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, %VIRTUAL-article-sponsoredlinks%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.

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.