Posted on 04/13/2005 11:55:31 AM PDT by 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."
I think of Harley riders today the same way I think of Honda Gold-Wing riders. At least the Honda riders aren't trying to be something they are not!
The Harley riding men I see these days are nothing but a bunch metrosexuals trying to elevate their manhood similar to buying a pit bulldog to drag around!
OK! Ok! ..there may be an exception or two! hehe
I don't know any Harley riders that haven't owned a japanese bike at some point in their lives. Heck, they all learned to ride on one it seems like. The reason I admire any scooter rider is because they "get it". I know they all share my unexplainable passion for the freedom and wind. I toured the United States back in '84. 40 States, including every State east of the Mississippi. I smelled every whiff of air, not like watching everything through a windshield...like a T.V.
Nope, S&S and other after market motors and parts.
Actually, HD requested the tariff to be lifted prior to it ending.
I just bought 100 shares on the market overreaction.
They're actually very reliable - have been since getting the company back from AMF. Harley, aside from building quality bikes - in America, are part of the spirit of America. From an idea to an icon. During WWII, Harley devoted its entire production to the war effort. So to me, straddling a Hog is embracing everything great about this nation. Ride what you will, but riding a Harley is riding American Pride. And yes, I will have a piece of Apple Pie too.
You are close...very close.
A lot of people see these TV shows and think it's easy to build a composite bike.
The quick answer is "Yes" it's easy to build one.... but to build a quality composite...one that you can actually put 15,000 miles a year on and not a "bar-bike".. takes some know-how.
Without mentioning names... there is a conmpany out there now selling a really cheap crappy "rolling chassis" and the hot ticket (or some would believe) is to buy a Buell that's a few years old (their resale value sucks)...and transplant this engine into the chassis.
You now have a real chopper.
Not.
Too many back yard mechanics are building these things left and right... this is STARTING to put a serious wallop into
HD sales. This trend will continue for some time.
It's funny how insurance companies in my state won't touch these composited for under $6000.00 a year to insure them.
The rage WAS to go out, buy a brand new HD...have it "stolen"... strip it...and buy a hi-end chassis from a reputable manufacturer... and use your "stolen" parts to assemblew your new custom bike.
Thankfully DMV in my state REALLY got smart and requires reciepts for EVERY single nut and bolt and add on you use to build a composite. Sooooooooooo "Scumbags beware".
Another new twist is that there are literally hundreds of "bike shops" springing up everywhere... everyone all of a sudden thinks they're a bike manufacturer. The real test is to take one of these bikes (adult mini-bikes) out and put some miles on it. I've worked on $70,000 - $125,000.00 composites from some of the top names in the country...
most of them...about 80% are total junk. Buyer beware. There are probably less than 10 (IMHO) composite manufactures out there that can actually produce something you can put 10,000 miles a year on without grenading it.
Most of what you see in those TV shows is fantasy. As someone with a LOT of "inside scoop" on this matter... I just gotta laugh at how gullible the average person is..... to fork over their hard earned cash to "Billy-Bob-Joe-Ray bike builder"...who will take your money faster than crap squirting out of the wrong end of a goose...and offer little or no warrenty.
Oh well, who was it that wrote "There's a sucker born every minute"?
You're absolutely right. There never would have been a 700cc bike if it weren't for the Harley tariff. I think it was rescinded several years ago though.
I'm still waiting for Harley to pay me back the extra several hundred dollars I paid for my '84 Ninja 900 due to the over-749cc protectionist tariff.
Actually, not only was it recinded, but Harley went to Reagan 1 year earlier than it had, to say he could lift the tariff. They only took the necessary time needed to achieve the quality it sought. Then, production couldn't meet the demand, as a result. Been going strong ever since...
If I remember correctly the thing that saved HD was a tariff on "rice burners" over 700cc or any imported bike. I don't believe that was ever rescinded.
It was recinded. Funny.... all the Japs did was stamp the engine cases 699 cc. I know Yamaha did this on a few of their bikes to skirt the issue.
I do own that bike, but the 2004.
please remind my husband of that. he thinks he needs a hd
Actually I think the completely SILLY PC campaign has also not helped. It is like they are targeting the pathetic looser yuppie market. Who wants to be part of that.
There is also the competition from the OBVIOUS copycats from japan. V-Twin has been replaced by "cruiser". ( Does anyone know if harley succeeded with their copyright of the sound? )
I think it also matters that the motorcyle is a luxury item and peole are not goint to spend $25,000.00 on a motorcycle if they keep hearing about illegal aliens taking jobs and outsourcing jobs to india.
Got $50k laying around?
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