Harley-Davidson Beats Earnings on Higher Motorcycle Shipment

Harley-Davidson Inc. HOG posted a 33.9% rise in earnings to $1.62 per share in the second quarter of 2014 from $1.21 in the year-ago quarter. Earnings topped the Zacks Consensus Estimate of $1.46 per share.

The year-over-year increase was due to improved motorcycle shipments and enhanced operating efficiencies. Net income rose to $354.2 million from $271.7 million a year ago.

Consolidated revenues improved 11.7% to $2 billion, surpassing the Zacks Consensus Estimate of $1.84 billion. Operating income rose 26.8% to $547.7 million from $431.8 million in the second quarter of 2013.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products improved 12.4% year over year to $1.83 billion in second-quarter 2014. Revenues from Harley-Davidson motorcycles increased 16.2% from the last-year comparable figure to $1.48 billion.

Operating income from Motorcycles and Related Products rose 32.3% to $473.3 million from $357.7 million a year ago. The year-over-year improvement was driven by increased motorcycle shipments and gross margins as compared with the second quarter of 2013.

Harley-Davidson shipped 92,217 motorcycles to dealers and distributors worldwide during the quarter. Shipments in the quarter improved 9% from 84,606 motorcycles in the second quarter of 2013.

Harley-Davidson's worldwide dealer retail sales of new motorcycles inched up 0.03% to 90,218 units. In the U.S., sales dropped 0.03% from the year-ago quarter to 58,225 units. Adverse weather conditions in the U.S. affected sales, along with the expected arrival of the new Street motorcycles in showrooms, which lowered sales of the Sportster motorcycles.

In international markets, sales rose 0.13% to 31,993 motorcycles. Sales increased 1.5% in the Asia-Pacific region and 7% in the Europe, Middle East, and Africa (EMEA) region but declined 18% in Canada and 10.4% in the Latin America region.

Revenues from Parts and Accessories increased 0.7% to $271.6 million, while revenues from General Merchandise – which includes MotorClothes apparel and accessories – fell 6.51% to $76.4 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment improved 2.2% to $166.4 million in second-quarter 2014. Operating income inched up 0.4% to $74.4 million from $74.2 million in the prior-year quarter. Operating income gained from higher net interest income, partly offset by higher provision for credit losses.

Financial Position

Harley-Davidson had cash and cash equivalents of $999.3 million as of Jun 29, 2014, down from $1.3 billion as of Jun 30, 2013. Total debt decreased to $5.36 billion from $5.54 billion as of Jun 30, 2013.

In the first half of 2014, Harley-Davidson's operating cash flow improved to $570.6 million from $389.7 million in the prior-year quarter. Capital expenditures increased to $74.5 million from $66.6 million in the first half of 2013.

Share Buyback

Harley-Davidson spent $135.7 million to repurchase 1.9 million shares in second-quarter 2014. The company had 26.6 million shares remaining under its repurchase program at the end of the quarter.

Looking Ahead

For 2014, Harley-Davidson lowered its guidance for shipment to dealers and distributors worldwide to 270,000–275,000 motorcycles from 279,000–284,000 motorcycles planned earlier. This implies a 3.5–5.5% increase over 2013, compared with the previous guidance of a 7–9% increase. The company expects operating margin between 17.5% and 18.5% in the Motorcycles segment and capital expenditures of $215–$235 million for full-year 2014.

In the third quarter of 2014, Harley-Davidson expects shipments to range between 49,000–54,000 motorcycles.

Currently, Harley-Davidson holds a Zacks Rank #4 (Sell). Better-ranked automobile stocks worth considering include Meritor, Inc. MTOR, Magna International Inc. MGA and Gentex Corp. GNTX. All these stocks sport a Zacks Rank #1 (Strong Buy).

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