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Enterprise Resource Planning (ERP) was the watch word at Harley-Davidson’s Q3’12 earnings call earlier in the week.  So eloquent were the deflections it almost makes a person think they’re a SAP – for investing in SAP AG!

Harley-Davidson’s third-quarter earnings were income from continuing operations at $134.0 million on consolidated revenue of $1.25 billion, compared to income from continuing operations of $183.6 million, or $0.78 per share, on consolidated revenue of $1.40 billion in the year-ago quarter.

Through nine months, Harley-Davidson income from continuing operations increased 12.1 percent year-over-year to $553.3 million, or $2.40 per share, on consolidated revenue of $4.41 billion, compared to income from continuing operations of $493.4 million, or $2.09 per share, on consolidated revenue of $4.13 billion in the year-ago period.

“The third quarter marked a pivotal milestone in Harley-Davidson’s transformation. With the launch of the ERP production system at York, a major piece of our restructuring work is behind us. We are now focused on optimizing the system and look forward to the start of seasonal surge production early next year,” said Keith Wandell, Chairman, President and Chief Executive Officer.

Like partners in a three-legged foot race, both the management and employees were hobbled by their connection to this so-called new ERP production system at the Company’s largest assembly plant.  How ironic.  A new production system being implemented to improve manufacturing performance becomes part of the problem that resulted in comments during the call like:

  1. “Harley-Davidson’s annual new model launch was pushed to late August from late July.”
  2. “New motorcycle sales were adversely affected by a limited availability of new motorcycles in July, August and early September.” 
  3. And leaving no deflection rock unturned… “The economy remains fragile and there’s a lot of uncertainty for high-end products like a brand (Harley-Davidson) like ours.”
  4. No mention in the call about the Milwaukee HQ IT jobs outsourced in July to India (Infosys) and if that had an impact on Q3?!
  5. Nothing mention in the call whether what I feel has to be the lamest slogan (“Great Motorcycles”) on the 110th Anniversary models is creating sales issues.  It would be the first thing I’d take off the bike!

110th Anniversary Model with “Great Motorcycles” Slogan – Primary Cover

On a worldwide basis, dealers sold 61,053 new Harley-Davidson motorcycles in the third quarter of 2012 compared to 61,838 motorcycles sold in the year-ago period.  Dealers sold 40,402 new Harley-Davidson motorcycles in the U.S. compared to sales of 42,640 units in last year’s third quarter. In international markets, dealers sold 20,651 new Harley-Davidson motorcycles during the third quarter compared to sales of 19,198 units in the year-ago period.  During the quarter, retail unit sales increased 32.3 percent in the Latin America region, 9.8 percent in the Asia Pacific region and 1.8 percent in the EMEA region and decreased 4.7 percent in North America (U.S. and Canada) compared to last year’s third quarter.

Harley-Davidson Motorcycles and Related Products Segment Results Third-Quarter Results: Third-quarter operating income from motorcycles and related products was $144.8 million, a 19.9 percent decrease compared to operating income of $180.7 million in the year-ago period.

110th Anniversary Model with “Great Motorcycles” Slogan – Air Cleaner Cover

Revenue from motorcycles during the third quarter of 2012 of $774.0 million was down 16.1 percent compared to the year-ago period. The Company shipped 52,793 motorcycles to dealers and distributors worldwide during the quarter, down 14.5 percent and in line with prior guidance, compared to shipments of 61,745 motorcycles in the third quarter of 2011.

Revenue from motorcycle parts and accessories totaled $233.7 million during the quarter, down 0.8 percent, and revenue from general merchandise, which includes MotorClothes® apparel and accessories, was $75.6 million, up 9.1 percent compared to the year-ago period.

Gross margin was 34.7 percent in the third quarter of 2012, compared to 33.7 percent in the third quarter of 2011. Third-quarter operating margin from motorcycles and related products was 13.3 percent, compared to operating margin of 14.7 percent in last year’s third quarter.

For the full year 2012, Harley-Davidson continues to forecast a five-to seven-percent increase in motorcycle shipments compared to 2011.

My view is that they are not done transforming the company and it’s going to take more time to right the ship while getting the ERP humming to turn the management business vision into a reality.

Photo courtesy of SAP and H-D.

Note: In 2006 H-D selected SAP to help them manage and optimize their growth.  In June 2011, there was an article in Forbes referring to H-D involvement in SAP’s Community Network.  It’s unclear if the “new” ERP implementation is an updated rollout of a newer version of SAP or a major transition to new ERP vendor. 

Full Disclosure:  I have no investment in or hold any SAP AG or Harley-Davidson stock.

