AP News, September 7th, 2007
They may be macho but they're not immune. Harley-Davidson riders, like other consumers, are curbing their spending amid the credit crisis and economic uncertainty. The motorcycle maker lowered its earnings expectations for the year on Friday and said it would cut bike shipments, sending shares plunging more than 8 percent.
Chief Executive Jim Ziemer said the move was necessary given that now is a "difficult time for the U.S. consumer."
Dealer sales fell sharply in August, he said, and Harley-Davidson Inc. doesn't expect sales to increase the rest of the year. Worldwide sales were down 1.2 percent in the most recent quarter.
Harley-Davidson's shares tumbled on the news, falling $5, or 9.2 percent, to $49.09 Friday. Earlier in the day, shares fell to a new 52-week low of $48.94. They've traded as high as $75.87 in the past 52 weeks.
"While a decision to reduce shipments and expectations is never easy, it is clearly the right thing to do for the long-term health of the brand and the business," Ziemer said in a news release.
The Milwaukee-based company said it anticipates 2007 net income to drop 4 percent to 6 percent to a range of $3.69 to $3.77 per share. The company reported a 2006 profit of $3.93 per share.
Analysts polled by Thomson Financial have predicted earnings of $4.12 per share.
Harley-Davidson said it is lowering its planned third-quarter shipments to between 86,000 and 88,000 units from its prior estimate for shipments in a range of 91,000 to 95,000 units. Full-year shipments are expected to be between 328,000 and 332,000 units, down from 349,196 units last year.
The company now expects 2008 earnings growth between 4 percent and 7 percent on moderate revenue growth and lower operating margins. It previously forecast earnings growth between 11 percent and 17 percent for 2008 as well as 2009.
The company said it was not providing 2009 guidance now.
Dealers of all leisure vehicles, such as motorcycles and all-terrain vehicles, are reporting that it's increasingly difficult to make sales as consumers become more cautious with their money, said Greg Badishkanian, a leisure analyst with Citigroup, which has Harley as a client.
"There are fewer people coming into the stores and those that come in have a little bit lower likelihood of buying," he said.
The U.S. motorcycle market has been experiencing a decline for the last four quarters, UBS analyst Robin M. Farley wrote in a research note Friday. Harley said in July that the overall U.S. market was down 6.2 percent for the quarter.
Harley-Davidson is also facing slower sales because its 2008 product lineup is not as innovative as last year's, which was among the most extensive launch of new products in the company's history, Badishkanian said. Harley-Davidson introduced four new models and the new Twin Cam 96 engine last year. The 2008 model line up includes three new models, one with dual headlights, and the option to add antilock brakes on certain bikes.
"It wasn't nearly as innovative as last year's new products were, so it's not a real reason for people to buy," Badishkanian said.
Harley-Davidson hinted at a possible cut in July, when it revealed in its second-quarter earnings release that U.S. retail sales in the first half of the year fell short of expectations. During the quarter, U.S. sales were down 5.5 percent.
Harley-Davidson held a sales promotion in July that helped clear some of the 2007 stock, Ziemer said, but sales in August fell sharply. Conditions do not look like they will improve worldwide for the rest of the year, he said, and expectations are that 2008 will be "challenging" as well.
A growing share of Harley-Davidson sales are made overseas, but most of its motorcycles are still bought in the United States.
The company sent 28 percent of its stock overseas in 2006. In the first half of this year, that number was up to nearly 40 percent of all shipments.
Even before Harley-Davidson's second-quarter results were reported, Farley said in the note, UBS warned that domestic sales had fallen in consecutive quarters, the first time that had happened in more than 15 years.
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On the Net:
Harley-Davidson: http://www.harleydavidson.com
