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."
The company that makes that bike went out of business. Not that much competition.
There isn't any ONE reason.
HD may have over esitimated sales.
Other bike manufactureres; metrics, new entries such as Victory, Boss Hoss, custom or custom like bikes with bigger engines, new interest in bobbers etc.
Alternative demand for disposable income.
Could be generational or fad or as mentioned above interest flowing in other directions.
Legacy impression of unreliability from decades of unreliability. I don't know if anyone in the know would say a new HD is not reliable as any other manufacturer. One couldn't write that ten years ago.
They are relatively expensive.
2005 bikes are pretty ugly.
I am sure there are other many reasons.
for their price they should be bulletproof.
I know speed sells but when you buy a Harley you are buying a piece of artwork. Yea they have some manufacturing problems but most Harley riders aren't your average biker, they take pride in what they own. The crotch rockets are popular because they are cheap and that's all the kiddies can afford. Harleys don't lose value as fast as other bikes.
pfft
So long as you like going in a straight line, a chopper like that one is fine. Those things are garage ornaments, nothing more. Some might look pretty, but they aren't much of a motorcycle.
Everybody wants to be Jesse James I guess. And I bet almost none have the tooling or skill to make a decent bike.
Hit a stone at 120 mph and kiss your butt goodbye. You will become a skid mark on the highway.
120? hehe. I've had bikes blow by me like I was standing still while I myself was going 120 on the Autobahn.
My '86 Honda Shadow has a 694 cc engine.
The fact that a couple of upstart scooter, race, and dirt bike makers could bring Harley to its knees in less than 20 years is hillarious.
Japanese bike: better quality, better longevity, better performance, better price. Oh, with Harleys, you get to be part of the legend. Whatever. Keep the tshirts, coffee mugs, and all the other overpriced trinkets that you buy while you're waiting for your ride to get out of the shop . . . again. I'll be riding.
Nothing against Harley's per se, aside from the price, just something about the stuck-up R.U.B.s that tend to ride them only on the sunniest days of the year, and won't even talk to you unless you have a harley as well.
It's brain dead to go that fast when you are not on a clean track. It's Russian Roulette.
"The crotch rockets are popular because they are cheap and that's all the kiddies can afford."
We have a winner! The most myopic statment on this thread.
Ummmmmmmm try this on for size:
"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.
Ducati / MV Agusta / Aprilia are Itailin sport bikes... their 4 wheeled equivilent would be Ferrari's.
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).
Crotch rockets are popular because the average 600cc sportbike offers more performance for the dollar than ANY OTHER MOTOR VEHICLE on this planet!
Get it?
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.
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.
It's not just kiddies that ride "crotch rockets" :)
No, not all, just 90%. Gold Wings are not ridden by too many kiddies.
Paging Harry S. Dent!
I know this is off topic, but you mentioned the show "24." This is the first season I'm watching it. I thought it was very good in the beginning, but now, don't you think it's just preposterous??? I mean, come on...the country's under a nuclear threat, Jack's been in at least 6 gunfights in the last 10 hours and you think he'd be worried that Audrey is going back to her husband? Everytime one of them starts talking about their personal involvements, my husband and I start cracking up!! And while we're at it, don't you think Jack would need a good shower by now???? You want to see a great show, run, don't walk, to rent THE SHIELD. Now, that's great TV!!!!!
"Everybody wants to be Jesse James I guess. And I bet almost none have the tooling or skill to make a decent bike."
JJ is very talented. I wish he would delve a bit deeper into something a bit more technologically advanced as far as frame / suspension design goes. Now you are seeing a whole new crew of peeps pushing this envelope.
I'd like to see you do the 70 mile round trip commute I do to work every day on that thing.
Prediction: Harley Davidson will produce THEIR OWN three wheeler. Not a bike with a side car, but a true modern three wheeler at some point in the future in order to keep the older riders riding.
(I did have a client who rode when he was in his 80's. He had a gold wing because he needed the reverser)
Now you are going to tell me your bike looks better than that one.
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