Harley-Davidson: Earning Accolades, Posting Profits, Fighting To Sustain

Nov. 15, 2005
The Milwaukee-based motorcycle maker, under new leadership, is fighting analysts' sustainability predictions, and attempting to enter the China market.

Harley-Davidson Inc. is one of those companies that branding gurus dream of. Mention the name Harley-Davidson and images of Peter Fonda in Easy Rider and the open road come to mind. Even folks who can't afford the throaty-throttled bikes don Harley apparel in hope of capturing the allure of the tough, American-made bikes.

And according to analysts, therein lies the trouble.

Despite a great third quarter that ended Sept. 25, 2005 -- the company posted a 24.7% increase in earnings per share and a 15.7% increase in net income -- Wall Street predicts that Harley-Davidson is entering a maturity cycle.

In a Forbes magazine article dated Oct. 13, Scott Barry, an analyst for Credit Suisse First Boston, predicts business won't remain brisk forever. In the article, Barry pointed to the hype surrounding the company's 100th Anniversary [2003], easy credit availability and relatively high levels of discretionary income, as prime reasons for the late-summer buying surge.

If the analysts are right about the future of discretionary income, would-be Harley owners will have to be content with Harley garb instead.

Harley-Davidson Inc.
At A Glance

Harley-Davidson Inc.
Primary Industry: Motor Vehicles
Number of employees: 9,580
2004 In Review
Revenue : $5.3 billion
Profit Margin: 16.7%
Sales Turnover: 1.0
Inventory Turnover: 14.9
Revenue Growth: 8.5%
Return On Assets: 18.1%
Return On Equity: 30.1%
Even newly appointed CEO Jim Ziemer, who took the lead position after Jeffrey L. Bleustein retired in April 2005, notes the need for conservative growth projections.

According to an Oct. 12, 2005, press release, Ziemer states: "Harley-Davidson's current performance is outstanding and we have great new products and customer experiences planned for next year. However, as we look ahead we are watching the economy carefully. Given the uncertainty related to consumer confidence, increasing fuel prices and rising interest rates, we are setting a shipment target range of 348,000 to 352,000 Harley-Davidson motorcycles for 2006. [The company shipped 317,289 units in 2004. Year-to-date shipments for 2005 -- which don't include fourth-quarter results -- stand at 241,429.] Consistent with this more conservative outlook, we are also broadening our long-term guidance on wholesale unit growth to 5% to 9% annually. This will support an annual earnings-per-share growth target in the range of 11% to 17%."

While a conservative outlook is in place, Harley-Davidson -- one of IndustryWeek's IW 50 Best Manufacturing Companies in 2005 --- is continuing to grow its brand awareness.

The company is trying to enter the China market, which has a "de facto trade barrier" restricting Harley-Davidson's entry in the country.

According to The Business Journal of Milwaukee, "Milwaukee Mayor Tom Barrett is seeking the assistance of President George W. Bush to help drive Harley-Davidson Inc.'s efforts to enter the China market."

The article states that Barrett sent a letter to President Bush asking him to advance the cause of Milwaukee-based Harley-Davidson by supporting the purchase of Harley-Davidson motorcycles by Chinese police forces. Law-enforcement agencies in 45 nations use Harley-Davidson motorcycles.

Additionally, Harley-Davidson and Ford are extending the run of Ford Harley-Davidson F-Series trucks through 2009.

The motorcycle maker also is partnering with Trunk Ltd., a Culver City, Calif.-based manufacturer of luxury apparel, to design and distribute high-end sportswear.

Harley-Davidson also celebrated its 25th year of fundraising for the Muscular Dystrophy Association. Contributions over the 25 years total $55 million.

In other news, the company recently was honored with several awards, including an art award, the "Lorenzo il Magnifico," at the 2005 Florence Biennale, which honors contemporary art, design and culture. In particular, the award highlights the contribution of Willie G. Davidson, grandson of William A. Davidson, one of the original founders of Harley-Davidson.

According to a Nov. 10, 2005, press release, "Willie G. Davidson's unique approach to styling and design, and especially his vision in creating the very first factory custom motorcycles, has enabled the millions of people who are passionate about Harley-Davidson to feel as if they're riding something that stands out from the crowd . . . ."

In addition to art awards, Harley-Davidson won this year's annual Triad Annual Report awards competition, which honors companies for their commitment to clear, strategic annual report communication and design. The reports were judged by members of the Chicago chapters of The National Investor Relations Institute, the American Institute of Graphic Arts and professors at DePaul University's Department of Finance.

As for market value, the company's Web site features a graph that illustrates what an investment in the company would mean for shareholders' wallets.

According to the graph, if $100 was invested in Harley-Davidson Inc. common stock at the end of 1986, the year of Harley's IPO, and all dividends were reinvested, the value of the investment on Dec. 31, 2004, would have been approximately $18,810 -- enough money to purchase two 2006 XL Sportsters and a nifty shirt.

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