DNZOY Denso Corp Ltd (PK)

Harley-Davidson Inc. (HOG) posted a 33.8% rise in earnings to 99 cents per share in the first quarter of 2013 from 74 cents in the same quarter of prior year, topping the Zacks Consensus Estimate by a couple of cents. Net income increased 30.3% to $224.1 million from $172.0 million a year ago while consolidated revenues improved 9.8% to $1.57 billion, exceeding the Zacks Consensus Estimate of $1.46 billion.

The increase in sales and earnings during the quarter were attributable to higher motorcycle shipments and continued improvement in operating efficiencies. Operating income rose 26.4% to $348.3 million from $275.5 million in the first quarter of 2012.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products grew 11.1% to $1.41 billion driven by higher shipments. Revenues from Harley-Davidson motorcycles increased 15.9% to $1.15 billion. Operating income from Motorcycles and Related Products soared 33.0% to $276.8 million driven by higher motorcycle shipments, higher gross margin and lower restructuring costs compared to the first quarter of 2012.

Harley shipped 75,222 motorcycles to dealers and distributors worldwide during the quarter, which was in line with its guidance, Shipments in the quarter increased 17.1% from 64,263 motorcycles in the first quarter of 2012.

However, Harley’s worldwide dealer retail sales of new motorcycles dipped 9.1% to 54,254 units. In the U.S., shipments went down 12.7% to 34,706 units as the year-ago quarter benefited from accelerated sales due to abnormally warm early spring weather.

In international markets, shipments fell marginally by 1.8% to 19,548 motorcycles. However, shipments rose 11.5% in the Asia Pacific region and 6.2% in the Latin America region but went down 10.8% in the EMEA region and 0.4% in Canada.

Revenues from Parts and Accessories ebbed 7.5% to $184.0 million while revenues from General Merchandise – which includes MotorClothes apparel – slid 3.3% to $72.1 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment improved marginally to $157.0 million in the quarter. Operating income increased 6.1% to $71.5 million from $67.4 million in the 2012-quarter. The improvement was driven by higher net interest income on favorable cost of funds, partially offset by slightly higher provision for credit losses.

Restructuring Activities

In the quarter, Harley-Davidson incurred lower restructuring charges of $2.9 million compared with $11.5 million in the year-ago period. Upon the completion in 2013, the company expects restructuring activities to result in one-time overall costs of roughly $495 million, including approximately $13 million in 2013.

Harley anticipates savings of approximately $305 million in 2013 from the activities initiated since 2009, giving rise to annual ongoing savings of approximately $320 million beginning in 2014.

Financial Position

Harley had cash and cash equivalents of $1.02 billion as of Mar 31, 2013, down from $1.28 billion as of Apr 1, 2012. Total debt decreased to $5.30 billion from $5.57 billion as of Apr 1, 2012. Consequently, long-term debt to capitalization ratio declined to 66.6% from 68.4% as of Apr 1, 2012.

In the quarter, Harley’s operating cash outflow deteriorated to $108.5 million from $73.6 million in the prior year quarter. Capital expenditures decreased to $22.3 million from $24.7 million in the first quarter of 2012.

Looking Forward

In 2013, Harley reiterated its shipment guidance of 259,000 to 264,000 motorcycles to dealers and distributors worldwide, reflecting roughly 4.5%–6.5% increase from 2012. In the second quarter of 2013, the company expects to ship 80,000 to 85,000 motorcycles.

Harley continues to expect gross margin between 35.25% and 36.25 % and capital expenditures between $200 million and $220 million for the full year.

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. The company retains a Zacks Rank #3 on its stock, which translates to a Hold rating for the short term (1 to 3 months).

Few stocks that are performing well in the industry where Harley operates include Visteon Corp. (VC), Denso Corp. (DNZOY) and Gentherm Incorporated (THRM). They carry a Zacks Rank #1 (Strong Buy).
 

 
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