Harley-Davidson Retail Sales and Deliveries
Source: Seeking Alpha (2007)
Over the past four years, account receivable growth has outpaced sales and the result is there is more inventory on dealers lot than at any time in the history of HOG. The analysis states: “If the additional dealer inventory build was taken out of Harleys EPS from the previous two years and shipments evenly distributed throughout the quarters then Harley would have reported $3.41 last year and $3.14 in 2005 or a full $1.00 less of EPS over the past two years. Without dealer build, HOG would have reported net income without inventory build of $891 MM in 2006 and $838 MM in 2005 versus $889 MM in the base year 2004 placing the current P/E of the firm at an estimated 18x versus the current 15.6x. ” (Seeking Alpha, 2007)
Accounts Receivable Trends Over Past Four Years
Source: Seeking Alpha (2007)
The Seeking Alpha analysis states that investigation of Harley-Davidson makes it “readily apparent there was a high correlation between deliveries of new cycles and the companys EPS. By controlling for the 15% of share buyback Harley has engaged in since q1 2004, a robust EPS model was built that uses deliveries, shares outstanding, and seasonality to determine the companys EPS from 2002 forward.” (Seeking Alpha, 2007) the model reportedly tested “extremely well” in the prediction of future EPS when the current year is unknown results in an average miss of -.001 cents which is a standard deviation of.039 cents, a mean average percentage error (MAPE) of 5%, and an R2 equal to 94%.” (Seeking Alpha, 2007) the analysis states conclusions that this analysis shows that HOG did as many companies do in their aspiration to beat the market and near-term estimates however it appears that HOG managed this through “using its dealer network as an unwitting accomplice, allowing it to increase EPS and hoodwink $7.50/share from shareholders based on the current 15 P/E multiple.” (Seeking Alpha, 2007) However, Reese Fund analysts forecast that HOG is likely to be “forced to rob todays shareholder in order to pay for yesterdays. Given that net income without dealer build would have been flat for 2004 versus 2006, the apparent slowing in retail sales, and the impending Q1 earnings miss, we assign a sell to HOG stock and a near-term price target of $50 a share.” (Seeking Alpha, 2007)
III. Key Developments
Key developments reported for Harley-Davidson include a Reuters news report that “Harley-Davidson Inc.s Board approved a new share repurchase program for up to 20 million shares of the companys common stock with no dollar limit or expiration date. It is reported that HOGs price was down 0.85% after the transaction was announced on December 11, 2007.
The fourth quarter of 2007 met with an announcement of Harleys Davidsons Board of Directors approval of a $0.30 per share cash dividend payable to the holder of record of the Companys common stock on December 21, 2007. Additionally stated is the announcement of Harley-Davidson that a modest decline in revenue is expected with a lower operating margin and diluted earnings per share to decrease 4% to 6% compared to fiscal 2007. The report additionally states:
The Company reported EPS of $3.92 on revenue of $5.75 billion in fiscal 2006. For fiscal 2008, the Company anticipates that the U.S. retail motorcycle environment will continue to be challenging and expects moderate revenue growth, lower operating margin and diluted EPS to grow between 4% and 7% compared to fiscal 2007. According to Reuters Estimates, analysts are expecting the Company to report EPS of $3.73 on revenue of $5.68 billion for fiscal 2007 and EPS of $3.87 on revenue of $5.75 billion for fiscal 2008.” (Reuters: Key Developments, 2007)
Finally, it is reported by Reuters News that Harley-Davidson communicates and expectation of rise in earnings from approximately 4% to 7% in 2008 with analysts stating an expectation for an EPS of $4.05 for fiscal 2007 and $4.45 for fiscal 2008. The following figure is an industry income statement analysis for Harley-Davidson as of December 30, 2007.
Income Statement Analysis for HOG (December 30, 2007)
Totals HOG Industry Range
Total Revenue 6.2B -48.8K
13.3B Gross Profit 2.4B -52.1K
Operating Income 1.6B -33.2M
Net Income 1.0B Not meaningful
Source: Business Week (2007)
The annual income statement for the Harley-Davidson Company for the years 2003 through 2006 are shown in the following figure. In this figure, one notes that revenues experienced quite a rise from December 31, 2003 until the same day the following year and kept increasing steadily in 2005 and 2006. Due to over-delivery of stock, the operating income shows growth as do Selling General & Administration expenses and the Costs of Good Sold.
Annual Income Statement
Currency in Millions of U.S. Dollars as of: Dec 31
Restated Dec 31
Cost of Goods Sold
Selling General & Admin Expenses, Total
OTHER OPERATING EXPENSES, TOTAL
Interest and Investment Income
NET INTEREST EXPENSE
Other Non-Operating Income (Expenses)
EBT, EXCLUDING UNUSUAL ITEMS
EBT, INCLUDING UNUSUAL ITEMS
Income Tax Expense
Earnings from Continuing Operations
NET INCOME to COMMON INCLUDING EXTRA ITEMS
NET INCOME to COMMON EXCLUDING EXTRA ITEMS
Business Week reports Harley-Davidson Inc.s Ratio Data TTM as of: 09-30-20-07 to be as follows for profitability; margin analysis; asset turnover, credit rations, long-term solvency; and growth over prior year.
Ratio Data TTM as of: 09-30-2007)
Return on Assets
Return on Equity
Return on Capital
Levered Free Cash Flow Margin
Total Assets Turnover
Accounts Receivables Turnover
Fixed Assets Turnover
Total Liabilities/Total Assets
GROWTH OVER PRIOR YEAR
Tangible Book Value
Diluted EPS Before Extra
Cash From Ops.
Levered Free Cash Flow
Source: Business Week (http://investing.businessweek.com/businessweek/research/stocks/financials/ratios.asp?symbol=HOG)
Business Week reports that in the past ninety days preceding December 7, 2007 that “Insiders control 0.16% of HOG through the 330.895 shares held and that “this level of ownership is similar to that of many other companies in the Automobiles industry. However, over the last 3 months, insiders have purchased a net 1.46 4K shares in “stark contrast to the 2-year quarterly average where insiders are net sellers and provides some indication that insiders are more bullish about HOGs prospects for the next 6-12 months. The Activity overview for this period of time is shown in the following chart.
Insiders Transactions – Activity Overview
0.05% of Exec Shares
0.00% of Exec Shares (Business Week:, 2007)
The Harley-Davidson company reported its 2007 third quarter results ending September 30, 2007 and stated that revenue for the third quarter was $1.54 billion compared to $1.64 billion in the year ago quarter, at a 5.8$ decrease with net income for the quarter being stated at $265.0 million as compared to $312.7 million which was a 15.3% percent decrease as compared to the third quarter of 2006. Earnings per share (EPS) were also down by 10.8% as compared to those in the same quarter of 2006. The companys Chief Executive Officer of Harley-Davidson, Inc. stated: “Harley-Davidsons third quarter financial results are disappointing, but no unexpected. In early September, we announced that we would reduce planned motorcycle shipments for the rest of 2007, and our results are consistent with the Companys revised guidance.” (2007) the company states that it has expectations to ship somewhere in the range of 328,000 and 332,000 Harley-Davidson motorcycles in 2007 as compared to shipments in 2006 of 349,196 units shipped in 2006. It is also related that a “modest decline in revenue and lower operating margin in 2007” is anticipated. There is a predicted decrease in diluted earnings per share by 4% to 6% to expect for investors in 2008. The Harley-Davidson company predicts “…the U.S. retail motorcycle environment will continue to be challenging. It expects moderate revenue growth, lower.