Harley Davidson Looks Good to Go
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When I was a kid, I had a strong fascination with Harley-Davidson’s (NYSE: HOG) motorcycles and used to long for them. This fascination continues to grow stronger after watching the motorcycle manufacturer’s overwhelming performance, driven by extraordinary demand for its products. It seems that people just cannot get over the charm of its heavyweight motorcycles that sizzle the road, resulting in a sizzling performance on the Street. Harley reported its second quarter earnings recently which were actually relieving to the eyes but a weak outlook couldn’t support the share prices which plunged after the announcement.
A Complete Quarter…
The results were good from all sides. Revenue grew 14.9% to $1.57 billion, driven by increased demand for its vehicles, especially in the U.S. Volumes increased significantly along with a 25% increase in shipments. The earnings for the period shot up 32.1% to $1.07 a share. The motorcycle manufacturer has been spending a lot on restructuring, which is saving costs to a large extent, giving better earnings power. The plan is expected to save more than $300 million every year after it gets completed in 2013. This is yielding better gross margins for the company. Moreover, Harley has initiated a new Enterprise Resource Planning system through which better productivity levels are achieved, making Harley’s production more flexible to the demands and requirements of the consumers.
The Financial Services segment was flat over last year’s quarter, which highlights that the credit of all growth goes to the motorcycle segment, which witnessed great sales in all geographical markets, with Europe falling a little weak compared to the rest. New Harley Davidson dealerships played a very important role, so much so that it drove revenue by a mind blowing 38% in Latin America. The motorcycle manufacturer’s efforts paid off and the results were seen in the strengthening of its market share, especially in the U.S. In fact, Harley is in plans to have 75 more new dealerships internationally which highlights the growth prospects of this giant.
A Small Hiccup from Peers
Though Harley-Davidson performed very well, it failed to meet analysts’ expectations. Moreover, its second quarter failed to outperform its peers such as Polaris Industries (NYSE: PII), which posted an overwhelming quarter with a 24% increase in revenue and a 43% surge in profits. In fact, even Arctic Cat (NASDAQ: ACAT) registered an amazing quarter and was way above analysts’ expectations. Its top line shot up by 49% to $111.3 million.
Both the companies pleased investors all the more by raising their guidance for the year. Here, Harley looked dull since its outlook was weak. Nevertheless, its margins became stronger where Polaris witnessed shrinking margins due to higher costs. Also, with cost saving initiatives and better productivity, Harley may be the star performer in the coming time.
Meeting estimates or giving a bright outlook is not the only criteria for a company to qualify for your portfolio. It is important to perform well so as to provide shareholder value. The motorcycle manufacturer has been making smart moves to handle one of the most important aspect of business - costs. If it manages to take care of this there can be no stopping on its way.
Efforts to increase productivity and save costs have already been helping it establish a strong foothold in the U.S. market. On the other hand, its international position will also be gaining momentum with expansion in the cards. Overall, Harley-Davidson looks good to go and investors should take notice.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Arctic Cat. Motley Fool newsletter services recommend Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.