Monday, January 28, 2008

Harley Davidson: Bought

Harley Davidson (HOG) reported results Friday and they were as expected, anemic. The guidance for 2008, was, too be honest a bit more rosy than I would have expected.

Here is the nitty gritty:

Fourth-quarter net income fell 26% to $186.1 million, or 78 cents a share, from $252.4 million, or 97 cents a share. Analysts expected earnings of 82 cents a share. Revenue fell 7.7% to $1.39 billion from $1.5 billion a year ago.

For 2008, the company said it expects "moderate" revenue growth and earnings per share growth of 4% to 7%, compared to 2007. The company said for the first quarter of 2008, it expects to ship between 68,000 and 72,000 Harley-Davidson motorcycles, compared to 67,761 units in the first quarter of 2007, and for the year overall it plans to ship fewer motorcycles than it expects dealers to sell.

Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported fourth quarter operating income of $38.6 million, a decrease of $9.1 million or 19.1 percent compared to the year ago quarter. The decrease is primarily due to a $6.4 million write-down of retained securitization interests. HDFS full year operating income was $212.2 million, a 0.7 percent increase over last year's $210.7 million.

Stock Repurchase
The Company repurchased 3.2 million shares of its common stock at a cost of $153.3 million during the fourth quarter of 2007. For the full year 2007, they repurchased 20.4 million shares at a total cost of $1.15 billion. On December 31, 2007, the Company had 238.5 million shares of common stock outstanding.

As of December 31, 2007, there are 23.1 million shares remaining on board-approved share repurchase authorizations. An additional board-approved share repurchase authorization is in place to offset option exercises. This is roughly 10% of outstanding shares.

Cash Flow
Cash and marketable securities totaled $405.3 million as of December 31, 2007. Cash flow from operations was $798.1 million, and capital expenditures were $242.1 million during the full year of 2007. In 2008, capital expenditures are expected to be between $240 and $260 million.

With the US market clearly going to be in the doldrums for at least the first half of 2008, HOG must be seeing very positive trends in international markets.

The stock was down after the news in a flat market. Trading at near 5 year lows and yielding over 3%, there is not much more downside to shares from here.

Time to buy for those who have been waiting. Now, the market has been trading in some wild swings lately and looks on Friday morning to be approaching its first winning week this year so expect a wild ride (inference intended). That being said, we have been waiting since shares approached $70 to buy Harley and the time is now.

We bought on Friday at $38.05 a share

Disclosure ("none" means no position):Long HOG

Todd Sullivan's- ValuePlays

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