So yesterday, Harley-Davidson (NYSE:HOG) reported a 12% decline in sales, massive restructuring costs, a 30% increase in its layoff plans, and a 37% drop-off in per-share profit. Based on my previous prognostications, I suppose you think this is the point where I say, "Harley's doomed," right?
Not quite. Fact is, I'm becoming cautiously optimistic about the company's chances. Why? There's a lot not to like about Harley's first-quarter earnings report, but with the shares soaring, you gotta figure there's a little bit to like in there as well. And you're right. Let me run a few numbers by you, and let's see if you see what I see:
- Sales dropped 12% worldwide, but only 10% in the U.S. (slowing the trend of domestic sales declines).
- And those are just the "dollar-sales" numbers. Shift your focus to "units shipped," and Harley actually sold 4% more hogs this Q1 than last.
- Per-share profits plunged primarily because of one-time charges, which chopped close to $60 million off of Harley's net. Gross margins, however, increased a half point.
Granted, outgoing CEO Jim Ziemer warned that we'll see the gross slump next quarter, as margins drop back on "an expected unfavorable shipment mix versus 2008." But the real news yesterday was that ...
Inventories are coming down
Yes, you read that right. For the first time in a long time, Harley appears to be matching actions to words, and making serious progress in cutting its inventories of unsold bikes. According to Harley's press release: "The Company is proceeding on schedule with its previously announced volume reduction." And true to his words, inventories in Q1 were up only a little more than 1% over their Q1 2008 levels. Considering past Q1 comparisons, that is what we call relative success.
Now, I'm not sure that 1% inventory growth on a 1% revenue decline adds up to Harley being worth 8% more today than it sold for Wednesday. But a lot of people disagree. In conjunction with a dismal yet analyst-beating earnings report out of Polaris (NYSE:PII), Harley's news set off a rally across the automotive sector, from automakers Ford (NYSE:F) and General Motors (NYSE:GM), to car sellers America's Car-Mart (NASDAQ:CRMT) and CarMax (NYSE:KMX).
Foolish takeaway
What I do think Harley's news means, is that incoming CEO Keith Wandell, a Johnson Controls (NYSE:JCI) exec, gets to take over a company whose balance sheet is no longer careening out of control. It means Harley's got a chance to pull itself out of the gutter and get itself turned around. And that, Fools, is reason for cautious optimism.
(Am I wrong about Harley this time? Drop by Motley Fool CAPS and sound off if you think I am. But before you do, remember: I said the dividend was toast before, and now it is.)