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H-D Advertising in India

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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It was a Dark Sky Film made in 1970.

The film also appeared under the title Nam’s Angels.  The plot included a biker gang, the Devil’s Advocates who were recruited by the CIA to execute a daring rescue behind enemy lines in Cambodia. After customizing their Yamahas into combat-ready death machines, the gang roars into action on this unlikely suicide mission. Heavy casualties ensue. I kid you not.

I’m not sure if the movie did much if anything to propel Yamaha sales, but this week there are reports the Japanese motorcycle maker (Yamaha Motor) has plans to close seven factories globally with a loss of 1,000 jobs.  This is all in an effort to bounce back from a  Y216.1 billion ($2.7 billion) annual loss in 2009.  Yamaha is the world’s second biggest motorcycle manufacturer after Honda and this streamlining is in addition to a previously announced 10% reduction in the company’s global workforce of 17,000 which is underway.  This is Yamaha’s first loss in 26 years.

Specific plant closure include 5 of its 12 domestic factories by 2012, all in Shizuoka prefecture (central Japan) who now produce parts for motorcycles, marine products and buggies.  In addition, Yamaha will close a motorcycle factory in Italy and a marine products plant in Florida.

It looks like the only motorcycle manufacture beating down the 2009 slowing motorcycle trend was BMW Motorrad.  New products like the K1300GT, S1000 RR Superbike along with the opening of 8 new dealers in the past 5 months has them bullish on the future.

An interesting side bar on The Losers — it’s playing on a television in the background of a motel-room scene between Bruce Willis and Maria de Medeiros in Pulp Fiction. Clearly Quentin Tarantino is one of its fans.

Photo courtesy of Dark Sky.

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Keith Urban

Keith Urban

Whoa!  My two previous posts on the current state of the Harley-Davidson state was clearly like a sad country song in an old rundown coffee shop, yup one of those “bummer zones” so, we need a change of scenery.

Speaking of, have you been to Nashville?  If you haven’t been to the Country Music Hall of Fame and Museum you’re the worse for it.  Yeah, you may think you don’t care about boot-kickers, but you’re missing out on the history of America.  From slavery to the Dust Bowl to Elvis and the tragedy of the Williams family.  To go to the Country Music Hall of Fame and Museum is to become a fan.  And to insure that it lives on, Vince Gill proposed a “All For The Hall” event where every artist cough up one night of revenue for the Hall.

Keith Urban is one who took him up on it and at the Sommet Center (the Staples Center of Nashville), he hosted some of country music’s finest as they raised money for the Hall.   Keith and his band played one my favorites, “Who Wouldn’t Wanna Be Me“:

“I got no money in my pockets
I got a hole in my jeans
I had a job and I lost it
But it won’t get to me”

That’s the power of music.  It crowds out all the negative and replaces the bad thoughts with joy and inspiration.  And when you watch Keith Urban ride his Harley and hear him wail on his guitar, you’ll smile with a good feeling.  I don’t know about you, but after yesterday’s jaw-dropping news from H-D and the layoffs at Buell I needed some “sunshine blown up my skirt.”

Life.  It’s full of hopes and dreams.  And victories and losses.  What gets you through is your friends, family and the music.

Photo courtesy of Keith Urban.

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BarometerMy how things change.

A year ago with gas prices jacked to the $4.00 a gallon level scooter sales exploded.  Especially the 51 cc-to-155cc category as it was a break out year.  Dealers over ordered and now inventories are high.  2009 predictions seem to indicated the scooter party is over.

And speaking of party over… That “hissing sound” from UBS analyst, Robin M. Farley was the air deflating the motorcycle maker’s tires… i.e. earnings and stock price when she stated that Harley-Davidson’s spring sales have hit a wall.  Sales plummeted 35% in April/May compared to a year ago in this critical time of the year.  UBS isn’t without its own set of issues though.  Late last year Sr. Executive Raoul Weil, head of wealth management division was indicted for helping 20,000 clients conceal assets and avoid paying taxes so, one has to keep a wary eye on these so-called banking/finance veterans!

I’m sure the skillful press and public relation folks at H-D are digesting all of this and taking some of Robert S. McNamara (Secretary of Defense during Vietnam War) advice… “Never answer the question they ask; only answer the question you want to talk about.” It’s the language of sales and selling on message.  It feels like we’ve been mugged and drugged by marketing to the point we should question any manufactures trustworthiness.  But, that’s me.

