UPDATE: Harley-Davidson CFO Sees Higher Metal Prices In 4Q
Wednesday October 13, 1:42 PM EDT
(ADDS impact of metal prices in 4Q in 2nd graf and ADDS info about storms in the 7th graf. )
By Dwight Oestricher
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Harley-Davidson Inc. (HDI) Chief Financial Officer Jim Ziemer said the rising cost of metal could lead to $3 million to $4 million in surcharges in the fourth quarter.
Based on the company's diluted outstanding share count of 285.8 million, that could mean a cut of about a penny in per-share earnings. According to a Thomson First Call analyst projection, the company is expected to earn 69 cents in the fourth quarter, compared with 60 cents a year ago.
The Milwaukee maker of motorcycles said suppliers managed most of the risk for metal prices in the third quarter. To hedge against more increases, the company "will lock in some orders in the next three to four months, depending on what metal markets are doing," Ziemer said during a call Wednesday to discuss earnings results.
"We could expect surcharges to continue next year," he said. "(Metal prices) are at all time high levels and if they stay up there, there will be more charges."
For the third quarter, Harley-Davidson reported earnings of 77 cents a share, topping the 62 cents of last year and the Thomson First Call analyst projection of 75 cents.
Net income totaled $229 million on revenue of $1.3 billion compared with net income of $190.1 million on revenue of $1.13 billion last year.
The storms that swept through Florida and Gulf Coast states kept some potential customers away in the quarter, Ziemer said. Harley has started " limited incentive programs" in select markets that were affected by the weather to increase orders for fall and early winter, he said.
Despite a greater contribution from its lower-priced Sportster mix, compared with its premium-priced touring bikes like Road King and Electra Glide, gross margins for the quarter improved to 38% of revenue from 35.6% a year ago. Ziemer noted that the company had its York, Pa., site fully operational this year while it was just ramping up last year.
Harley-Davidson also realized about an $8 million gain on favorable foreign exchange which, when you exclude $2 million of expenses at European and Japanese wholly owned operations, turned into $6 million of operating profit, Ziemer said.
U.S. motorcycle sales were down 9.8% against tough comparisons with 100th anniversary products. International motorcycle sales were down 0.9%, with sales down 5.1% in Europe on a weak German economy and down 10.2% in Japan, where a rule prohibiting more than one rider on a motorcycle is hurting sales, Ziemer said.
Total motorcycle revenue in the quarter rose 18% to $996.6 million as shipments totaled 80,578 units, topping Harley's target of 80,500 units.
The company stuck to its 2004 shipment target of 317,000 and 2005 target of 339,000 units, in line with the estimated unit growth rate of 7% to 9% annually.
The company securitized about $625 million of motorcycle retail loans in the quarter for a gain of $13.8 million in the period. With the smaller amount of loans in the fourth quarter, the company won't securitize loans again until the first quarter, Ziemer said.
At Harley-Davidson Financial Services, where the loans originate, operating income in the third quarter rose 8.4% to $50.1 million from $46.2 million last year. The company reiterated that it expects operating income growth for the financial services unit to be slightly higher than the projected 7% to 9% motorcycle unit growth rate in the long term.
Shares of Harley-Davidson were down $1.38, or 2.3%, at $58.36 on volume of 2.5 million shares, compared with average daily volume in the NYSE-listed stock of 1.4 million.
-By Dwight Oestricher, Dow Jones Newswires; 201-938-5266; dwight.oestricher@ dowjones.com
Dow Jones Newswires
10-13-04 1342ET