Investors Not So Revved Up by Harley's Profit Rise

Earns Harley-Davidson
Al Grillo/AP
By James B. Kelleher

Harley-Davidson (HOG) posted a higher quarterly profit Thursday, lifted by growing global motorcycle sales, while its preliminary 2014 shipment forecast suggested its efforts to reach non-traditional riders will continue to gain traction.

The results initially sent its shares up as much as 4 percent in trading on the New York Stock Exchange, before they gave up those gains to trade down 0.6 percent at $63.65.

The Milwaukee-based company posted a fourth-quarter net profit of $75.4 million, or 34 cents a share, up from $70.6 million, or 31 cents a share, last year. Overall revenue from bikes, parts and accessories, financial services and apparel rose 1.5 percent to $1.2 billion, Harley-Davidson said.

Analysts, on average, expected the company to report a profit of 34 cents a share on sales of $1.04 billion.

The company said it expects shipments to dealers to rise between 7 percent and 9 percent to 279,000 to 284,000 motorcycles in 2014.

Jaime Katz, an analyst at Morningstar (MORN), said the shipment guidance was "pretty good for a mature business."

She said it suggested the company expects double-digit sales gains among customers outside its core demographic group of white males over 50 years of age.

Harley-Davidson has long known its reliance on an overwhelmingly white,
male and middle-aged consumer base would ultimately challenge sales in North America, where it still earns two-thirds of its revenue.

That so-called "baby boomer" cohort is growing at a low-single-digit rate. So in recent years, the company has aggressively courted non-core customers -- young adults, women, African-American and Hispanic riders -- with a variety of new designs.

This spring, the motorcycle maker's dealers in the United States, Canada, Italy, Spain, Portugal and India will begin selling Harley-Davidson's new line of lighter, more affordable motorcycles -- the Street 500 and the Street 750.

The bike is its first foray into the smaller motorcycle market in nearly 40 years, and Harley-Davidson's effort to win over these outreach customers appear to be working.

According to RL Polk, a leading provider of auto industry data, Harley-Davidson has been the market leader among riders ages 18-to-34, as well as women, African-Americans and Hispanics, for five years running.

Demand Rise

Harley-Davidson, which sells its bikes through a global network of about 1,500 independent dealers and distributors, said it shipped 46,618 motorcycles to dealers during the quarter, down from 47,067 in the year-ago period.

Fourth-quarter shipments are often weak because it marks the beginning of the winter season in the United States, where Harley-Davidson derives two-thirds of its sales.

But consumer demand at the retail levels rose during the fourth quarter and dealer retail motorcycle sales were up nearly 6 percent. Sales rose in every region except Latin America, where they fell nearly 3 percent, the company said.

Harley-Davidson said issues getting the company's new bikes certified for sale in Brazil accounted for that decline.

Harley-Davidson's annual worldwide shipment levels peaked at about 350,000 units in 2006, right before the U.S. housing bubble burst.

Consumer demand for its motorcycles, which are priced from $8,000 to more than $30,000, tumbled along with the broader economy.

It only bottomed out in 2010, when Harley-Davidson shipped 210,494 bikes to dealers -- 40 percent fewer than it did just four years before.

The company responded to the sharp downturn with a wide-ranging restructuring program that -- among other things -- squeezed wage concessions from its unionized workers in Milwaukee, Kansas City, Mo., and York, Pa.

It also saw it drop non-core motorcycle brands, including Buell and MV Agusta.

Those concessions, and the adoption of a "surge manufacturing" work schedule, which permits Harley-Davidson to bring on workers during seasonally strong quarters and lay them off during slower quarters, saved it $310 million in 2013.



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