Getchermotorrunnin', investors. It's once again time to head out on Wall Highway and listen to some earnings news from Harley-Davidson
What analysts say:
- Buy, sell, or waffle? Of the 19 analysts who ride herd on Harley, only one rates it a buy. Sixteen more say "hold," and the other two say "sell."
- Revenues. Sales are expected to drop 14% to $1.1 billion this quarter.
- Earnings. Profits are predicted to fall similarly, down 15% to $0.73 per share.
What management says:
For a company with such emotional ties to its customer and shareholder base, Harley does a great job of telling its quarterly news in numbers. Last year, the numbers to focus on were: 6.1 (percentage increase in units shipped), 8.6 (percentage increase in revenue), 8.7 (percentage increase in net earnings), and 15.2 (percentage increase in per-share profits).
With those numbers in hand, you don't even need to read the rest of the press release to understand what happened in 2006. Though motorcycle sales grew modestly, Harley was able to raise the prices on those bikes, hold margins steady, and reduce the share count -- all combining to concentrate the firm's profits in fewer hands.
What management does:
Of course, if you did want to crunch the numbers to confirm the above story, you'd come up with the following table, which confirms the tale. Gross margin, operating, net -- whatever level of the income statement you choose to focus on, profit margins have been rock-solid for more than a year, providing a pleasant contrast relative to recreational rivals like Arctic Cat
Oh, and the share count declined 5.6% year over year as well.
|
9/05 |
12/05 |
3/06 |
6/06 |
9/06 |
12/06 |
|
|---|---|---|---|---|---|---|
|
Gross |
39.3% |
39.3% |
39.4% |
39.4% |
39.6% |
39.5% |
|
Operating |
25.9% |
26.3% |
26.3% |
26.2% |
26.5% |
26.3% |
|
Net |
16.9% |
16.9% |
16.9% |
16.8% |
17.0% |
16.9% |
One Fool says:
So if Harley's income statement looks so sweet, what's not to like? Pretty much the same thing that wasn't to like last quarter -- the balance sheet. In the last half of last year, we saw the firm grow sales strongly at 14%. Nice. Also nice: accounts receivable rose just 12%, indicating good debt collection practices. The story breaks down at inventories, which are still growing at twice the pace of sales (up 26% on average).
With so much cash getting tied up in unsold goods, Harley had twice as much negative free cash flow last quarter as in Q4 2005, overshadowing the 15% year-over-year improvement in free cash flow seen in Q3 2006. So if there are any areas I'd like to see Harley wrench a bit tighter on Thursday, they're inventory controls and working capital management.
What did we expect from Harley last quarter, and what did we get? Find out in:
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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
