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."
But that IS their market....
Come back when you got 35k to spend on a Real motorcycle. lol
Very true! I watched an entire restaurant of waitresses run to the window to watch a Ferrary pull up with a middle-aged guy in it. They all laughed when one said: "Sorry about your penis."
I'm buying a BMW K1200GT this year. Tell me that isn't a real motorcycle....
I prefer racing cars not bikes. Doing over 100 mph on two wheels is too dangerous. If you live through it, great.
Just fixing it to reflect the a-holes that ride around my neighborhood when I and my family are trying to sleep.
Pulling up on a Harley is like pulling up in a Vette.
ha
ha
ha
Some of us who ride a Harley just sit back with amusement at the "imiitators".
But in all seriousness, the only thing that truly matters about riding a motorcycle is to keep the rubber side down. After that it is all opinion.
As for the Harley advertising campaign, it is just proof that they are using a Madison avenue firm because they are focusing on selling too many t-shirts and not enough motorcycles.
Do you ride?
"As for the Harley advertising campaign, it is just proof that they are using a Madison avenue firm because they are focusing on selling too many t-shirts and not enough motorcycles."
Heh. Exactly.
BMWs: overpriced, but they make a fine all-around machine.
Not anymore. Sold my bike after my buddy got creammed (killed) turning around at the end of the driveway.
Old Hardley trumps new Lexus?
Sorry about your buddy. It's a risk of motorcycling, but it's a risk I'm willing to accept.
Out of curiosity, when was this?
Depends on the lady.
A long time ago, my other friend I watched fly over the back end of a car and hit is head on the curb after some driver pulled out from a gas station right in front of him. I'd get another bike but only to ride the highway and it would be full dresser with front fairings and the works.
Personally, the fat tired $40k+ machines are a real turn-off as are the "I spent $15k on billet geegaws" bikes. Plenty of clowns out there who don't even bother to take a motorcycle training course (or even get a license) but they'll spend over $40k for the bike, thousands on custom leathers and $10 for a "helmet" and then spend a few hundred getting THAT custom painted....
Me? I'm unloading a bunch of rolling baskets (a few BSA's, a Norton, a nice Bonnie and a MotoGuzzi) to make room for a '51FL I found in a barn a few weeks ago. Yes, they're still out there but you need to be REALLY lucky now to unearth one. I just know that some shiny "chopper" riding fool will ask me what it is when I get it on the road. Can't tell you how many times I've had to tell some weekend Brando that I was riding a Triumph and yes, it actually IS 40 years old....and it's the newest bike I ride.
Wings are nice bikes. Just don't fall asleep on them. :P
What was the 120 mph comment about?
My friend with a Z1 hit a stone at about 120 mph and almost went down. He was a test driver for Lester Tire $ Wheel and pulled out of the crash. That would have been 3 for 3 but Rich was a real pro driver.
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