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May 3, 2010: A contrasting picture for Harley’s 1Q

May 3, 2010
Filed under Features

Harley-Davidson Motor Co. does not currently expect to lower its new motorcycle production allotment this year despite a challenging first quarter in U.S. retail sales.
Harley-Davidson executives voiced the possibility of that scenario changing in the future in a recent earnings report, but are expecting their initial 2010 production target of
201,000-212,000 motorcycles to hold up through the end of the year.
Three positive issues are helping to keep production steady at that 2010 target range: dealer inventory levels, dealer network health and international bike sales. The latter fell only 3 percent in the first quarter compared to a year ago, with Europe showing little if any decrease. U.S. retail sales, on the other, decreased 24 percent, meaning overall bike sales dropped 18 percent compared to the first quarter of 2009.
While the U.S. market continues to be challenging, Harley-Davidson CEO Keith Wandell pointed out two positives during the company’s recent quarterly earnings report. The first-quarter decrease in sales was the smallest quarterly year-over-year decline since the last year’s first quarter and the rate of the decrease lessoned throughout the first quarter.
“We’re making some real progress on a number of fronts with some encouraging directional improvements,” Wandell said.
Dealer inventory levels continue to be in “adequate” shape, Wandell said. Harley in fact noted in its earnings report that dealer inventory is down 23,000 vehicles compared to a year ago.
Harley-Davidson is seeing some dealer losses, although it continues to be in small numbers. Harley said it had six dealer points close in the first quarter. Last year, Harley had 28 dealership or Secondary Retail Locations close, or about 3.5 percent of the company’s retail operations. Harley officials, however, did say they expect more dealer losses in the future.
Harley’s financial services sector, however, appears to have stabilized. The company reported a loss of more than $110 million last year from Harley-Davidson Financial Services. But thanks to an improved loan portfolio performance and a lower cost of funds, the division returned to profitability in the first quarter. Harley said it had income of $26.7 million from its financial services, an improvement of $15.5 million compared to the year-ago quarter.
The company said its restructuring activities, including the implementation of a new labor agreement at its York, Penn., plant, continue on schedule and on budget.
Harley-Davidson also shared other results from its first quarter, including:
Overall net income of its continuing operations was $68.7 million, its highest earnings per share since the first quarter of last year;
It lost $35 million in the quarter on
MV Agusta, which the company is trying to sell and is in fact in discussions with potential buyers;
Total bike sales in the United States amounted to 31,845 units.

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