Harley Davidson: A pig in pain?
Today's Financial News - Posted October 14, 2009
It is time for Harley Davidson (NYSE:HOG) to open its books and talk about the future. Investors are expecting a lot. Will they be rewarded for their bold moves?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The countdown is on for Harley Davidson (NYSE:HOG) and its shareholders. Before tomorrow’s opening bell, the iconic bike manufacturer will let the Street have a look at its latest quarterly figures.
If October’s 20% share price surge is any indication, investors are expecting good news.
Just today, shares are up over 7% thanks to a late-inning upgrade from the folks at Wells Fargo Securities. The analyst in charge of the call says investors have yet to fully discount the company’s restructuring efforts.
With expectations of earnings in the range of $0.21 per share (close to $50 million excluding one-time occurrences), analysts are expecting a lot of good news. Last quarter, Harley managed a bottom line of $20 million based on revenues of $1.3 billion.
In my hometown and several cities spread across the Southeast, profits are a mere sideshow. These folks are looking for word on the future.
As Harley tries to contain its costs in a high-unemployment environment, management has spent a lot of time studying its labor force and the powerful role of their representing union. Financial success is dependent on unraveling overly expensive payrolls.
Making hogs fly
That is why Harley has been touring several “right-to-work” states. It has an eye on moving a factory from Pennsylvania, where the union rules the sty, to a more corporate-friendly environment.
Pennsylvania’s governor has already pledge up to $20 million in aid to Harley if it keeps the troubled plant in the Keystone State. But rumor has it the southern suitors are offering just as much.
While it is unlikely we will hear much on this subject in tomorrow’s report (union contract negotiations are just getting underway), we will get several clues to what is likely to happen in the not-so-distant future.
Pay attention to them. Moving a factory will create a slew of one-time costs that could knock the bottom out of the recent rally.
Overall, I believe Harley is going to disappoint when it comes to top-line growth. But just as so many other companies have done over the last six months, interesting accounting will make the bottom line “appear” better than expected.
Fortunately, today’s rally has little to do with what happened over the past three months. Investors are looking towards the future and envisioning a strong turnaround.
The sales will eventually come as unemployment rises. But profitability depends on margins. Unless Harley can significantly cut costs, this hog is nothing more than a pig in pain.
Next Article: Economic truth plays second fiddle to market reality
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