Harley-Davidson Announces Solid Results On Strong U.S. Performance

Harley-Davidson (NYSE:HOG) announced its first quarter results which were in line with the market expectations. Total revenues jumped 9.8% to $1.57 billion while operating income swelled 26% to $348.3 million. Operating income benefited from wider gross margins, lower restructuring charges and higher shipment volumes. The company reported net income of $224.1 million, or 99 cents a share compared to 74 cents a share in the first quarter of 2012. ^[1]

Margins Improve

Gross margins have been improving consistently thanks to the company’s ongoing restructuring process. They stood at 36.7% vs. 35.9% in the previous year quarter. Back in 2009, the gross margins were in the region of 32-33%; now they are consistently exceeding 35%. Harley expects gross margins of 35.25% to 36.25% for the full year.

Shipment Volumes

The company’s shipment volumes rose 17% to 75,222 motorcycles helped by a strong American performance (up 22.7%). The United States accounts for more than two-third of the shipment volumes. Shipment volumes represent the number of motorcycles sold by Harley to its dealers (and not the actual retail sales made by Harley’s dealers to their customers).

With the help of its ‘new surge facility’ at its York plant, the company is in a better position to adjust its production to better match the seasonal variation in motorcycle demand. As a result, Harley expects the shipment volumes to grow at a much faster pace in the first half of the year than in the second half. The company stuck to its previous guidance of selling 259,000 to 264,000 motorcycles globally, an annual increase of 4.5% to 6.5%.

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International sales volumes were up 6.8%. Since the overall European heavyweight motorcycle market is dwindling, the company’s focus is on generating higher sales in the developing markets. Asia Pacific and Latin America combined accounted for 13.8% of the total shipment volumes in 2012, up from 12.2% in 2011. There is no breakdown available of its international sales in its 8-k filing but the company expects the contribution of these two regions to rise.

Overall, the results look solid. The company’s sales are rising without any compromise on the margins. Moreover, the sales in developing markets are gaining traction. Back in 2009, the company had set a goal of adding 100 to 150 new international dealerships within the next five years. By the end of 2012, it had opened 93 new dealerships. ^[2] As the proportion of sales from the emerging economies rises, their contribution to total profits will be more evident on the income statement.

We have a $57 price estimate for Harley-Davidson, but we are in the process of revising our estimates to incorporate the latest earnings.

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1. HOG 8-k [↩]
2. First Harley-Davidson dealership in Philippines opens, March 6, 2013, bizjournals.com [↩]