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Jan 18th, 2007, 5:14 pm
Harley-Davidson pushes profit up 10%
But share price falls as analysts fret over sluggish U.S. sales
By Jim Jelter, MarketWatch
Last Update: 5:03 PM ET Jan 18, 2007
SAN FRANCISCO (MarketWatch) - Harley-Davidson Inc. reported nearly a 10% jump in its fourth-quarter profit Thursday, but the results failed to thrill Wall Street, which focused on flat sales in its core U.S. market and concerns that the typical Harley rider's days in the saddle are growing ever shorter.
Those concerns sent Harley-Davidson shares 2.6% lower to close at $70.95, bouncing off an early session low of $69.47.
For the three months ended Dec. 31, Harley reported net income rose to $252.4 million, or 97 cents a share, from $230 million, or 84 cents a share, a year earlier. Revenue rose 12% to $1.5 billion from $1.34 billion.
Analysts, on average, had forecast the Milwaukee company would earn 96 cents a share, on $1.44 billion in revenue, according to Thomson First Call.
Chief Executive Officer Jim Zeimer said an "enthusiastic worldwide response" to the company's 2007 models helped boost results in the latest quarter. Last summer, the company rolled out a beefed-up line of big bikes with a redesigned powertrain, fueling a steady 50% climb for the stock through the second half of the year.
Fourth-quarter sales of new motorcycles accounted for $1.22 billion of total revenue, up 13% from a year ago. The company said it sold 92,848 bikes in the last three months of the year, up 6% from a year ago.
But sales in the U.S. market rose just 0.3% from a year ago, while the nation's overall heavyweight motorcycle industry fell 1.7%, the company said.
The domestic trend underscores Harley-Davidson's increasing reliance on foreign markets for further growth. So far, those markets have delivered, with a 29% jump in retail sales overseas compared with the fourth quarter of 2005, led by Canada and Europe.
The company said it expects to ship between 82,000 and 84,000 motorcycles during the first three months of 2007.
"As we look to the future, we believe Harley-Davidson will deliver [earnings] growth in the range of 11%-17% each year through 2009. On an annual basis, we expect solid revenue growth, margin improvement, and the benefits of strong free cash flow to drive this earnings growth," Ziemer said in a statement accompanying the results.
Analysts were skeptical, however, citing the fickle nature of the overseas market for big bikes, tepid sales for the new 2007 lineup - especially given the mild weather last quarter - and concerns that prices for used Harleys are slipping, eroding the buying power of customers likely to come back for a new bike.
"We continue to view management's targets as optimistic in light of increasing headwinds," Guzman & Co. analyst Jake Balzer said in a note to clients. "While we recognize international opportunities and the strength of Harley-Davidson's brand, we believe the demographic drivers have peaked in the company's home market."
Balzer gave the company an underperform rating with a 52-week price target of $66 a share.
Banc of America Securities analyst Michael Savner was slightly more upbeat, despite the likelihood of rising inventories and a year-on-year slip of 50 basis points in the company's operating margins to 25.6%.
"Although Harley's results beat our revenue and earnings-per-share estimates, we note that U.S. retail sales were a bit soft ... and operating margins were modestly lower than our estimates. However, we view Harley's reaffirmation of long-term [earnings] growth of 11-17% as a positive," he said.
Jim Jelter is Industrials Editor for MarketWatch in San Francisco.
But share price falls as analysts fret over sluggish U.S. sales
By Jim Jelter, MarketWatch
Last Update: 5:03 PM ET Jan 18, 2007
SAN FRANCISCO (MarketWatch) - Harley-Davidson Inc. reported nearly a 10% jump in its fourth-quarter profit Thursday, but the results failed to thrill Wall Street, which focused on flat sales in its core U.S. market and concerns that the typical Harley rider's days in the saddle are growing ever shorter.
Those concerns sent Harley-Davidson shares 2.6% lower to close at $70.95, bouncing off an early session low of $69.47.
For the three months ended Dec. 31, Harley reported net income rose to $252.4 million, or 97 cents a share, from $230 million, or 84 cents a share, a year earlier. Revenue rose 12% to $1.5 billion from $1.34 billion.
Analysts, on average, had forecast the Milwaukee company would earn 96 cents a share, on $1.44 billion in revenue, according to Thomson First Call.
Chief Executive Officer Jim Zeimer said an "enthusiastic worldwide response" to the company's 2007 models helped boost results in the latest quarter. Last summer, the company rolled out a beefed-up line of big bikes with a redesigned powertrain, fueling a steady 50% climb for the stock through the second half of the year.
Fourth-quarter sales of new motorcycles accounted for $1.22 billion of total revenue, up 13% from a year ago. The company said it sold 92,848 bikes in the last three months of the year, up 6% from a year ago.
But sales in the U.S. market rose just 0.3% from a year ago, while the nation's overall heavyweight motorcycle industry fell 1.7%, the company said.
The domestic trend underscores Harley-Davidson's increasing reliance on foreign markets for further growth. So far, those markets have delivered, with a 29% jump in retail sales overseas compared with the fourth quarter of 2005, led by Canada and Europe.
The company said it expects to ship between 82,000 and 84,000 motorcycles during the first three months of 2007.
"As we look to the future, we believe Harley-Davidson will deliver [earnings] growth in the range of 11%-17% each year through 2009. On an annual basis, we expect solid revenue growth, margin improvement, and the benefits of strong free cash flow to drive this earnings growth," Ziemer said in a statement accompanying the results.
Analysts were skeptical, however, citing the fickle nature of the overseas market for big bikes, tepid sales for the new 2007 lineup - especially given the mild weather last quarter - and concerns that prices for used Harleys are slipping, eroding the buying power of customers likely to come back for a new bike.
"We continue to view management's targets as optimistic in light of increasing headwinds," Guzman & Co. analyst Jake Balzer said in a note to clients. "While we recognize international opportunities and the strength of Harley-Davidson's brand, we believe the demographic drivers have peaked in the company's home market."
Balzer gave the company an underperform rating with a 52-week price target of $66 a share.
Banc of America Securities analyst Michael Savner was slightly more upbeat, despite the likelihood of rising inventories and a year-on-year slip of 50 basis points in the company's operating margins to 25.6%.
"Although Harley's results beat our revenue and earnings-per-share estimates, we note that U.S. retail sales were a bit soft ... and operating margins were modestly lower than our estimates. However, we view Harley's reaffirmation of long-term [earnings] growth of 11-17% as a positive," he said.
Jim Jelter is Industrials Editor for MarketWatch in San Francisco.