Harley Cuts 2005 Outlook, Stock Tumbles

Reuters ^ | 4-13-2005

[Cagey]

NEW YORK (Reuters) - Harley-Davidson Inc. (HDI) on Wednesday cut its 2005 production and earnings targets and blamed bad spring weather for a 1 percent dip in first-quarter U.S. retail sales of its motorcycles, sending shares down 17 percent.

The warning overshadowed news of an 11 percent rise in quarterly earnings, and raised questions among analysts about the long-term growth outlook and strategy for Harley-Davidson.

"Management attributed the cuts to slow first-quarter sales, but we think the issue may run deeper than that," said RBC Capital analyst Ed Aaron. "We think Harley's underlying (production) growth rate is lower than either management or investors perceive."

Harley-Davidson, based in Milwaukee, said it would cut 2005 production by 10,000 shipments from its original forecast, and now targets shipment growth of 3.7 percent from a year ago.

The stock was down $9.99 at $48.78 on the New York Stock Exchange after forging the biggest fall in its history and hitting its lowest level in 15 months.

Chief Financial Officer and CEO Elect Jim Ziemer attributed the shortfall in U.S. retail motorcycle sales to weather and delayed warm spring temperatures and called the cuts a "precautionary measure."

"This action we are taking now to take out 10,000 units ... is a small adjustment to make sure we don't run into having too much carry-over product," Ziemer said in an interview. "It's not a reaction to bikes selling for less than (sticker price) or an economic concern."

Harley-Davidson has traditionally had a greater gap between supply and demand, but it has recently moved to narrow that and change the situation of the past when dealers charged more than sticker price and there were long waits for bikes.

When demand far outstripped supply in the past, small changes in the market did not cause Harley-Davidson to adjust production. But the company is more sensitive now, especially as the model year ends in two-and-a-half months, Ziemer said.

Analysts continued to seek other reasons for the productions cuts, raising questions about dealers' inventory levels and higher credit losses.

US Bancorp Piper Jaffray analyst Tony Gikas, who has a "market-perform" rating on the stock, said his checks with dealers suggested trends had been weakening for eight months.

"There is less confidence in forward bike sales, the level of dealers seeing bikes exceeding expectations is on the decline, and inventories were high," said Gikas. "Management is still overly optimistic on the longer-term opportunity ... and what the story lacked today was strategy."

For the first quarter, net income rose to $227.2 million, or 77 cents a share, from $204.6 million, or 68 cents a share, a year earlier -- topping analysts' estimates by a penny. Revenue climbed 6 percent to $1.24 billion.

During the quarter, annualized credit losses rose slightly above Harley-Davidson's target, due to a higher incidence of losses and lower recovery rates on repossessed bikes.

The company said its U.S. motorcycle retail sales fell short of its expectations, resulting in its decision to limit short-term production growth and cut its earnings growth outlook for the year to about 5 percent to 8 percent, down from its previous forecast of an increase in the mid-teens.

Analysts, on average, expected earnings before items to rise about 12 percent, according to Reuters Estimates.

Harley-Davidson cut its production target to 329,000 units, from its previous target of 339,000. That represented 3.7 percent growth from last year's 317,000 shipments rather than its previous forecast of nearly 7 percent growth. It expects almost all the production cuts to occur in the second quarter.

Ziemer, who said the company will continue to buy back shares, forecast lower second-quarter earnings from a year ago due to inefficiencies and disruptions in production.

Despite the cuts, he stood by the company's long-term unit growth projection of 7 to 9 percent, as well as its outlook for mid-teens earnings growth other than for this year even though it backed away from its 2007 target of 400,000 units.

"We are still seeing increases in demand but we are also seeing greater increases in supply," Gikas said. "I still think there are additional risks to production later this year and certainly to their outlook for 2006 and 2007."

Ted Parrish, a co-portfolio manager of Henssler Equity Fund, sold the fund's stake in Harley-Davidson earlier this month: "At this stage in the recovery, if and when consumers do decide to pullback on spending, a product considered somewhat upscale that is relying on the marginal consumer to step up to buy (it) is in jeopardy of having a slip-up like they just did."

[JoeSixPack1]

If you think that Harley's are the "only" motorcycle, then you have swallowed the bait and the hook has been set IMO.

Your opinion has bias written all over it.

I like Fords. I don't like Chevy. Why? I'm comfortable in my Ford.

