Artic Oscillation Blamed For Harley-Davidson’s Sales Decline

You’re the CEO and going down your quarterly earnings check list:

1. Still in business after 110 years – Check
2. Secured music talent for 110th Anniversary Party – Check
3. Number one seller of motorcycles to young adults (18-34) – Check
4. Increase 2013 first quarter revenue to $1.57B (up 10%) vs. $1.43B a year earlier — Check
5. Increase 2013 first quarter income to $224.1M vs. $172M a year earlier – Check
6. HOG shares up 2.1% to closed at $54.31 – Check
7. U.S. dealers sold 34,706 new motorcycles, down 12.7% from a year earlier – Ooops!

Colder temperatures and the wet climate set the stage for the quarterly sales miss.  At least according to Harley-Davidson CEO, Keith Wandell who stated in last week’s earnings call… “By far, the vast majority of the (sales decline) was weather related”.

Interesting.  The earnings call didn’t signal any major marketing changes for the brand, instead pinning some of the losses on external factors such as rainfall in many parts of the country, the weak economy and the unseasonably cold weather.

Are the only unemployed consumers who keep getting rained on Harley-Davidson consumers?!

Generally speaking home sales and auto sales are up.  It would seem that management neglected to remind us about Superstorm Sandy, how federal tax returns have been delayed and how fuel prices are unsettling to consumers.  To be fair some retail outlets selling spring apparel, home and garden were depressed due to wintry conditions, but looking at the weather for an impact on Harley-Davidson consumer spending seems a bit trivial.

I spent the last week in Arizona and if you plotted temperatures from dawn until noon, you’d observe an alarming warming trend.  If you extended that trend line for the next 4-months, you’ll clearly notice that ice caps will melt and the poor polar bears will be swimming more.

We’ll soon know if the good weather in the upcoming quarter provides a recovery to more normalized sales volume.

Photo courtesy of NOAA

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Hope, Change and Invest

CEO, Keith E. Wandell

I’m not talking about Obama’s State of the Union address.  Unfortunately I missed that opportunity to talk back to the TV with his long speech about “investment” plans in education, technology, roads and public sector workers.

Rather, my title reference is about Harley-Davidson (NYSE: HOG) who reported fourth-quarter earnings, a loss from operations of $42.1M, or $0.18 per share, which includes the impact of a one-time, $85.2M charge from the Company’s early repurchase of senior unsecured notes during the quarter.  H-D also reported better news on the full-year 2010 income of $259.7M, or $1.11 per share, compared to income of $70.6M, or $0.30 per share, in 2009.

Mr. Wandell (CEO) stated the company faces “significant challenges” ahead as it tries to navigate the changing economic landscape marred by 9%+ unemployment and worsening home foreclosure rates.  All of this underlines the challenges awaiting H-D in 2011 as it seeks to compete.  H-D management hopes the economy will improve, they’ve changed about all they can to manage down factory shipments and invested in workers by way of transforming labor agreements.

For the 2010 year, H-D shipped 210,494 motorcycles, in line with its target range of 207,000 to 212,000 motorcycles. Full-year shipments were 5.6% lower than 2009, when the Company shipped 223,023 units. Revenue from Harley-Davidson motorcycles for the full year was $3.14 billion, a 1.2 percent decrease compared to 2009. In contrast the full year 2009 compared to 2008, motorcycle retail sales decreased 22.7% worldwide, 25.8% in the U.S. and 15.4% in international markets.

The full transcript of the earnings call can be found HERE.

Photo courtesy of H-D Annual Report.

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The Bottom

Not to buzz kill the summer riding season, but the current recession is the longest we’ve seen in the post-war period. 

Inclusive of the current downturn, there have been 11 recessions since WWII.  Having officially started in December 2007, this month marks the 19th month of the current “slump.”

As you would expect, cut-backs in consumer spending are visible throughout the economy (see below chart) and Harley-Davidson has felt the weight of the “great recession” too.  The company released its Q2’09 results today and worldwide retail unit sales of new H-D motorcycles were down 30.1% compared to the year-ago quarter. Retail new H-D motorcycle sales in the U.S. were down 35.1% and declined 18.2% in international markets compared to last year’s Q2.  On a “positive” note the company’s earnings were $19.9M on $1.15B revenue and industry-wide retail sales of heavyweight motorcycles in the U.S. declined 48.1% for the same period indicating that H-D performed better than its competition.

