BREAKFAST WITH THE FOOL
Tuesday, October 12, 1999
"Don't talk unless you can improve the silence."
-- New England proverb
Harley-Davidson Picks Up Speed
Richard McCaffery (TMF Gibson)
Heavyweight motorcycle maker Harley-Davidson (NYSE: HDI) roared to record sales and earnings for the third quarter based on high shipment volumes spurred, in part, by the introduction of seven new Softail models.
Harley-Davidson posted Q3 sales of $623 million, up 21% from the same period last year, and earnings of $0.42 per share, up 25%. The performance was good enough to beat First Call/Thomson mean estimates by a penny.
The Milwaukee company shipped 42,615 Harley-Davidson motorcycles during the quarter, up 17% from last year. Shipments of its Buell motorcycles totaled 1,984 units, up 8.6% from last year. Shipments have been so strong, in fact, that the company is boosting production of Harley-Davidson motorcycles to 175,000 units this year, up from an earlier goal of 167,000 units. The company plans to produce 193,000 Harleys next year.
The company that made hogs famous for more than spareribs has brought shareholders along for the ride. So far this year Harley stock is up 19.9%. It closed yesterday at $56 9/16 and traded as high as $64 1/16 in the summer.
Worldwide, the heavyweight motorcycle market is booming and Harley-Davidson, the signature name in this class, is ahead of the curve. For this year, the number of heavyweight motorcycle registrations in the U.S. grew 22.7% through August, while total Harley registrations grew 25.7%. This means the company is grabbing market share and growing brand recognition.
Harley hasn't used the boom as an excuse for getting soft in the middle. Gross margins for the latest quarter dipped slightly because of added costs related to the new product launch, but operating margins remained constant at last year's record level of 15.4% of revenue. Q3 sales grew at nearly twice the rate as receivables, and safely ahead of inventory.
One item for shareholders to keep an eye on, however, is growth in finance receivables, which represents domestic dealer accounts receivable (unpaid customer bills) being collected by an outside agency.
Because of the way the company has structured this item, finance receivables don't show up on the statement of cash flows under operating activities, but as investing activities. Investors need to look for it there and not assume it doesn't exist. Over the last year, finance receivables grew 24%, slightly ahead of sales. Ideally, you'd like to see receivables growing slower or at least no faster than sales.
News to Go
Chip maker Intel (Nasdaq: INTC) and mobile phone company Nokia (NYSE: NOK) have reached an agreement to jointly develop set-top boxes that allow the Internet to work with digital television sets in Europe, Reuters reported.
Car and industrial rental equipment company Hertz (NYSE: HRZ) posted Q3 net income of $139 million, up 17% from a year ago. Earnings drove in at $1.28 per share, ahead of First Call/Thomson estimates by three cents. Frank Olson, Hertz chairman and chief executive, announced plans to retire at the end of the year.
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