Well, I suppose the recession was bound to hit Harley-Davidson (NYSE: HOG ) sooner or later. After five straight quarters of squeaking past analyst estimates, the hogmeister finally wiped out last quarter, "missing earnings" by nearly a nickel.
But will it pick itself up, dust off its chaps, and get back in the saddle in fiscal 2008? We'll get our first clue when Harley reports first-quarter earnings Thursday morning.
What analysts say:
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Buy, sell, or waffle? Of the 17 analysts who ride herd on Harley, only four think it's a buy. A full dozen rate this hog a hold, and one would even sell it.
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Revenue. Analysts predict a meager 4% rise in sales to $1.23 billion.
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Earnings. Profits are predicted to rise in tandem, up 4% to $0.77 per share.
What management says:
By now, you're probably tired of hearing me rail against Harley's rising inventories, right? Well, you're in luck. After badly missing estimates last quarter, selling fewer choppers and earning fewer profits, management has finally come around and decided to take action to chop its inventory levels.
CEO Jim Ziemer assured us that: "For 2008, the company once again plans to ship fewer Harley-Davidson motorcycles than it expects its worldwide dealer network to sell." Translation: "We're gonna sell what we already made before we make more stuff that doesn't sell."
What management does:
Whether you like the idea or not, it's hard to argue that what Harley's been doing has worked. At every level of the income statement, rolling gross, operating margins, and net margins continue their 18-month-long slide.
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Margins
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9/06
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12/06
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4/07
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7/07
|
9/07
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12/07
|
|
Gross
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39.6%
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39.5%
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39.1%
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39.0%
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38.6%
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37.9%
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Operating
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26.1%
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25.8%
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25.2%
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25.3%
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24.4%
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23.2%
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Net
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17.0%
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16.9%
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16.4%
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16.5%
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16.0%
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15.2%
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Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
In the years I've been writing about Harley, I've received more emails than I can count telling me that I don't "get" the company and its consumers. For the record, I don't argue otherwise. I'm a truck guy myself. The only person in my family who rides a bike is my four-year-old, and she's partial to a pink Huffy "Disney Princess" edition with training wheels. (I don't believe Harley makes a competing product.)
So when readers write in and tell me that Harleys are different -- that their inventory doesn't go stale or out of fashion like khakis at the Gap, well, I'm open to the argument. Now it's time to put it to the test.
As Harley begins to work down the older inventories it's accumulated, we'll start to get an idea of how much the company has to discount those bikes to get them to move -- that will show up in gross margins. Meanwhile, by building fewer bikes (as it sells down what it's got already), we could also see margin erosion at the operating level, as Harley factories lower their utilization rate (the fewer bikes you build, the less efficiently the factories run).
The good news is that even if there is margin erosion, Harley will probably continue to maintain a comfortable distance between its profitability and that of rival "fun" vehicle builders such as Honda (NYSE: HMC ) , Polaris (NYSE: PII ) , and Arctic Cat (Nasdaq: ACAT ) . And I'd wager good money Harley won't see the levels of profitability (or lack thereof) endemic among its four-wheeled cousins at Ford (NYSE: F ) and GM (NYSE: GM ) . The real question is how big that differential will be.
What did we expect out of Harley last quarter, and what did we get? Find out in:
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