Harley Davidson riding high on strong sales
The iconic motorcycle maker benfits from refocused product development and revamped dealership network.
Harley Davidson's (HOG) worldwide motorcycle retail sales increased by 10.9% in the fourth quarter, compared to the same quarter the year before. In the U.S., sales climbed 11.8%. The company's income from continuing operations in the quarter was $54.6 million, compared to a loss of $42.1 million for the same period last year. Its gross margins rose from 29.6% to 31.2%, while operating income posted an increase of $42.3 million.All this has been possible because of Harley's commitment to refocusing its product development, reducing inefficiencies, and speeding time to market.
Harley's sales have also been helped by the fact that the company is revamping its dealership system, working to provide a superior customer experience and improve dealer profitability. It is also planning to launch an online portal as an alternative avenue for motorcycle sales.
However, the biggest sales driver has been the expansion of Harley internationally. In the past year, it has opened over 35 dealerships in high-growth international markets, which will help ensure future growth for the motorcycle giant.
Harley Davidson competes with other major motorcycle manufacturers like Honda Motor Company (HMC), Kawasaki Heavy Industries and Yamaha Motors.
Harley's resurgence in the U.S. has been driven by improved customer confidence, which was a result of a combined effort by the company and its dealers. The dealers sold 23,753 new Harley-Davidson motorcycles in the U.S. -- 11.8% more than the fourth quarter of 2010. For the full year, sales in the U.S. touched 151,683 units, a 5.8% increase over the prior year. This was also helped by growth in the industry of heavyweight motorcycles (651 cc+), sales, which picked up by 4.3% in 2011. Harley's market share in the U.S. was 59.4% for the fourth quarter and 55.7% for the full year.
Harley's international sales also increased, reaching 16,606 units in the fourth quarter, an increase of 9.7%. For the full year, motorcycle sales hit 83,505 units, a 6.1% increase over 2010.
Harley's focus on emerging countries in Asia and Latin America yielded dividends as these regions recorded a huge growth in sales. Latin America saw a 17.5% jump in sales, which was helped by improved sales in Mexico and a revamping of operations in Brazil. India is also becoming a lucrative market with considerable consumer interest.
The company's financial services recorded a 30.7% jump in operating income as a result of improved credit performance. This is a lesson that Harley is carrying back from the subprime crisis, which punished almost all lenders with bad assets and huge balance sheets. For the full year, operating income from financial services was $268.8 million, an increase of 47% from 2010.
We currently have a Trefis price estimate of $41 for Harley Davidson's stock, which is around 8% below the current market price. We are in the process of updating our estimates post Q4 earnings. See our full analysis of HOG here.
And a not so quick retort to td49: I thought the same thing until I compared price to price. Harley warranties plus the service and longevity of the bike, not to mention resale values are well worth a few hundred extra dollars for a similar sized metric bike.
A Fat Boy (which I purchased) was only about $1200 more than the M109R I set out to buy, and the book value is only about $400 less than I paid for it a full year later with after I have put over 15K miles on it. I can drive my $16K bike for 10 years and get $12K-$15K out of it when I sell it (check it out yourself on dealer websites and NADA/Black Book/ Blue Book). In comparison, a new top-of-the-line Suzuki M109R Limited Edition sells for almost $16 and trade in value a year later is an abismal 60-65% of purhased value in perfect condition.
Bottom line? You get what you pay for. If you want a cheap bike to ride and throw away, by all means, go metric. If you want an investment that will go 100-150 thousand miles reliably before even considering it to be broken in, Harley is the only way to go. I have owned literally dozens of bikes and fell for the anti-HD stuff as well, but after thoughtful reflection I don't think I have ever had a metric bike of any brand rack up over 30-40K miles before either serious or costly issues developed. (Yes, Dad - even your precious Hondas have disappointed me on more than one occasion. Remember the GoldWing fiasco after you INSISTED? Ha! Yes, some bike that P.O.S. was!)
As stated in my other post, I am hooked!
The reason HD has become profitable again is that is farming out its components to cheaper labor markets. So if you like to ride a Harley is one thing...but don't think your buying American.
I for one, am a recent convert to Harley-Davidson motorcycles. Having been a rider since the day after I got my regular driver's license, I had always ridden metrics. Hondas, Yamaha, Suzuki-Kawasaki (hyphenated because since the 90s they are the exact same bikes with few exceptions, sharing parts on almost every model), and even Ducati and Moto Guzzi - I have had them all. Until last year, what I had never owned was a Harley.
After heading out to purchase a Suzuki M109R I took a look at the dealers around my area and saw a beautiful Fat Boy and after a few blocks on the back of it knew I was hooked. Better than the bike is the incredible service, where everyone from my salesman to the parts counter, clothing, and service folks knows me by name and bike, even a year after I bought it! The service prices are cheaper than most metric shops in contrast to rumor and speculation. Based on my own experience, I can truly say all of it has significant contributory effects on how Harley is growing!
If American auto makers ditched the labor unions, went to an employee-owned structure and took some pride in their jobs and changed the way they did business from design to the sales floor like Harley has, I would dare say they would see a tremendous increase in business as well.
Just curious, are the boards here set up for the purpose of berating everyone who asks a question?
George Jones - Harley's base rate is about 9.5%, so at 11, you're being asked to pay 1-1/2% more than their going rate. What the others are saying is basically true, I just took issue with the way they are saying it (they're probably snotty, elitist MSNBC watchers). It either has to do with your credit rating, or some other risk, maybe the particular model you bought. You're not too much of a risk, or you'd be paying a lot more.
If it is NOT built in the USA I just do not buy it ! and when everyone else does the same and looks at the labels and stops buying companies will be coming back to the US and not Asia to build the products.
with gas heading to $4 + a gallon very quick bikes will be plentlful on the streets. Why is it that the oil companines know a year or so in advance what the gas prices will be in 12 months into the future? Seems they need some regulation, quickly...
Dump this congress and house members for some new poorer ones who worry about everyone else and not the welathy.
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