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Harley EPS Up 29%, Meets Estimates

Zacks Equity Research

Harley-Davidson Inc. (HOG) posted a 29.2% rise in earnings per share to 31 cents in the fourth quarter of 2012 from 24 cents in the same quarter of 2011. EPS was in line with the Zacks Consensus Estimate. Net income grew 29.3% to $70.6 million from $54.6 million in the fourth quarter of 2011.

However, consolidated revenues in the quarter slid 0.8% to $1.17 billion in the quarter due to announced plans for lower shipments related to the implementation of seasonal surge production at its York facility in the first half of 2013. Nevertheless, it was higher than the Zacks Consensus Estimate of $982 million. Operating income improved 25.7% to $116.1 million, mainly driven by significantly lower restructuring expenses.

For the full year 2012, Harley’s EPS increased 16.7% to $2.72 from $2.33 a year ago. However, the EPS was lower than the Zacks Consensus Estimate of $2.74. Net income gained 13.8% to $623.9 million.

Meanwhile, consolidated revenues grew 5.1% to $5.58 billion, exceeding the Zacks Consensus Estimate of $4.91 billion. The improvement in revenues and profits was attributable to the company’s strong product portfolio and positive impact from its restructuring actions.
Motorcycles and Related Products

Revenues from Motorcycles and Related Products edged down 1.5% to $1.01 billion in the quarter. Revenues from motorcycle sales shrank 2.6% to $771.1 million due to a 7.2% fall in shipments to 47,067 motorcycles in the quarter. However, operating income surged 49.4% to $53.1 million driven by lower restructuring costs and higher gross margin.

For the full year, revenues from Motorcycles and Related Products rose 6.0% to $4.94 billion. Revenues from motorcycles sales went up 5.9% to $3.76 billion on a 6.2% rise in shipments to 247,625 motorcycles.

Revenues from Motorcycle Parts and Accessories (P&A) rose 0.2% to $161.6 million for the quarter and 5.3% to $859.9 million for the year. Meanwhile, revenues from General Merchandise, (including MotorClothes Apparel and Accessories) scaled up 6.8% to $74.0 million for the quarter and 9.2% to $299.4 million for the year.

Gross margin was 31.8% in the quarter compared with 31.2% in the same quarter of 2011. Operating margin was 5.3% compared with 3.5% in the fourth quarter of 2011. For the full year, gross margin was 34.8% and operating margin was 14.5%, compared with 33.4% and 12.0%, respectively in 2011.

Harley-Davidson Financial Services

Operating income in the Financial Services segment increased 10.9% increase to $63.0 million in the quarter under study and rose 5.9% to $284.7 million in the year. The increase in income was attributable to continued improvement in credit loss performance and lower interest expense.

Restructuring Activities

Harley realized savings of $280.0 million in 2012 from restructuring activities initiated in early 2009. The company incurred restructuring charges of $1.6 million in the quarter and $28.5 million in the year.

Upon completion of restructuring activities in this year, Harley expects restructuring actions to result in one-time overall costs of $495.0 million, including $13.0 million in 2013. The company expects savings of $305.0 million in the year from restructuring activities, leading to annual ongoing savings of $320.0 million beginning in 2014.

Financial Position

Harley’s cash and cash equivalents totaled $1.07 billion as of December 31, 2012 compared with $1.53 billion as of December 31, 2011. Total debt reduced to $5.10 billion as of December 31, 2012 from $5.72 billion as of December 31, 2011 (all including debt held by variable interest entities). Consequently, long-term debt to capitalization ratio improved to 66.6% as of December 31, 2012 from 70.3% as of December 31, 2011.

In 2012, Harley had an operating cash flow of $793.1 million, a decrease from $885.3 million in the prior year. Meanwhile, capital expenditures remained flat at $189.0 million compared with the prior year.

Share Repurchase

Harley repurchased 1.2 million shares of its common stock during the quarter for $53.4 million. In full year 2012, the company has repurchased 6.5 million shares of its stock for $299.6 million.

At the end of 2012, there were approximately 226 million shares outstanding and 14.5 million shares remaining under board-approved share repurchase authorizations.


In 2013, Harley expects to ship 259,000 to 264,000 motorcycles to dealers and distributors worldwide, reflecting roughly 4.5%–6.5% increase from 2012. In the first quarter of 2013, the company expects to ship 71,000 to 76,000 motorcycles, an increase of 10%–18% from the year-ago quarter.

The company’s shipment plan in the quarter reflects the implementation of surge production at York. It believes that the surge production will provide the flexibility to produce more motorcycles in order to meet customer demand during the prime selling season.

Harley also expects gross margin between 35.25% and 36.25 % for the full year. It expects capital expenditures between $200 million and $220 million for the year.

Our Take

Harley-Davidson commands roughly 50% of the U.S. market, providing scale advantages over most competitors. Furthermore, the company maintains an extremely strong franchise. The company retains a Zacks Rank #3 on its stock, which translates to a Hold rating for the short term (1 to 3 months).

Few stocks that are performing well in the industry where the company operates include Oshkosh Corporation (OSK) and Commercial Vehicle Group Inc. (CVGI), both with Zacks Rank #1 (Strong Buy), and Tesla Motors (TSLA) with a Zacks Rank #2 (Buy).

Read the Full Research Report on HOG

Read the Full Research Report on OSK

Read the Full Research Report on CVGI

Read the Full Research Report on TSLA

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