Harley-Davidson (NYSE:HOG) announced its fourth quarter earnings on Tuesday which were helped by wider margins and strong unit sales, although the top-line remained flat. Total revenues stood at $1.2 billion while net income jumped 29.3% to $70.6 million from $54.6 million in the fourth quarter of 2011. 
Harley-Davidson sold 7.5% more motorcycles in the quarter with sales in the U.S. and international markets up 8.4% and 6.3%, respectively. Retail shipments continued to decline in Europe and the region now accounts for only 15% of retail sales. In the fourth quarter of 2011, the corresponding figure stood at 17%. 
On the other hand, the company continued to woo buyers in Asia-Pacific and Latin America with sales up 14.8% and 23.5%, respectively. Harley is targeting large scale expansion in emerging markets such as Brazil and India, and these are the only two countries where the company has set up assembly plants outside the U.S. 
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For the full year, the company’s retail shipment grew 6.2%. In 2013, the company expects to sell 259,000 to 264,000 motorcycles, which would represent an improvement of 4.5% to 6.5% from the current levels. The first half of 2013, particularly, should be good with the company expecting sales to grow anywhere between 10% and 18%, helped by a production boost at its York plant. Harley believes the surge production at York will provide flexibility to raise production during a peak demand period.
Operating income from motorcycles and related parts surged 49% to $53 million helped by lower restructuring costs and higher gross margins. Harley’s ambitious five-year restructuring program initiated in 2009 is expected to create annual savings in the range of $315-$335 million upon completion.
Gross margins jumped to 31.8% from 31.2% in Q4 2011. Similarly, the full-year gross margins widened 140 basis points to 34.8% and were in-line with the company’s forecast of margins in the range of 34.75%-35.75%. Margins are generally lower in the fourth quarter since companies offer greater incentives to meet the annual sales target. For 2013, the company expects the gross margin range to improve by 50 basis points to 35.25%-36.25%. 
We have a $57 price estimate for Harley-Davidson, but we are in the process of revising our estimates to incorporate the latest earnings.Notes: