Harley-Davidson Profitable As It Manages Down

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In spite of continued high unemployment numbers, homebuilder confidence at a 15-month low and very tight credit,  Harley-Davidson Inc. (HOG) reported that its second-quarter 2010 net income rose to $71.16 million or $0.30 per share, from $19.75 million or $0.08 per share in the same quarter last year. The biggest money-maker was in the Financial Services Segment as it became profitable to lend money for motorcycle purchases once again.

Income from continuing operations were $139.3 million, or $0.59 per share, compared to income of $33.4 million and earnings per share of $0.14 from continuing operations in the year-ago quarter. In the second-quarter the financing arm returned to the black and posted a profit of $60.8 million, after posting a loss of $90.5 million during the same period a year ago.

Net revenue from motorcycles and related products were basically flat at $1.135 billion, compared to $1.136 billion in the year ago quarter.  The company expects to ship 53,000 to 58,000 motorcycles in the third quarter and reiterated its expectation to ship 201,000 to 212,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2010, a reduction of five to ten percent from 2009.

Harley-Davidson now expects gross margin to be between 32.5% and 34.0% for the full year, versus the prior estimate of 32.0% to 33.5%. The Company continues to expect full-year capital expenditures of between $235 million and $255 million, including $95 million to $110 million to support restructuring activities.

At the press briefing Keith Wandell, President and CEO of H-D stated:

“Harley-Davidson is making steady progress at executing its strategy to deliver results through focus,” he continued with “We are seeing the benefits of our restructuring and continuous improvement activities reflected in our earnings performance.”

Clearly declining motorcycle sales are the biggest reason for Harley’s struggles and the company’s solid Q2 is not all that reassuring when you remove the “bank” profitability a.k.a. financial services.  New products launch on July 27th which holds some promise along with the international expansion into India.

Updated: July 20, 2010 — John Olin (H-D CFO)  stated during the conference call with investors today that many strapped Harley customers wound up selling their motorcycles during the recession. This has created a glut of used bikes on the market, causing the ratio of used-to-new bike sales to rise to two-to-one in 2009 from one-to-one in 2007.

Photo courtesy of H-D.

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