: I'm long HOG, own many of their products, ride as frequently as I can, as will happily talk for hours to anyone willing to listen about why you should give up four wheels for two. Also, this whole post is nothing more than my own uninformed opinion and worth whatcha paid for it.