I like Harley V-twins. Evolution motors & their clones to be exact. I don't like 6cyl motorcycles or 4cyl or BMW or Guzzi. Been there, done that too!! Why? I am comfortable on my v-twin. I can wrench my own V-twin & transmission. The bike has Harley written all over it, but it's a JSP1 creation.

If you erroniously stereotype riders because of their make preference, you're the one who swallowed the bait, hook, line, and sinker. Wake up. Spit out the bait, ignor the factory and MSM hype and accept that people have differing opinions. What works for you, sucks, stinks and blows chunks for me.

"FTF" slogan has been around a long long time. Now ride safe, I'll wave! :-)

[Betis70]

Norton is making a comeback. Nice looking bike too! I like many different motorcycles (Harleys and Ducatis among them) but have always preferred Brit iron for some reason.

http://www.nortonmotorcycles.com/

[Range Rover]

I appreciate an innovative paintjob and it's usually the guys (some gals too but a higher proportion of them for some reason) that want to know HOW it was done that are willing to give the artists out there the room and freedom to work.

A friend of mine got a sample tank and fenders from some guy just starting out. He used some kind of trick with cellophane (not imbedded in the finish) to create an unreal look. Shades of Blue that look a foot deep and then inches deep...almost impossible to describe. Absolutely stunning. If I had the right bike, I'd fork over the $500.00 to have mine done. People look at the tank and fenders and laugh at the $1,500.00 price. I know what amount of time, patience and care went into it. The shop selling the set is only willing to put the parts on the "right" bike and sell to the "right" person - one that actually RIDES and isn't about posing. Principled but a bit nuts in a purely capitalist sense.

[BikerNYC]

I've come to the conclusion that there are (at least!) 2 kinds of riders-the true wind lovers and the posturers.

I agree. There, of course, just a lot of a-holes out there as well.

[taxed2death]

The effect you are talking about is "Marblization"... you can go www.HOKpaint.com to get more info. It's actually kinda "old school"... but I still use that for certain jobs. When you spray a candy (translucent) color over "silverwhite" marblizer it can look very nice. I sometimes use this as the background or "base color" for a job and then start layering graphics over it. The funny part is that it takes about 2 minutes to do that effect on a gas tank.. When that stuff first came out... dirtbag painters were telling customers that is was "very difficult" to do. I've found that a sandwhich wrapper from Subway (preferebly the temporary home of a "Spicey Italian footlong") works best. I have been known to use Cheesburger wrappers from Mcdonalds on ocassion. For all of my sssuuupppeeerrrr hi-end jobs, I take digital pics of each step of the way and email them to my clients... I am now starting to burn DVD's of the whole process so they can see why I blew a $10,000.00 hole in their wallet for a paint job. Some of my projects take months to complete.
Considering that the clear coat I use costs me $180.00 a gallon... $500.00 for a paint job would mean that I'd make more money per hour flipping burgers.

Also check out www.airbrush.com website for nice paint work.

Ciao.

[Melas]

I think you mentioned 45,000 miles a year on your bike, that makes you a serious rider at the least (biker is fine if that is how you see yourself).

Nah, 45,000 was my projected mileage at the end of this year. The bike was purchased in July of '03, so that'll only be about 15,000 a year.

I would venture to guess that most Harley owners trailer their bikes on an annual or semi-annual basis to some motorcycle venue/event, and put about 3,000-5,000 miles on their bikes, tops.

No way. Trailer trash makes up a minority of HD owners. The average HD owner doesn't even do rally events. The averager owner just rides his/her bike around town, which is totally cool.

For perspective, I also put about 45,000 miles in a year on a motorcycle, mostly on a sportbike. As I mentioned, I have multiple motorcycles that are designed to perform in specific environments, such as on-road, off-road and dual sport.

I used ride dirt bikes, but lost interest before I was even into my 30's. I think I was 25 when I sold my XR-250, and I never looked back. Finding places to ride just turned out to be a hassle.

If cruising down the road on the highway is your gig, then a cruiser is your steed. If you like to turn, accelerate, or maneuver where you must lean the bike over, you will gravitate towards more performance oriented sportbikes. If you think that Harley's are the "only" motorcycle, then you have swallowed the bait and the hook has been set IMO.

My bike's primary purpose is transportation, and that means it has to be able to carry out daily tasks, like run to the grocery for milk and eggs. That kind of riding rules most sport bikes out. Nothing against sport bikes, but sport bikes aren't suited for day to day use. The lack of luggage racks and/or saddlebags alone makes them pretty worthless in my opinion. OTOH, this morning I had 2 cases of coke netted to my rack, bread and cheese in one saddlebag, and a watermelon in the other.

