One of the more poetic, if less appetizing, attributes of swine is that when hungry, they're reported to eat 'most anything. Corncobs, swill... and apparently corporate profits as well. Because as we learned this week, used hogs are eating Harley-Davidson
Danger! Beware of HOG!
According to a UBS
You know how this story ends. With money tight, wannabe Hell's Angels are snapping up used bikes, thus crashing Harley's new-bike sales. Two months into Harley's second fiscal quarter, UBS estimates sales are down 35%. And because the second quarter is Harley's busiest by far, accounting for nearly two out of every five bike sales for the year, the Swiss banker believes this will have a disproportionate impact on Harley's earnings this year.
Um, exactly how "disproportionate?"
Enough that UBS cut its earnings estimate for the company by more than a third, to $0.96 per share. Enough that Citibank
And yet, the fact remains that while everyone else is consigning Harley to the scrap heap, no less an investor than Warren Buffett recently added Harley to the growing list of companies he's investing in -- a list that includes such blue-chip names as USG
Warren vs. Wall Street
So, who's got the better grip on Harley, Fools? Is it Warren Buffett, or the investment bankers?
As a Fool, I'm generally inclined to trust Buffett's judgment over that of the buffet of stock-grazers up in NYC. But in fact, this time they don't necessarily conflict. Creditors like Buffett are in Harley for the interest payments. Investors like you and me, in contrast, need to worry whether flagging sales will hurt Harley's efforts to control inventory and shore up its cash flow statement.
We'll get our first damage assessment when Harley reports earnings next month. Unless and until we learn the damage is less than feared, beware of feeding any more money into HOG. You might get bit.
Get yer investment motor running with more Fool articles on Harley:
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. Berkshire Hathaway and USG are Motley Fool Inside Value selections. Berkshire Hathaway is also a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire Hathaway.The Motley Fool has a disclosure policy.