In his first quarterly report to the investment community as the new President and CEO Keith Wandell stated:

“While the underlying fundamentals of the Harley-Davidson brand remain strong and our dealers’ retail motorcycle sales declined less than our competitors, it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases.”  Wendell went on to say: “We plan to ship fewer Harley-Davidson motorcycles worldwide this year than we anticipate dealers will sell at retail,” which is meant to protect the brand.

Due to the declines in retail motorcycle sales, the Company has lowered its 2009 shipment expectations by 25-30%.  Because of the lowered shipment volume, H-D announced further headcount reductions of approximately 700 positions in the hourly production workforce and 300 positions in non-production, primarily salaried headcount, including some at HDFS. This is in addition to the previously announced reduction of ~1200 positions bringing the total reduction to approximately 2,200.  H-D started the year with 10,100 employees and of course H-D shares rise on news of the additional layoffs.

Looking forward, the company will introduce its 2010 models on July 25th at its Summer Dealer Meeting in Denver.  I wonder if it’s time again for import duties or a Motorcycle Czar?  For now let’s just hope for a great lineup of motorcycles that will create some riding buzz and motorcycle passion!

Photo and chart courtesy CEA.

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A Lighter Shade Of Black

Adding fuel to the “burned out” leisure vehicle market was today’s earnings report from Harley-Davidson.

The company announced the cut of 1100 jobs and that Q4 profits fell 58% to $77.8M.  Revenue fell 6.8% to $1.29B from $1.39B in the year ago quarter.  Worldwide sales fell 13.1% in Q4 with sales in the U.S. market (it’s biggest) falling nearly 20%.  However, International sales did creeped up 0.7%.  For the full year, worldwide retail sales fell 7.1%.

Just the numbers (Q4):

1. Revenue from motorcycles only was $1.02B (a decrease of $95.4M)
2. Total shipments of motorcycles totaled 76,581 units (down 4,625 units)
3. Revenue from Parts and Accessories totaled $152.1 million (down by $13.1M)
4. Revenue from General Merchandise, (apparel etc.) totaled $69.0M (declined $4.4 million)

Harley is slicing even further new motorcycle production this year to somewhere between 264,000-273,000 to adjust to the down market.  In 2008 Harley shipped more than 303,479 motorcycles — down 8% from the 330,619 shipped in 2007.

The companies new three-part strategy is: A). to invest in the Harley-Davidson brand, B). get the company cost-structure right, and C). obtain funding for HDFS to help our dealers sell motorcycles and retail customers to buy them.  The company also plans consolidate engine and transmission plants as well paint and frame operations.  They will also close distribution facilities and discontinue domestic transportation fleet operations which will now be outsourced.

The HDFS financial arm is really struggling.  They finance more than half of the company motorcycle sales and had to write down $63M as a result of credit losses which led to a $25M operating loss in the 4th quarter alone. 

The only bright spot I could find was that the General Merchandise (apparel etc.) revenue increased 2.8% for the year to $313.8M compared to $305.4 in 2007.  I suppose people like Harley’s logo and if they can’t buy a high-priced luxury “ride” then wearing one is the next best thing?

Photo courtesy Flickr.

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Five Quarter Earning Decline At Harley

It’s not a good day to be a Harley-Davidson (NYSE: HOG) dealer.  The company reported that Q3 profits fell sharply and they tried to reassure investors that company management is taking prudent steps to manage the brand.  They also cut earnings outlook and lowered the estimate for motorcycle shipments for the rest of the year.

Harley reported that earnings for Q3 dropped 37% to $166.5M from $265M as compared to Q3 of 2007.  This is the fifth straight decline in quarterly earnings for Harley.  Revenue fell 8% to $1.42B from 1.54B in 2007.  Shipments of motorcycles fell 14% to 75,704 although they did report that international shipments were slightly up.  Dealer retail sales fell 10% this quarter as purchases of high-end motorcycles are often tied to consumer confidence and the credit market squeeze has compounded the problems.

Speaking of credit, the Financial Services segment of the company reported higher delinquency rates this quarter, a 28% decline in operating income and having to raise interest rates for all potential customers.

In a downturn climate Harley acquired MV Augsta Group, expanded on European operations, opened the new museum, rolled out MySpace and Facebook sites and hosted the 105th celebration all during this quarter.  So, given the daily doses of financial doom and credit circumstances Harley seems to be doing “okay” in trying to weather this slowdown.

Call transcript is HERE.

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