My bike's secondary role is to carry me solo on long trips. Again, not something I want to do on a sport bike. I rode a Ninja from Shreveport to Dallas last year to help a friend out. Normally, I can ride that 3 1/2-4 hours still in my sleep. However, on the Ninja my wrists were hurting after an hour. After 2 hours my legs were cramping, and I'm a very short man. After 3 hours, the idea of pointing it at a tressle under a bridge, opening the throttle and just ending it all seemed like a pretty good idea.

To say that the riding position on sport bikes is uncomfortable would be to totally soft-sell the torture device riding position that just wears a body down. Sure it's areodynamic, and sure it keeps center mass bunched together, but those are obviously performance issues best left to the tract where they're needed. Why anyone would choose to ride like that on the street, for pleasure, is beyond me. Your mileage may vary.

[Melas]

Likewise, Cruisers are incapable of doing what I want to be able to do on a motorcycle. Most years I put between 16,000 and 22,000 miles on my sport bike. What does mileage have to do with anything?

The mileage stat was in answer to a poster's statement about the utility of motorcycles. My mileage is a direct reflection of the utility. ie, garage jewelry isn't very utilitarian.

Would that qualify me as a "Biker"? I hope not.

Doesn't sound like you like bikers much. Oh well, you're not the first and you sure won't be the last.

[Melas]

Real Motorcycle? Gee I think it looks like he's trying to use that oversized carb intake to make up for his undersized......

In biker lingo, that's an air cleaner. :)

[Ghost of Philip Marlowe]

I have a 92 Sportster. It's a decent bike (except for the turn-signal solenoids which only last a few months, at $80 a pop to change out), but I honestly don't know why they still keep them on the line, other than as an entry-level bike to use as a trade in on a larger HD.

They're too laid back and low to really be a sport bike (not to mention long strong, high compression V twins on a true rotary shaft don't accelerate all that quickly) and they're too small (small gas tank, narrow chassis), to be of convenience or comfort on a long ride.

They're a bad, in-between bike only good for short, casual runs. I'd rather ride my BSA Super Rocket.

[poobear]

Hey Ghost, you are mostly correct on the design, but I bought hubby a 2003 hundred year commerative Harley Sportster and it is sweet! I look goood on it! Oh yeah!

[add925]

Many reasons HD is tumbling as already mentioned in this thread: older age of HD purists, custom chopper (bar-hopper/show bike) fad, absolute glut of HDs both new & used.

Almost bought my first HD, a new Road King Custom 3 weeks ago. Took a serious look at the $19K (inclusive of tax, delivery, prep) and the fact I could get much more for my money on a new bike elsewhere and a bike is a fair weather toy.

I gave up the HD and got a "new" zero mile'03 Honda VTX1800 for less than 1/2 the price. The bike is great, but it's not for the faint of heart.

Note to HD. Honda overproduced the VTX series in '03 & '04 and have many untitled ones left. Their loss is my gain.

I suspect the 10K drop in production is more of an effort to retain value. Though not validated, I was told HD took one of the largest 1 year depreciation hits per NADA (or a similar guide). Would be curious to check into that more.

[Range Rover]

$500.00 must have been a "friend" price (seemed kinda reasonable and more what I'd expect from an Earl Sheib "you mask it" special). If I ever get around to really smoothing out that spare mustang tank I've got, I'll have him shoot it. Musta used up a bit of paint on his "show" pieces as he had different size metalflake at what appeard to be different depths/layers. I've always been partial to the metalflake finish you used to see on older amusement park rides.

I'm having him respray a tank and fenders in a blue I saw in a REALLY thick sample book at a truly OLD school hot rod shop...a Blue DeSoto once used similar but just a bit different to what you could have on a '70 Roadrunner(they're in the middle of resurrecting a 30's LaSalle next to a funky looking Hudson coupe of similar vintage...I spend what time I can spare to watch them do the lead work)

Anyway, the painter showed me a tank he's doing for this girl where he's recreated her favorite lace pattern as a background. I have no doubt she'll be pleased.

I'll check out the links too, thanks.

[Left Coast Refugee]

Go read my statement again, I said that if you think that Harley's are the "only" bike, then you have swallowed the bait and the hook has been set.

I was stating that different folks will have different opinions. Different [bore's &] strokes for different folks. If you like Harley's fine, but that doesn't make them the only motorcycle that is worthy of a look or purchase.

[rattrap]

Fashion over function, you nailed it.

