Harley's Muted Roar

Over the past year, Harley-Davidson inc. has closed factories, slashed its workforce, dropped one brand and sold another, and reduced operations at its largest assembly plant, all in an effort to restructure in the face of a sluggish economy that has stalled consumer demand.

Charges associated with the restructuring factored into the Milwaukee-based heavyweight motorcycle manufacturer’s first quarterly deficit since 1993, but company management is insisting that the dramatic and difficult changes have been necessary to cope with weak demand for high-end motorcycles stemming from the long-running economic downturn.

“We have confidence we are doing the right things to manage our business prudently and effectively in this economy and to restore Harley-Davidson to greater profitability going forward,” Harley-Davidson’s chief executive officer Keith Wandell said in a conference call with analysts.

Harley-Davidson reported a net loss for the fourth quarter of 2009 and for the full year in part due to major restructuring charges.

Harley-Davidson had a fourth-quarter net loss of $147.2 million, compared with net income of $91.9 million, for the year-ago period, from continuing operations. It is the first quarterly net loss for the firm since the fourth quarter of 1993. Including discontinued operations, the fourth-quarter net loss stood at $218.7 million.

Harley-Davidson reported a full-year net loss of $55.1 million. Full-year revenue from continuing operations was $4.29 billion in 2009, compared with $5.58 billion in 2008.

Most of the major changes that have taken place at Harley-Davidson have occurred since Wandell, an outsider, was hired to lead to the company in may 2009. he immediately began efforts to restructure the company priorities.

“First was to continue to take the actions necessary and execute effectively on our strategy to manage the business in the current economic environment,” Wandell said. “At the same time it was even more essential we develop a clear, comprehensive, and powerful strategy to maximize our opportunities for growth and profitability going forward.”

Among the actions taken under Wandell’s watch have been reduced shipment volumes and a major restructuring of Harley-Davidson’s production operations, which included the elimination of the Buell brand and the sale of the MV Agusta business.

Wandell said he expects 2010 to be “another challenging year” for the industry and for Harley-Davidson, but said the brand continues to have “exceptional strength.”

He added that the company will remain focused on expanding Harley-Davidson’s reach into other parts of the world, including the recent entry into India.

“We have high expectations for that market over the long term,” Wandell said.

Craig Kennison, an analyst at Robert W. Baird & co. inc., Milwaukee, stated in a research note that Harley-Davidson’s “compelling turnaround story remains intact.”

Several potential catalysts could boost Harley-Davidson’s business over the next year to 18 months, including better residual values, improving retail trends, lower structural costs, stronger international growth, and a potential plan to “rethink” Harley-Davidson Financial Services, its wholly owned finance company.

Harley-Davidson’s decision to limit production is working to rebuild the “scarcity premium” its bikes once enjoyed, Kennison said.

“Although shipment guidance is disappointing, it likely will accelerate the recovery in residual values,” he said.

Baird estimated that the average Harley-Davidson dealer in the United States had 54 motorcycles in inventory at the end of 2009, down from 116 bikes at the end of 2006.

Rich Rovito writes for the Business Journal of Milwaukee.

Harley's Muted Roar