Harley-Davidson dives on chopped guidance

Even though the motorcycle maker had a solid quarter, concerns about margins hit the stock hard.

By Kim Peterson Oct 18, 2011 1:07PM

Updated: 6 p.m. ET

 

Blame the $8,000 SuperLow for whacking Harley-Davidson (HOG) stock Tuesday.

Even though the company had a good third quarter, with profit more than doubling, a shift to producing cheaper bikes like the SuperLow worried investors. Those bikes aren't as profitable, and gross margin in the quarter narrowed to 33.7% from 34.9% a year earlier.

Gross margin was the main reason the stock ate dirt Tuesday even after solid quarterly earnings. Harley lowered its full-year guidance on gross margin to between 33.5% and 34.5%. That's a mere 0.5% less than before, but it was enough for shares to close at $34.59, down 7%.

Another reason for the guidance change was uncertainty related to currency exchange rates, the company said. A rising U.S. dollar can hurt overseas sales.

Investor reaction seemed a little dramatic, considering that the shift to lower-priced Sportsters is just temporary. Harley is overhauling its Pennsylvania plant that makes high-end motorcycles such as the Touring and Custom models, Bloomberg reports.

That plant is going from four lines to one, and that one line isn't at full speed yet. So there aren't as many expensive bikes being made right now.

Check out the following interview with Harley's chief executive.

Post continues below.

Still, it will likely take more than a year to get that factory up to full speed. The company said U.S. production will be limited until the end of 2013, Bloomberg reports.

Harley beat analyst expectations on profit for the quarter ended Sept. 25 but fell a bit short on revenue. Profit rose 107% to $183.6 million, or 78 cents a share. Analysts were expecting 76 cents.

Sales rose 13% to $1.23 billion, less than the $1.28 billion analysts were looking for. In the U.S., the company's largest market, retail sales were up 5.4%. And Harley stuck by its previous forecast of shipping 228,000 to 235,000 motorcycles this year -- about 8% to 12% more than in 2010.

The numbers coming from the company seemed a little contradictory, and some analysts were a little confused Tuesday. "We struggle to understand how gross margins would be down year over year with shipments up 16% and manufacturing savings presumably coming through," wrote one RBC Capital Markets analyst, according to Reuters.

Tags: HOG
47Comments
Oct 18, 2011 2:32PM
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Ummm no.  You're thinking of the 70's Joe.  Modern Harleys are as reliable as any bike out there.  And yes, Harley makes a fortune on it 105 year old brand name.  Most of the guys riding "superior competing cruisers" are usually wearing Harley shirts, jackets, helmets, etc.  They've been saying Harley enthusiasts are "getting old with no one to replace them" for years.  Still untrue and probably always will be.  As for expensive?  Sure.  But just compare resale values of ANY 5 year old bike to Harley and you'll see why Harley is a good investment.
Oct 18, 2011 4:39PM
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I am 68, and learned to ride only 5 years ago with my youngest son, who is in his 40's. I won't argue (pro) Harley, or (con) Harley with any of you. I'm sitting on a 900 cc Kawasaki Vulcan that scoots my ol' butt down the road quite comfortably, and at any speed I need to cruise at. I think Harley makes a great bike, but so do many others ... I can tell you this though ... there just isn't anything, whether you are 30 or 80 that is quite like throwing your leg over a bike, just relaxing and rolling back on the throttle and let the sun and the wind, and all the smells of nature just do what they do best (yes, even including the bugs and flies). So, argue all you want you guys ... when you're finished catch up with me out on the highway, and I'll buy you a cup! God Bless you all ... from the Road Riders for Jesus, Chap 71, in Colorado Springs, CO.
Oct 18, 2011 5:20PM
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It's not what you ride it's if you ride!!!!
Oct 18, 2011 2:36PM
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Harley sell's everything they produce, have for years and will for years to come, in fact, the latest pole shows everyone buying the past couple of years are in their 30's and younger, we old hats have our bikes and like me , age 65, still ride 300 to 500 miles every week.  Anyone who thinks only 1% buy their bikes are nuts, it like when I pull up to BMW a-hole's I still get the crap of oil leaks statements, then I pull out my copy of motorcycle consumer news and show them BMW has had the lagest re-call over the past few years than any other modle out there and they finally admit to driveshaft problems, they are good bikes it the dorks who ride them get to me, safe riding out there and has anyone looked at BMW stock lately, ug.
Oct 18, 2011 3:02PM
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Joe Cruiser should do his homework before he talks about something he knows exactly zip point nada about.  Today's Harley is far superior to the bikes they made up to the early eighties.  The so-called "thugs" make up a smaller segment of Harley buyers than Joe thinks.  In fact,. if Harley depended on the 1%er  "thugs" to survive, it would have gone under years ago.  Most Harley riders today are successful. middle-class types that have the income to afford the things they didn't buy when their kids were still at home.  Then there's the professional types, doctors, lawyers, etc. that make up a smaller segment of Harley buyers.  I'm 67 yrs old, started riding in 1956, (Harley 165 Hummer) and I've owned a lot of bikes of different brands over the years, including the 2004 Road King Classic I ride today.  I've seen Harley go through the glory days, the lean yrs, the AMF fiasco, (at least AMF got the EVO engine on the drawing board before they were bought out) and into the resurrection created by the RUBS (rich urban bikers) with their disposable income.  Joe is obviously one of those  jealous,  uninformed metric  riders that can't afford a Harley, so they dis them at every chance.
Oct 18, 2011 5:03PM
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@ gmachoe - That's very different from my personal experience regarding Harley Davidson's customer service. I suspect it comes down to the different dealerships and their team. I bought my bike from Oakland Harley Davidson.