[BraveMan]

I'm still waiting for Harley to pay me back the extra several hundred dollars . . .

Back in 1980, I felt the same way. The nerve of HD asking for tariffs, running up the price of my favorite Japanese bike! So I did some research to augment my bench-racing arguments. What I uncovered surprised me . . .

The protectionism is alive & well . . .IN JAPAN! The HD FXRS I bought new in 1982 cost me $5800.00 out the door (incl. tax, license & title). That same motorcycle in Japan cost over $30,000.00 in 1982. Even though they command 75% of the big bore motorcycle market in Japan, Harleys haven't gotten any cheaper in the Land of the Rising Sun. It is currently cheaper for a Japanese citizen to purchase a Gold Wing from the states (Ohio to be exact), ship it to Japan and pay the import tariff than it is to buy one locally!

Maybe you should be bitching about the lack of a level playing field instead of griping about the 80's tariffs . . .

[BraveMan]

I keep having to wipe this gooey foam from the bottom of my monitor; its the spittle of a hundred rabid anti-Harley 'motorcyclists' on this thread. Its kinda amusing . . .

It used to be owning a Harley made you a badass miscreant. Now, owning a Harley makes you a poseur and a RUB! And the pendulum swings . . .

So much vitriol, so little bandwidth . . .

[longtermmemmory]

Harley davidson is the only american corporation making motorcyles in the usa on any major level.

(I do not count the boutique makers)

The others MIGHT have a factory in the USA but the profits are going out of the USA.

For many it is no different than buying an american auto vs an import.

[JoeSixPack1]

You're twisting your own statement and misunderstanding mine.

Oh well. :-)

Ride safe.

[MarkL]

"Crotch rockets" are Japanese sport bikes. Just as a Mazda Miata was an entry level Japanese sports car.

The new GSXR , R1, 1000 ZX and CBR are "hi-end" Japanese sport bikes... much as Lexus (model number?) is a hi-end Japanese sports car.

You got that right... A lot of the series sport bikes are really works of art. Take a look at the welds on the CBR1000 swingarm... That's aluminum, you know, not all that easy to weld. And something else is that these bikes, that you can buy, right now off a dealer's showroom, would have been competitive in World Championship racing just 4 or 5 years ago, with the only change being tires. "Crotch Rocket" really doesn't do them justice.

Ducati / MV Agusta / Aprilia are Itailin sport bikes... their 4 wheeled equivilent would be Ferrari's.

Mine

I love these bikes... While my second favorite Ducati is the 888,

my very favorite ever is the classic 1974 750SS

Believe it or not... there is a large segment of the motorcycling population in the States that do not see riding a motorcycle as a social event. These folks follow AMA Superbike racing WSB and GP-1 Racing like the average Joe shmoe follows NFL (grown men shouldn't play with balls... but this is for a whole 'nother thread).

I used to keep track of World Championship GP racing, as well as AMA Superbike racing, through a subscription to "Cycle News" while I was in college. I still remember the fight between "Fast Freddie" Spencer and "King Kenny" Roberts for the world championship during KR's final year racing.

Crotch rockets are popular because the average 600cc sportbike offers more performance for the dollar than ANY OTHER MOTOR VEHICLE on this planet!

True...

Get it?

Yup!

I know plenty of "kiddies"...who are 40-50- and even 60+ years old who have club raced most of their adult lives. They STILL ride sportbikes. You could put any one of these "kiddies" on a clapped out 1988 Yamaha FZR and they would run circles around 99% of the riders out there on the latest greatest that any manufacturer has to offer.

Jim Koenig, owner of Letko Competition Cycles in Kansas City, KS, rode a Ducati Elephant to a track day, and he pretty much ran circles around everyone else. The Elephant is NOT a sport bike, more of a "Dual Purpose," or Supermotard bike

(This is not Jim or his bike, but it is an Elephant 900...)

Some folks enjoy a relaxing ride with their buddies droning down the interstate, while others couldn't care less about that aspect of motorcycling. Some others only ride in twisty backroads and need this "speed fix" to feel alive.... much like a skydiver jumps out of an aircraft.

I know that feeling well. Many years ago, I had my amature WERA racing license. And I still enjoy going to a riding school or track day, now and then... I've been to both Keith Code's CSS, and Reg Pridmore's CLASS (back when Jason was one of his instructors...) As they say, it's the most fun you can have with your clothes on...

It's not just kiddies that ride "crotch rockets" :)

I'm 43...

Mark

[JoeSixPack1]

It's all penial envy. Wear a raincoat!! I do! :-)