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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.

All Rights Reserved © Northwest Harley Blog
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Auction Preview

“The sun is get’n ripe and the water’s get’n warmer”
“The days are get’n longer , them shorts are get’n shorter, you won’t hear me complain”
“It’s a summer thing”

It’s the lyrics from country’s new comer, Troy Olsen who sings a song which highlights friends, beverages and flotation devices on the water.

And speaking of flotation…it’s well known that most Harley buyers use financing from Harley-David Financial Services (HDFS) when they purchase a new ride.  Not so long ago, H-D applied logic to its loan portfolio that was eerily similar to the housing bust.  The company used its in-house finance unit to chase after subprime borrowers, making it easy for them to buy $20,000 chrome-sters with no money down.  The risky lending—which later forced Harley to take million dollar write-downs — along with rising default rates created major problems.  Customers with low credit scores weren’t the only issue for HDFS.  Turns out those “creditworthy customers” walked from those no-money-down financing offers and along came the delinquencies as repossessions reached new levels.

Silvio Perez (Manheim) - Starts The Auction

In steps Manheim — a worldwide leader in the sale of used vehicles.  Being reported as a first, Manheim Seattle helped execute a massive auction sale of Harley-Davidson motorcycles which were ‘rounded up’ from the various repossession parts of the U.S.  The auction occurred last week and we had a man on the inside watching some of the action.

Essentially two auctions took place over a two-day period.  The first day was exclusive to H-D dealers and the second was open to any type vehicle dealer.  Of the 60+ motorcycles on day #1 about 40 sold with the remainder falling short of the minimum required bid.  Tells you a little about where the dealers are in terms of inventory and price right now.  The GM from Downtown H-D picked up a great buy on a Springer Screamin Eagle.  The 20 or so unsold were added to the second day of bikes scheduled for auction to all vehicle dealers.  The second day motorcycle inventory list were older bikes vs. the first day.  However, most but not all sold.  Several stalled at the minimum required and the auctioneer prompted the lady from HDFS as to any movement on the minimum bid as she looked to be pulling her hair out with the fast action pace of the event.

Crowds Swarm the Auction Motorcycles

The motorcycle repossession/auction business is somewhat of a hidden market business which the general public knows little about. Given that the housing market remains stressed with foreclosures and short-sales being high we can expect motorcycle delinquencies to remain high and as a result firms like Manheim will continue to flourish.

Photos courtesy of John (aka.“Burn-Out”) and Manheim.

All Rights Reserved © Northwest Harley Blog

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That was the key take away in today’s Q1’10 earning’s call as the stock price soared.

CEO, Keith Wandell stated:

“We are seeing directional improvements in our dealers’ retail motorcycle sales as we enter the key selling season.  At the same time, given the global economic uncertainty that still exists, we believe conditions will remain challenging throughout the year, and we continue to factor that into how we manage the business.”

Net revenues for the quarter declined to $1.04B from $1.29B in the same quarter last year.  Net income was $33.33M or $0.14 per share, sharply lower than $117.35 million or $0.50 per share in the prior-year quarter.  The company noted that Q1 earnings included operating income from H-D Financial Services of $26.7 million, marking a return to profitability for the company’s financial subsidiary.

Under the motorcycles and related products, revenues for H-D motorcycles were $808.81M, down 20% from $1.01B in the year-ago quarter. Shipments of H-D motorcycles totaled 53,674 units, a decline from 74,670 units last year. Domestic shipments dropped to 35,668 units from 52,710 units in the prior-year quarter, while exports fell to 18,006 units from 21,960 units in the same quarter of last year.

Using an analogy from Iceland’s Eyjafjallajokull volcano, I’d like to see less ash and more lava coming from Harley, but it was a stable quarter!

Photo courtesy of Masternewmedia.org

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Keith Wandell Resignation Letter

The news was expected.

Harley-Davidson CEO Keith Wandell, citing the pressure of obtaining a motorcycle endorsement and regularly commuting with “cagers”, today announced he is retiring at the relative young age of 60.

It’s through my privileged relations with some of the major actors of the motorcycle industry that allow this blog to offer you an exclusive first look of the resignation letter below:

Date: April 1, 2010
To: Harley-Davidson Employees
From: Office of the President and CEO, Mr. Keith Wandell
Subject: A Letter To My Colleagues

This morning I am announcing my intention to retire by the time of our next board meeting.

It has become clear that in light of the continuing leadership doubt, and the unprecedented level of negative attention about my compensation package, the company – and each of you – has had to endure, that the best thing I can do for you, our dealer network and our shareholders is to retire.

Some of you have done an extraordinary job serving our customers despite the almost daily media distraction.  I feel strongly that the attacks about my riding experience and eight month compensation package of $6.4 million are unjustified, but unfortunately, they show no signs of abating. A simple reality check tells me that people are spending more time reading about the acrimony and not enough time buying our motorcycles from the newly reduced product line up.

What matters is not what happens to me, but it’s really about the remaining employees of Harley-Davidson, our employed customers and our shareholders. The whole is greater than the sum of any 2 parts and clearly more important than me “feeling good about where we are” as a company.   Even in the midst of the first quarterly loss in 16 years, the HDFS liquidity freeze, the India expansion, the Buell distractions, the union worker delinquencies in PA., and the MV Augusta sell-off strategy… my main regret in this short, but well paid, tenure, is that I will not be here to realize the potential of this bold strategy to return the company to a “new” normal.