I recently had a rear left tail light go out on an $8000 Harley go out on me after about a month of owning it and not only did they replace it for me for free, they adjusted my clutch while they were at it (the bike wasn't shifting as smoothly as I would have liked)...also for free. They also asked me to call them back to let them know how the adjustment was working out for me...ended up working out great.

Maybe that will change after the warranty expires...I don't know. All I know is when I walk into the shop in Oakland, the folks remember me there and what bike I own, they help me with any problems I have...they don't try to up-sell me and they seem to genuinely want to know if I'm happy with any work they've done, the bike, etc. It's been a very positive experience and I bought one of the least expensive bikes they make.


Oct 18, 2011 4:26PM
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Currently own a 2004 Softail Deluxe paid $ 20,000 +,a great looking bike. And that's where it ends. Harley Davidson could care less about you after you've bought the bike. The brakes have squeaked on my bike from the day I bought it. dealer said "there is no fix,try spraying a little insulation foam on the back of the rotors" wtf ? I replace the pads,bingo,fixed. The chrome(plastic,remember $20,000) fell off when i was driving down the road. The worst part ?,dealing with HD Financial. No offense to any mobsters out there,but these guy's made Mr. Joe "casino" Pesci, seem like a girl scout. The bike has been paid for,but I'm still watching over my back for them. I'm all for buying "American" and support the american worker,but the once reveled "American Icon" HD has been killed by the front office. I should of never trusted them after what I witnessed at "100th birthday party" in Milwaukee. 150,000 HD riders,at Veterans Park, Doobie Brothers,Kid Rock all of us waiting for the "top secret" act ,hmm Rolling Stones? Bruce?,John Mellencamp?,Areosmith ? No,one of the greatest piano players ever,Elton John....great musician,no doubt...............​but at this venue?...beginning of the end. The same people that made that choice,were running the company....rest in peace HD
Oct 18, 2011 5:23PM
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Well I have taken the time to browse most of the posts. The one thing that everyone fails to realize is the product and where it is produced. As a man that has previous and/ or currently had a 66, 74, 79, 86, 2005, 2006 Harley in his garage at any given time it boils down to one most important thing. They are made in the USA. R.U.B.s, 1%'s, Independents, and the weekend warriors all tend to say the same common thing. It is still built here in our country. I agree a bit pricy. I agree they are coming down n value. Simple reason for that is new product and age bring down old product pricing. Look at any manufacturer. Honda, Kawasaki, Yamaha, Suzuki.

 

The problem with our country and the financial whoa's we all face are the same across the board. Lack of work! Lack of Money! And lack of a controlled government. Just saying....

 

I work, I struggle, I ride. 

Oct 18, 2011 4:17PM
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If HARLEY wants to stay as in as one of the top companies in the Motorcycle business they must lower the prices! I'v never had one But I deff want to get one in the future! but with those crazyyyyy insane prices! it would be a NO CAN DO!!! for the majority of Americans!....

Oct 18, 2011 4:32PM
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Just bought a 2012 Harley Sportster Iron 883 as my first bike. A friend of mine who suggested I get a motorcycle instead of the Vespa I was considering showed me his Kawasaki...it was OK but I wasn't into the modern, "robo-tech" styling so much. However there was a 2011 Harley Iron 883 parked next to it and I immediately thought to myself, "If I could own a bike, THAT would totally do it for me."

Not knowing squat about it, I looked it up online. Not only was it my favorite bike in terms of style (I also like the Fat Boy Low and the Soft Tail Deluxe) it was one of their least expensive. I felt like I hit the jackpot.

