Harley-Davidson Inc. ( HOG ) has recently announced its plan to offer voluntary lay-off to the hourly workers at three of its plants located in Milwaukee and Wisconsin. The process will help the company reduce its work force by almost 26%, reflecting annual savings of up to $50 million starting from 2013.
The strategic move was first announced in the month of September last year when Harley-Davidson entered into a new seven-year contract with about 950 union workers. The company plans to retrench about 250 workers by April 2012. This will likely facilitate hiring of more seasonal workers at a much lower cost.
During the last reported quarter, Harley-Davidson's profit almost doubled to $183.6 million from $93.7 million in the same quarter a year ago. On a per share basis, profits rose to 78 cents from 40 cents. Total revenue rose 11% to $1.40 billion, driven by the rise in motorcycle and related products revenues.
However, gross margin for motorcycle and related products plummeted to 33.7% from 34.9% in the year-ago period, mainly because of higher costs. As a result, the company lowered its gross margin guidance to 33.5%-34.5% for fiscal 2011 from the prior estimate of 34.0%-35.0%.
The company is currently focused on reducing its expenses and improving its margins in the near term. The voluntary retrenchments of workers along with new agreements with the unions reflect the company's strategy. .
Harley-Davidson commands roughly 50% of the U.S. market, providing scale advantages over most competitors. Furthermore, the company maintains an extremely strong franchise. It has a network of over 680 independent U.S. dealers (over 1,300 worldwide), 55% of which exclusively market Harley-Davidson branded motorcycles. The company retains a Zacks #3 Rank on its stock, which translates into a 'Hold' rating for the short term (1 to 3 months).
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