Harley-Davidson Inc. (HOG) witnessed a 44% rise in profit to $172.0 million in the first quarter of 2012 from $119.3 million in the same quarter of prior year. On a per-share basis, profits increased 45% to 74 cents from 51 cents a year ago, exceeding the Zacks Consensus Estimate by 3 cents.
Total revenue (including Financial Services) in the quarter rose 17% to $1.4 billion, driven by higher motorcycles and related products sales. Operating income surged 43% to $275.5 million from $193.0 million in the first quarter of 2011.
The improvement in sales and earnings were attributable to strong trend in retail sales reflecting improved macroeconomic conditions in the U.S. and the company’s transformation strategy.
Motorcycles and Related Products
Revenues from Motorcycles and Related Products grew 20% to $1.3 billion driven by higher shipments. Revenue from Harley-Davidson motorcycles increased 19.5% to $995.9 million. Operating income from Motorcycles and Related Products soared 66% to $208.1 million due to higher shipment volume and improvement in operating margin.
The company shipped 64,263 motorcycles to dealers and distributors worldwide during the quarter, compared with 53,827 motorcycles in the first quarter of 2011. The shipment volume was higher than the company's shipment guidance of 58,000 to 63,000 motorcycles for the quarter.
Harley’s worldwide dealer retail sales of new motorcycles rose 20% to 59,677 units, including 25.5% growth in the U.S. to 39,762 units and an 11.2% rise in international markets to 19,915 units.
Revenues from Parts and Accessories escalated 21% to $199.1 million and revenues from General Merchandise – which includes MotorClothes apparel – increased 19.2% to $74.6 million.
Harley-Davidson Financial Services (HDFS)
Revenues in the Financial Services segment dipped 3% to $156.3 million. The segment reported an operating income of $67.4 million, which was almost flat compared with $67.9 million in last year’s quarter.
Restructuring Activities
In the quarter, Harley incurred restructuring charges of $11.5 million. The company continues to expect one-time charges, related to restructuring activities that began in 2009, of $500 million–$520 million through 2013, including costs of $50 million to $60 million in 2012.
The company reiterated its guidance to achieve cumulative savings of $275 million–$295 million in 2012 from the restructuring activities, which will rise to $315 million–$335 million beginning in 2014.
Financial Position
Harley had cash and cash equivalents of $1.3 billion as of April 1, 2012 compared with $932.5 million as of March 27, 2011. Total debt increased to $3.8 billion from $3.4 billion as of March 27, 2011. Consequently, long-term debt-to-capitalization ratio increased to 60% from 59% as of March 27, 2011.
In the quarter, Harley had an operating cash outflow of $73.6 million, an improvement from $104.9 million in the prior-year quarter. Meanwhile, capital expenditures decreased to $24.7 million from $27.7 million in the first quarter of 2011.
Looking Forward
Harley-Davidson upgraded its shipment guidance for full year 2012. The company expects to ship 245,000 to 250,000 motorcycles (including 79,000 to 84,000 motorcycles in the second quarter of the year) to dealers and distributors worldwide during the year, compared to its prior-year guidance of 240,000 to 245,000 motorcycles. The upgraded guidance reflects strong demand and the company’s limited ability to produce additional motorcycles in the year.
The company continues to anticipate capital expenditures of $190 million–$210 million in 2012, including $35 million dedicated to restructuring activities, compared with the prior estimate of $25 million.
Our Take
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.
These along with the improved results and upgraded guidance led the company to retain a Zacks #2 Rank on its stock, which translates to a ‘Buy’ rating for the short term (1 to 3 months).
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