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Harley-Davidson (HOG): Sales Rebound, Margin Gains To Boost Q4 Results

 January 28, 2013 02:42 PM

(By Mani) Motorcycle company Harley-Davidson, Inc. (NYSE: HOG) is set to report its fourth-quarter results on Jan.29 amid a nice rebound in sales from a late summer slowdown and margin improvements.

Consumers and dealers seem especially pleased with new motorcycle models, including 110th Anniversary editions, the new CVO Breakout, the redesigned Street Bob, additions to the HD1 program, and hard candy paint jobs.

Harley-Davidson dealers appear to be experiencing stronger business conditions relative to the balance of powersports dealers. Forty-six percent of Harley dealers indicate that current business conditions are strong versus 29 percent for the rest of the power-sports dealers, according to a survey by RBC Capital Markets.

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A greater percentage of Harley dealers also indicated that traffic and buying interest were better in the fourth quarter than the previous quarter and profit margins were better than a year ago when compared to the other power-sports dealers.

The company is growing sales through innovation and quality products and has been successful in attracting new riders and broadening its customer base. Benefits from restructuring and operating expense savings should allow these top-line gains to fall to the bottom line at a faster rate.

Wall Street sees earnings of 32 cents a share, according to analysts polled by Thomson Reuters. The consensus view implies a 33 percent increase from last year‘s 24 cents a share.

Harley-Davidson may want to continue its string of above-consensus earnings in the past four quarters. In the last 30 days, two analysts have upped their fourth-quarter earnings target for the company.

[Related -Harley-Davidson, Inc. (HOG): Replacement Cycle, Strong Demand Bodes Well For Topline]

Quarterly sales, however, are projected to fall 4.9 percent to $976.71 million from $1.03 billion in the same period last year. Sales should see at least 3 percent growth in the first quarter on favorable comparisons. Investors should watch the motorcycle shipments for the quarter and the annual shipment guidance.

For the fourth quarter, the company expects to ship 44,500 to 49,500 motorcycles, a two-to twelve-percent decrease from the year-ago period. This is consistent with the company's plans for lower shipments in the fourth quarter related to the implementation of surge production at York in the first half of 2013.

"We expect management to issue conservative initial shipment guidance of 255-260K bikes (about 3-5% growth), which is in line with our estimate of 258K but perhaps slightly below consensus," RBC Capital Markets analyst Edward Aaron said in a note to clients.

Milwaukee-based Harley-Davidson's third-quarter profit declined to $134.0 million or 59 cents per share from $183.6 million or 78 cents per share last year. Motorcycles and related products revenue for the quarter fell to $1.09 billion from $1.23 billion in the prior year quarter.

It appears the company is doing a much better job of having what consumers want available at retail. This should improve as the company implements flexible production at its York plant in 2013. The mix of inventory in the channel looks very positive, with prior-year model inventory down 31 percent while the current model year inventory is up 32 percent. Pre-owned inventory is up 6 percent.

Meanwhile, the anticipation of retail sales acceleration beginning in April, which marks the start of a five month period of easy comparisons, should bode well for the stock.

On the valuation perspective, shares of Harley-Davidson trades at 15.5 times 2013 consensus earnings of $3.41, which represents good value and an attractive entry point given earnings projected to grow 25 percent in 2013.



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