Harley Davidson’s bikes are stacking up but profits… not so much
Today's Financial News - Posted January 23, 2009
Harley Davidsons (NYSE:HOG) are like women. They take a lot of work to keep beautiful, getting a nice one makes you cool and they are hard to get. If they are suddenly piling up, you know something must be wrong.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is not going to be one of Harley Davidson’s (NYSE:HOG) brightest days. The company’s latest earnings report is out and the news is not good. Even worse, jobs are being slashed, production is getting cut and shares of the company are trading down by as much as 20%… back to single-digit territory in pre-market trading.
Harley analysts expected quarterly earnings of $0.57 per share. Instead, the company revealed a paltry figure of just $0.34 per share ($77.8 million total), down from $0.78 this time last year. As for revenues, they fell from $1.39 billion to $1.29 billion.
With a drop in sales of 20%, production must be cut and it must be cut right away. The company and its brand cannot afford to have bikes piling up in showrooms. It will hurt future margins and destroy the brand’s value.
Remember, Harley Davidsons are like women. They take a lot of work to keep beautiful, getting a nice one makes you cool and they are hard to get. If they are suddenly piling up, you know something must be wrong.
In order to cut production to match slumping demand, the company has to slash its workforce and slow its assembly lines. That is why it announced 1,100 jobs cuts, a plant closure and multiple plant consolidations in this morning’s announcement.
As I write, the worst-than-expected earnings report is sending shockwaves through the company’s investors. Shares of Harley are currently trading for $10. Earlier, they were trading in single-digit territory.
Driving this hog into the ground
If you are thinking this is a good time to grab shares of the company on the cheap, you had better think again. In my report yesterday, I listed the three worst companies to invest in during Obama’s first 100 days. Harley Davidson was at the top of my list.
This recession is coming at the worst possible time for Harley. The Baby Boomer generation is aging and backing away from the company’s products. American competition is hotter than ever. And the company is sitting on an incredible amount of excess manufacturing capacity.
If you talk to one of the company’s top executives (at least the ones who have not quit over the past few months), they will tell you Harley follows lean-manufacturing principles to the letter. But if you walk through any of its factories after these layoffs and production cuts, you will see waste everywhere you look.
In its York, PA assembly plant, Harley recently finished a new cell-based assembly line. It is a top-notch production facility that will make any Japanese manufacturer drool, but it is filled with redundant processes to the older line that still operates just a few hundred yards from its loading dock.
Now that the company is cutting production, it has to eliminate those expensive redundancies. Today, it announced it will consolidate the campus’ two paint and frame facilities. The move will allow dust to settle on a huge chunk of the company’s total production capacity. If demand does not pick up soon, the recent expansion (rationalized by an expected increase in demand) will look like a major mistake.
Shares of the company may not be headed to zero today, but they made a major surge towards that horrific figure. In 1983, Harley Davidson needed help from the federal government. It may need it once again. Unfortunately, this time it may not get it.
That makes Harley a stock you absolutely must stay away from.
Next Article: $500 tax credit: Too little, way too late
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January 23rd, 2009 at 12:44 pm
Hey guys, sorry to break this to you but that’s not a Harley (in the photo.) Surely there’s more appropriate stock photos for this article.
January 24th, 2009 at 12:51 pm
Hutch, the photo is not the only thing wrong here.
March 2nd, 2009 at 1:19 pm
Most people on the street don’t know one cruiser from another.