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Harley-Davidson Earnings Preview: Q1 EPS Expected to Be Up 29%

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Plus seven investments HOG fans should consider.

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Harley-Davidson (HOG), which last month saw head designer Willie G. Davidson, grandson of founder of William A. Davidson, step down after 49 years, is scheduled to report first-quarter 2012 results tomorrow, April 25, before the opening bell.

The past couple years have been tough for the company, which recently made cuts to its hourly workforce and shut down a plant in Wauwatosa, Wisconsin. But the Milwaukee company has expanded the appeal of its iconic products over the past two decades beyond the middle-class bikers that made it famous. And international retail sales have grown as a percentage of total sales; Harley-Davidson forecasts that more than 40% of its retail sales will occur outside the United States by 2014.

Expectations

Analysts predict that Harley-Davidson will report per-share earnings of $0.72 for the quarter and that revenue totaled $1.2 billion. In the same quarter of last year, the company reported $0.51 per share and $1.1 billion in sales. The EPS estimate has inched up $.01 in the past 60 days. And note that analysts have underestimated Harley-Davidson's EPS in all but one of the past eight quarters; the positive surprise was $.01 per share in the fourth quarter.

In that fourth-quarter report, the company said it swung from a previous-year loss to a profit of $105.7 million. Adjusted earnings came to $0.24 per share, compared with an adjusted loss of $0.18 per share in the 2010 quarter. Revenue rose 9.3% year-over-year to $1.18 billion. Harley-Davidson attributed the sales increase in part to improved consumer confidence in the US, but warned that its 2012 sales could be affected by economic uncertainty, especially in Europe.

Looking ahead to the current quarter, analysts so far expect to see a sequential and year-over-year decline of per-share earnings, as well as revenues about the same as a year ago. At this point, the full-year forecast has EPS up more than 14% from the previous year and revenue more than 6% higher.

The Company

Milwaukee-based Harley-Davidson operates in two segments. The Motorcycles and Related Products unit produces and sells heavyweight motorcycles, parts, accessories, and related merchandise. The Financial Services unit provides wholesale retail financing and insurance primarily to dealers and their retail customers in the US and Canada. The company was founded in 1903, and it now is a member of the S&P 500 and sports a market cap of $11.6 billion.

Competitors include Honda Motor (HMC) and privately held Suzuki Motor, Yamaha Motor, and Triumph Motorcycles. Tokyo-based Honda, which makes automobiles, other vehicles, and power products in addition to motorcycles, is expected to report that its fiscal fourth-quarter EPS more than doubled year-over-year, while revenues rose more than 11%. Honda reports its results on Friday.

During the three months that ended in March, Harley-Davidson's CEO, Keith Wandell, also became chairman, and he declined a salary increase for 2012. As mentioned above, the company announced the retirement of its chief stylist. And in February, it introduced two new models inspired by trends in the American garage-built custom motorcycle scene.

Performance

Harley-Davidson's long-term earnings per share growth forecast is 11.7%. Its return on equity is 23.7% and the operating margin is higher than the industry average. Its 19.9 trailing P/E ratio is in line with the industry average. The dividend yield is 1.2%. On average, analysts who follow the stock recommend buying shares. Their mean price target is only about 2% higher than the current share price, but the price targets range from $38.00 to $60.00.

The stock hit a multiyear high of $52.03 last Friday, and the share price is now more than 30% higher than at the beginning of the year, including up more than 5% in the past week. The price is above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed Honda Motor, as well as other recreational vehicle companies such as Thor Industries (THO).

ACTION ITEMS

Bullish:

Investors interested in exchange traded funds invested in Harley-Davidson might want to consider the following trades:

  • First Trust NASDAQ Global Auto Index (CARZ) is more than 14% higher year to date.
  • ProShares Ultra Consumer Goods (UGE) is more than 14% higher year to date.
  • Consumer Discretionary Select Sector SPDR (XLY) is more than 13% higher year to date.
  • iShares S&P Global Consumer Discretionary (RXI) is more than 13% higher year to date.
Bearish:

Traders may prefer to consider these alternative positions in the recreational vehicle industry:

  • Arctic Cat (ACAT) is up more than 93% year to date.
  • Polaris Industries (PII) is up more than 41% year to date.
  • Winnebago Industries (WGO) is up more than 23% year to date.

Editor's Note: This content was originally published on Benzinga.com by Nelson Hem.

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No positions in stocks mentioned.

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