I've had it about a couple of months now and having never rode before (I had a class C license but I don't like driving cars...took the Harley Davidson Rider's Edge course...very helpful) I have to say it's been one of the greatest experiences of my life for a variety of reasons. I hope they keep making bikes in this price range for folks like me who were looking for a more classic styled bike that's American made for their first riding experience. Smile

Oct 18, 2011 3:19PM
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Check the prices on all motorcycles,they are all priced just about the same.On my 3rd Harley,looking at my next bike already,a trike.When it comes to service,all "BRANDS" charge $75-$90 an hour.Only ever had one problem with the 3 Harleys I owned,fuel pump took a crap at 1000 miles on 2nd bike(DYNA Superglide),dealer fixed it at "NO COST",went for another 12,000 miles before a car pulled out in front of me "OUCH".I'm not a Thug,most of the people I've  met aren't either,made friends with people in alot of clubs,an there are alot of different types of clubs.Harley will come out on top!
Oct 18, 2011 3:40PM
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Lower cost entry bikes are a good strategy for future growth.  Once someone buys a stripped Sportster, they will buy $3-5000 on accessories to try to make it more comfortable, increase performance, handle better, and look like a more expensive bike.  Then, when they find out it's still an entry level Sportster, they will trade up to a more expensive large frame Harley, because they are already immersed in the Kool-aid.  Then the add-ons will cost $5-8000.

And you have to buy the matching costumes, otherwise a Harley owner looks like a dweeb.  How do I know all this?  Because after owning BMWs and Hondas for 30 years, I bought my first Harley.  Yes, I've sipped the Kool-aid.  Most Harley riders (and bike riders in general) are good people and are fun to be with.

Owning a Harley is a choice, just like any other.  I would like to see Harley, and any other American manufacturer succeed.  Do your part.  Buy one.

Oct 18, 2011 3:52PM
Oct 18, 2011 4:28PM
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I own a Harley Road Glide as well as a Kawasaki Vulcan. The Harley is hands down the superior bike. The Harley group in which I ride are in their 50's, 60's and 70's. Having owned a number of bikes since 1970, I now understand the mystique of a Harley. Their touring bikes are fantastic and I hope the lower priced bikes don't hurt the company because I am a true believer.
Oct 18, 2011 6:31PM
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Not just Harley but BMW,Honda Ducati ect. what do you get for $20,000plus. A5 gallon gas tank 2 wheels and tires and a 2cyl.engine. For that kind of money you can get a 4wheel drive truck or nice car with all the options. WHATS UP WITH THAT. They are all over priced.
Oct 18, 2011 4:16PM
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Don't know what neighborhood your in but right now I'm seeing smoking deals on used Harley's. And Sportsters are going in the hood of $3500-$4500. Then even if you do spend $4K on accesories you never get half that back. Accesories don't hold value plus if you ever flipped over the package of a chrome piece in the Harley store you'll see its not always made in america, but china or somewhere else. Allot of the t-shirts are coming out of Indonesia,Malaysia and India.

But I'd still buy a Harley,just not at retail cost, I'd buy a used one since most are bought for posing anyway and have low miles..That Kawasaki Drifter sure looks sweet for a rice burner.

 

 For $18K-$20K  in my book it better have a toilet and a kitchen. I keep my spending for toys way below that.

Oct 18, 2011 3:39PM
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Metric Joe...with your math skills, I wouldn't criticize others about Wall St and the economy failing. A typical Harley cruiser would sell for about $18,000 and in 3 years would be worth $15,000. Your metric cruiser would sell new for $14,000 and in 3 years be worth about $8,000. Your example of a Harley costing 3 times the price and your bike depreciating only $3000 is pure bull. With folks like you no wonder Wall St can take advantage of idiots and the economy boots you out of a job.
Oct 18, 2011 3:45PM
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metric Joe....with math skills like yours no wonder Wall St is taking advantage of idiots and the economy has booted you out of a job. A typical Harley cruiser costs about $18,000 and will sell for $15,000 in 3 years. A typical metric copycat cruiser costs about $14,000 and is worth about $8,000 in 3 years. This does not equate to a Harley costing 3 times the price of a metric and losing more in depreciation. This is just more ignorant hyperbole from people who are wannabes but can't afford it.
Oct 18, 2011 6:48PM
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If you want to buy a $100 T-shirt made by some little girl chained to a wall in some third world country, fill your boots ... Harley makes some nice motorcycles, just like all the other manufacturers ... where Harley really comes first is in marketing ... I have ridden and owned many motorcycles in my long life, and as long as I am getting the wind in my old face, I am happy!
Oct 18, 2011 5:44PM
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I own both a Harley high-end bike and a Honda Goldwing.  The Harley sucks and the Goldwing rocks!  Harley as a company is selling something other than motorcycles and unfortunately the people are buying into it (I did too at considerable expense). If I ever walk into a Harley dealer again it will be a sad day.  All of them are scam artists and thieves.
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