We are reiterating our Neutral recommendation on
Harley Davidson Inc.
). The leading designer and manufacturer of heavyweight motorcycles
continue to benefit from a commanding market share in the U.S.
However, aging customer base and strong competition remain concerns
for the company.
HONDA MOTOR (HMC): Free Stock Analysis Report
HARLEY-DAVIDSON (HOG): Free Stock Analysis
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Harley, in the second quarter of 2012, reported a 32% surge in
earnings to $1.07 per share from 81 cents in the year-ago quarter.
The results also surpassed the Zacks Consensus Estimate by 2 cents.
Profit escalated 30% to $247.3 million from $190.6 million in the
corresponding quarter last year.
Total revenues (including Financial Services) rose 15% year over
year to $1.7 billion in the quarter, exceeding the Zacks Consensus
Estimate of $1.6 billion. The growth was driven by higher
motorcycles and related products sales.
Harley enjoys a scale advantage over its peers as it commands a 50%
market share in the U.S. It operates with 706 independent dealers
in U.S., of which 55% exclusively marketing its products. It has a
network of 1,468 dealers spread across the world.
Harley has been successfully continuing its restructuring
activities since 2009. The company had cumulative savings of $217
million from restructuring activity in 2011. Further, it expects to
generate annual savings of $275 million-$295 million in 2012 and
$315 million-$335 million after the completion of the restructuring
activities in 2014.
The company increased its 2012 shipment guidance to 245,000 to
250,000 motorcycles from the prior estimate of 240,000 to 245,000
motorcycles. The increase depicts strong demand coupled with the
company's ability to produce additional motorcycles in the year.
However, Harley faces challenges from its aging customer base. The
young generation is more attracted toward smaller and cheaper bikes
manufactured by Japanese manufacturers
Honda Motor Co.
), Suzuki and Yamaha. Even the company's initiative to manufacture
faster, smaller bikes by acquiring Buell and MV Agusta was not
In addition, expensive products get limited to the premium
consumers. Current economic condition also puts pressure on the
purchasing power of the customers, resulting in sluggish demand for
Our Neutral recommendation on the stock is backed by a Zacks #3
Rank, which translates into a short-term (1 to 3 months) Hold