POST OF THE DAY
Harley-Davidson, Inc.
4Q2007 Conference Call Notes

Related Links
Discussion Boards

By dcanfiel
January 30, 2008

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

A recording of the 4Q2007 conference call can be found at the Harley Website. It's 65 minutes long, with about 30 minutes being HOG officer prepared statements, and the balance being questions.

For those waiting to pull the trigger, or the plug, there was nothing earth-shattering to make you pull any harder, or softer. It was pretty mundane, actually, and not very exciting. I report here the things I thought were of interest, and not included in the SEC filing. For the numbers, look at the filing. Since they're readily available there, I don't repeat them here.

Harley is looking for a new CFO.

Bike shipments for 4Q07 were 81K, down 12% from 4Q06. US bikes were down 20%. International bike shipments were up 20%. Harley anticipates faster international sales growth than domestic growth. Note that it is easier to grow sales 20% with only 10,000 units than 300,000 units (numbers are for example and not representative of actual Harley shipments). Harley continues to push foreign sales, which convinces me more that they see saturation of the old fat bald US market.

Revenue per unit (bike) increased $590 in 4Q07, due mainly to the weak US dollar and product mix. And here I thought weak dollar was bad.

Product mix was 21% Sportster for 4Q07 versus 16% ofr 4Q06. It was 21% Sportster for full-year 2007, versus 18% for 2006. This suggests to me people are buying the lower end bikes, either for economic reason, or because there are more new riders.

General merchandise grew 4% for 4Q, 10% for the year, due mainly to international sales, 105th year merchandise, and women's sales. Note that in bad times, people may not buy a bike, but they'll still buy expensive merchandise.

Operating margins were 35% for 4Q07, versus 38% for 4Q06. This was due mainly to the fixed cost being spread over fewer bikes.

Large motorcycle market was down 6% in 2007.

HDFS
30 day delinquency rate was 6% at YE07 versus 5% at YE06. A comparison to general auto/motorcycle delinquencies is required here (i.e. GMAC), but I don't have a comparison number. I'll bet HDFS is lower.

Retail loan share for new Harley bike sales grew to 55% in 2007 from 49% in 2006.

They expect to break even on securitizations in 1Q08.

From HDFS, dealers want two things:
1) Better experience for customer (whatever that means)
2) Easier to do business with
They changed their business model in 3Q07 to lead to faster credit decisions. They also expect higher delinquency rates in 2008.

Ziemer
Weak US market was the challenge for 2007 (wow, what a revelation!) The bright spot is international sales.

Ziemer feels confident that they are taking the correct actions for long-term viability (another revelation)
* Protecting Brand - they have a powerful brand
* 2007 bike shipments were below what they anticipated 2007 sales would be (i.e. reducing dealer inventory)
* Inventories are lower that last year
* Bike shipments in 2008 will again be lower than anticipated sale - so much for channel stuffing
* New product news this spring - Cross Bones - newest Dark Custom. Harley is trying to charge the market with new introductions
* Expect lower operating margins in 2008
* We're ready when economy rebounds
* Will develop international markets
* "Keeping the faith"\
* Generating significant cash - reinvesting in the business with capital investments and stock buybacks. They believe the stock is undervalued.

Q&A
* Harley is investing heavily in product development (I read that as new models).
* New dealer allocation system introduced in 2nd half of 2007 to get the bikes in demand to the right places.
* Union negotiations: Milwaukee contract expires in March, guidance does not include a work-stoppage.
* 2008 will be a challenging year. No guidance on how much shipments will be short sales in 2008.
* Harley is acquiring international distributors so Harley can control the network and operate them for long-term health.
* Market share was down slightly, but they don't run the business for market share. They have 3X more market share than their closest competitor.
* Used bike prices stabilized in the second half of 2007, indicating that cash-conscious consumers were buying used Harleys rather than new ones.

Also of note: August, 2007 was a bad month. No mention of and STHD FatBob sales during that month. Hey, I was doing my part for my company.

Overall, it was an upbeat call, but I would expect nothing less. They mentioned several times the development of their people. They also focused on their marketing efforts, including the Harley museum, and Bruce Springsteen at the 105th celebration this summer.

Respectfully submitted for your consideration,

dcanfiel