Adding insult to injury, Harley along with other motorcycle manufactures can’t catch a break by the feds and were excluded from the ‘Cash for Clunkers’ bill.  The bill looks to favor owners of pickups and SUVs…just what Detroit needs to unload those overstuffed lots.  Of course the new vehicle needs to be more fuel-efficient (2 MPG) than their old guzzler to receive the $3500 credit/coupon and if you can find something that is 5 MPG higher you’ll get $4500 credit.

Now about McNamara…

Photo courtesy Wikispaces.  Full Disclosure: Editor has no investment in H-D stock.

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pink_slipI’m fascinated by the decline or some might say the “fallout” of the Harley-Davidson management team.

HD announced a couple days ago that effective immediately the CFO, Tom Bergmann was leaving the company.  Labeling the hasty departure with the all too familiar and politically correct words; “seeking other career opportunities” to describe his abrupt exit.   Mr. Bergmann had been CFO since 2006 and in January 2009 it was announced he would take on the additional responsibility as president of Harley-Davidson Financial Services (HDFS) after Sy Naqvi’s sudden departure.  So it’s rather odd that on the very first day that the new CEO, Keith Wendell comes to work Mr. Bergmann would choose it as the most optimal time to leave?! 

I smell “Mr. Clean”… and I even provided Keith a 10-step success plan, but forcing out the CFO in the first 8 hours on the job was not on the list!

On the day of his departure, Tom had just completed a transaction that would provide about $1B in funding capacity that the company could use for consumer lending in 2009. The new funding was important, since the firm finances roughly one of every two HD motorcycle purchases.  HDFS increased the size of an existing $500 million asset-backed commercial paper conduit facility to up to $1.2B, based on the level of outstanding receivables. The facility expires April 29, 2010.  In addition, Tom negotiated to have replaced a 364-day, $950M bank credit facility expiring July 31 with a new 364-day, $625M credit facility expiring April 29, 2010. Together, the two agreements provide additional available credit of up to approximately $375M over the term of the agreements for the lending activities of HDFS. 

Getting the funding covered is a monkey off their back and a fairly impressive accomplishment to tell the new boss on day #1, but to turn around and say “Hasta la vista, baby”…I’m outta here.  WTF?  Whether Mr. Bergmann was run off the road or decided no more black leather, but instead it’s time for touring suits with leg guards and time to gear-up for a sound different than a low rumble…we’ll never know.

The HD press release stated that Controller John Olin would serve as interim CFO at the company.  Bergmann also served as President of Harley-Davidson Financial Services (HDFS) and Treasurer Perry Glassgow would take over on an interim basis.  Lastly it named Mark Kornetzke, senior director of financial reporting, as the company’s chief accounting officer.

Photo courtesy Henny Ray Abrams/Reuters.

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trainThe money train…. Wow … I think I just had a flashback. A warm sunny afternoon sitting on the hill overlooking the river. The birds singing in the trees, everything is so bright and colorful.  Oh wait weren’t we talking about Harley-Davidson?

Harley announced today its second round of job losses since the beginning of the year with a cut of up to 400 more positions, including up to 80 at its Milwaukee-area factories over the next two years.  The company reported a 37% drop in first-quarter profit as net income fell to $117.3 million, or 50 cents a share, from $187.6 million, or 79 cents, in the year-ago period. Revenue declined to $1.29 billion from $1.31 billion. Harley’s worldwide motorcycle sales declined 12%, and U.S. retail sales declined nearly 10% from last year’s first quarter.

And speaking of riding the money train…we learned this week that the new Harley CEO Keith Wandell, will receive a base salary of $975,000 plus other compensation according to SEC filings.  Wandell, replaces current CEO James Ziemer on May 1, and will also participate in the company’s short-term incentive plans with a total opportunity of 120% of his base salary and a maximum payout of 240% of his base salary with a cap of $3 million, his 2009 payout pro-rated based on salary earned for the year.  For comparison purposes, Forbes provides details on Ziemer’s comp plan is HERE.

Talk about a nice run up from his Johnson Controls base salary of $441,670 plus bonuses.  However that number is a bit misleading because compensation for the “chief” executive typically includes: salary and bonuses; other compensation, such as vested restricted stock grants, LTIP payouts and perks; and stock gains which is the value realized by exercising stock options.  In truth, Wandell’s total compensation as reported by Forbes was $9.7M.  Does anyone think he took a salary cut in moving to Harley?  Might I suggest it’s an over payment for services rendered?  Shall we just chant “U.S.A.!, U.S.A.!” and feel good that CEO pay is more than an order of magnitude above the average line worker?

I suspect that Wandell is pinching himself …paid nearly a $1M to lead the premier American based manufacturer of heavyweight motorcycles yet somehow landed the gig without a riding endorsement or owning a motorcycle…excuse me for a minute while I go puke.

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