Harley-Davidson Not As Bad As One Might Guess (HOG)

Harley-Davidson, Inc. (NYSE: HOG) posted its earnings results for the fourth quarter at $0.78 EPS, a drop of more than 19% compared to Q4-2006; revenues were $1.39 Billion, down almost 8% from Q4-2006.  First Call had estimates at $0.82 EPS and $1.34 Billion in revenues, so earnings were under estimates while revenues didn’t drop as much as analysts were expecting.  Margins declined as well: Gross margin in Q4-2007 was 35.7% percent of revenue, down from 38% in Q4-2006; Q4-2007 operating margin was 18.1%, down from 22.5% in Q4-2006.

As far as guidance, Harley expects moderate revenue growth, lower operating margins, and a diluted earnings per share growth rate of 4% to 7% over 2007.  The 2007 EPS number is $3.74 (estimate was $3.77) for the year (that was down almost 5% from 2006) and then use the mid-point of guidance, you get projected 2008 EPS at $3.945; First Call only has a $3.79 EPS target for 2008.

The company is commenting on the challenging U.S. environment, its international dealer network had double-digit sales growth in both Q4 and the full year. Harley again noted that it plans to ship fewer motorcycles than it expects its worldwide dealer network to sell. In the first quarter, it plans to ship 68,000 to 72,000 motorcycles, up slightly from the 67,761 units in Q1-2007.

Jim Zeimer, CEO, noted a cautious outlook and stance: "Looking ahead, we will continue to manage the Company to generate long-term sustainable shareholder value while protecting the brand. We expect the U.S. economy to continue to be very challenging in 2008, and we will closely monitor the retail environment and regularly assess our wholesale shipments throughout the year."

Harley repurchased roughly $153.3 million of its common stock during last quarter.  With a $40.12 close yesterday, the current P/E ratio is now 10.7 and the forward P/E ratio for 2008 at the mid-point is now 10.16.  That P/E ratio of 10 and a $9.7 Billion market cap might sound like this will start to hit value investing screens, and if it can somehow manage to stave off those declining margins then value investors may have something more to chew on.  Harley-Davidson’s 52-week trading range is $34.72 to $72.39.

Jon C. Ogg
January 25, 2008