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HarleyDavidson Inc. Reports Operating Results (10-Q)

October 30, 2009 | About:
10qk

10qk

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HarleyDavidson Inc. (HOG) filed Quarterly Report for the period ended 2009-09-27.

Harley-Davidson is an American motorcycle manufacturer. The company operates in two segments: Motorcycles and Related Products and Financial Services. The Motorcycles segment designs manufactures and sells heavyweight touring custom and performance motorcycles as well as a complete line of motorcycle parts accessories and general merchandise. The Financial Services is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts (primarily motorcycles). Harleydavidson Inc. has a market cap of $6.2 billion; its shares were traded at around $26.41 with a P/E ratio of 19.7 and P/S ratio of 1.1. The dividend yield of Harleydavidson Inc. stocks is 1.5%. Harleydavidson Inc. had an annual average earning growth of 20.6% over the past 10 years. GuruFocus rated Harleydavidson Inc. the business predictability rank of 4-star.

Highlight of Business Operations:

With regard to Buell, the Company plans to stop production of Buell motorcycles at the end of October 2009 and remaining inventories of Buell motorcycles, accessories and apparel will continue to be sold through authorized dealerships into 2010. Warranty coverage will continue as normal for Buell motorcycles and the Company will provide replacement parts and service through dealerships. The decision will result in a reduction of approximately 80 hourly production positions and approximately 100 non-production, primarily salaried positions. Employment will end for a majority of Buell employees in December 2009. Due to the level of integration between Buell and Harley-Davidson, Buell is not considered a separate and distinct operation and, as a result, will not be presented separately as a discontinued operation. The Company expects to incur approximately $125 million in one-time costs related to winding down the Buell product line, of which approximately $115 million will be incurred in 2009. The Company estimates that approximately $70 million will relate to sales incentives, inventory write-downs and other incremental expenses, the majority of which will impact gross margins. The remaining amount, approximately $55 million, will consist of restructuring and impairment charges and will be classified as such in the income statement. This includes a $14.2 million one-time fixed-asset impairment charge recorded by the Company in the third quarter of 2009.

The Company expects previously announced restructuring activities, together with costs associated with winding down the Buell product line, to result in one-time restructuring and impairment charges of $215 million to $245 million over 2009 and 2010, or an increase of $55 million from the estimate provided July 16, 2009. The Company estimates annual savings from these restructuring activities, measured against 2008 spending (cost of sales and operating expenses), are as follows:

Also on October 15, 2009, the Company revised its expected capital expenditures for 2009 to approximately $125 million to $145 million including approximately $15 million to $25 million for capital expenditures made in connection with its restructuring activities in 2009. In the aggregate, this represents an approximately $87 million to $107 million decrease from the Companys 2008 capital expenditures. The Company anticipates it will have the ability to fund all capital expenditures in 2009 with internally generated funds.(1)

The effective income tax rate for the third quarter of 2009 was 61.8% compared to 38.2% for the third quarter of 2008. The increase was due primarily to the tax implications of MV, including the non-deductible write down of goodwill of $18.9 million, and the impact of reduced Company earnings. The Company expects its full-year 2009 effective tax rate on continuing operations, excluding MV, to be approximately 59% due to the previously reported one-time tax charge of $22.5 million in the first quarter of 2009 and the non-deductible goodwill write-off of $28.4 million related to HDFS, as well as the impact of reduced earnings for the remainder of the year.(1)

Read the The complete ReportHOG is in the portfolios of Chris Davis of Davis Selected Advisers, Sarah Ketterer of CAUSEWAY CAPITAL MANAGEMENT LLC, Brian Rogers of T Rowe Price Equity Income Fund, John Griffin of Blue Ridge Capital, Brian Rogers of T Rowe Price Equity Income Fund, Mark Hillman of Hillman Capital Management, Ronald Muhlenkamp of Muhlenkamp Fund, Kenneth Fisher of Fisher Asset Management, LLC, David Dreman of Dreman Value Management, Richard Aster Jr of Meridian Fund.

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