I will retire when my successor is appointed. The Board has begun a high profile and expensive search for a new CEO, led by the head of the Board’s Compensation, Management Development and Succession Committee. I, of course, will do everything I can to assist in this transition. I will make sure that the company firmly “stays the course” until my successor is chosen.

Let me say that it will not be easy for me to leave. I take enormous pride in obtaining my motorcycle endorsement and I’ve met a bunch of new lunch-time riding buddies.  It’s been said that the true test of a leader is the performance of the company he leaves behind. On that score, I feel my short, but well paid legacy and public record are available for all to read.  The Board has asked me to assure you of their full support as we go through the transition and into the future.

To some of you, I offer my heartfelt thanks for the extraordinary opportunity to work with and lead you during this short tenure that I’ve been in Milwaukee. Of course I will continue to see some of you in the H-D Brewers suite and have enormous faith that the best of Harley-Davidson will be lived in the days ahead.

Sincerely,
Keith “Scooter” Wandell
President and CEO, Harley-Davidson

Happy April Fool’s! Enjoy the day even with all the faux news.

Photo is courtesy of H-D.

All Rights Reserved © Northwest Harley Blog

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Harley-Davidson reported its first quarterly loss since 1993!

No surprise given home foreclosures, unemployment fear, stalled economy and ice-cold demand for high-end, premium priced motorcycles.

For Q4’09, H-D reported revenue of $764.5M and a loss of $147.2M.  Affecting Q4’09 results was the previously announced 53.1% reduction in motorcycle shipments from the year-ago period and $167.1M in restructuring, on the Buell end-of-life costs and the MV Agusta discontinued operations.  For all of 2009; revenue was $4.29B compared to $5.58B in 2008, a 23.1% decrease; income was $70.6M in 2009 compared to $684.2M in 2008, a decrease of 89.7%.  And don’t forget all the non-cash charges related to Harley-Davidson Financial Services (HDFS).

There was a surprise in today’s financial call.  Keith Wandell, (H-D President and CEO) stated: “We also feel good about where we’re at.” Huh?

Isn’t that the kind of thinking that would have Kodak saying that they’re relying on film, or newspapers saying they’re relying on print, or music labels saying they’re relying on CDs.  Just because you can’t see the cliff from where you are, that doesn’t mean it doesn’t exist.  Remember when everyone said no one would read a book on a hand-held electronic device, and suddenly now everyone’s saying the opposite, Kindle’s got so many new competitors and Apples yet-to-be released tablet gets more press than a starlet without panties getting into a car outside a pub.

Mr. Wandell may be referring to his reactive changes the past 8 months and the hope they will restore growth. I’m skeptical, and time will tell if they are the right decisions or if management can execute with a renewed intensity.  But isn’t that just the point.  REACTION to events vs. pro-active change?!  From the outside looking in, the majority of action the company has taken seems REACTIVE.  They curb demand, shrink manufacturing, reduce structural costs, pullback on spending, slash and cut employees, sell off businesses based more on profit margins not on the contribution to the customers soul.  Motorcycle sales are down more at H-D than other manufactures.  Why?

There is a saying: “Businesses should concentrate on their customers’ needs, not on specific products.” — “Marketing Myopia” (1960); Theodore Levitt, Harvard Business School

My opinion is that H-D needs to relearn customer needs.  If you desire to appeal to your core fans, then they’ll want to know that you are in it for the motorcycle hobby/sport, not just the money.  Stop calculating how to get to millions of revenue in a spreadsheet by maximizing this and that.  Just create something rawly desirable, then the revenue will come.  A great hit is more powerful than any marketing campaign.  People don’t need motorcycles, but they want one.  When the product is great.  When it speaks to them.  When it’s seen as integral to their lives.  You’ll have something!

Photo courtesy of JupiterImages.

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HDFS_CarsonCityThe eastern slope of the Sierra Nevada mountains offer motorcycle enthusiasts an interesting blend of motorcycle rides and some of the best scenery in the west.

Unfortunately, Northwestern Nevada is also the location of Harley-Davidson Financial Services (HDFS) who took quick action after the parent company, Harley-Davidson, posted disappointing Q2’09 financial results.   More than 100 employees were laid off of which many came from the facility in Carson City, NV.

HDFS provides financing for H-D dealers to buy inventory for their showrooms as well as loans for customers who are buying motorcycles.  The Carson City facility is co-located on the Western Nevada College campus and one of the largest HDFS facilities.  H-D negotiated a $750K tax break with the Nevada Commission on Economic Development and opened the new 100,000 sq-foot-office in 2005.  Laurie Cole (Director of HDFS Communications) stated that HDFS has 770 employees with the largest number based in Carson City and there were now ~300 employees remaining at the Arrowhead Drive office.

The economic changes have been dramatic and it’s a difficult time for the folks who have made this beautiful area their home.  The process of making H-D leaner and more efficient is filled with painful actions effecting really good people.  H-D is a good company that will continue to deliver great products. It may not feel like it today, but motorcycling enthusiasts around the world are counting on you to bring us the products we want and need in the future.

Photo courtesy of H-D and WNC.

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shred_dollarNot 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.

consumer_spendingDue 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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