Harley Davidson Inc

“The pride of owning a Harley-Davidson is the pride of owning an American icon, with a cachet that is found in very few products, particularly ones that average a little more than $15,000.”, writes Merrill Lynch’s Hayley Kissel.[i] Many people that have helped make Harley-Davidson Inc. the Forbes Company of the Year for 2001 have shared this opinion.[ii] Harley has enjoyed 16 consecutive years of record revenue and income that has helped make it the Company of the Year.[iii] Harley has not always been so fortunate, but through perseverance by its management Harley has become a model company. Harley-Davidson Inc. is the stock that growth investors should have in their portfolio.

Harley-Davidson Inc. has two divisions to its business: Motorcycles and Related Products and Financial Services. The Motorcycles and Related Products are divided into the Harley-Davidson Motor Company and Buell Motorcycle Company.[iv] In addition, it produces its own parts and accessories, which are aptly named Genuine Motor Parts and Genuine Motor Accessories.[v] Harley’s Financial Services are run under the trade name of Harley Davidson Credit and Insurance.[vi] These two divisions contribute to the success of Harley-Davidson Inc.

The Motorcycles and Related Products division for Harley is in the business of designing, manufacturing, and selling motorcycles primarily in the heavyweight market. Harley makes motorcycles for four different markets: standard, which stresses simplicity and cost; performance, which stresses handling and acceleration; touring, which stresses comfort during long-distance travel; and custom, which stresses individual styling and customization.[vii] Harley represents these different markets in their line of motorcycles called Touring, Sportsters, Dyna Glide, Softail, and their newest creation which is the V-Rod. Harley manufactures 24 different models of motorcycles ranging in price from $5,595 to $18,980.[viii] Along with producing its own parts and accessories, heavyweight motorcycles is what the Motorcycles and Related Products contributes to Harley-Davison Inc.

The Financial Services division provides financial services to dealers and consumers in the United States and Canada. Harley provides wholesale loans to dealers for everything from computer loans to real estate loans. In 2000, 97% of all dealers utilized the loans from Harley.[ix] In addition, Harley tries to make it affordable for consumers to own a Harley Motorcycle by providing consumer loans and insurance for its products. These Services help support the main objective of Harley, which is to make and sell quality motorcycles.

Harley’s market structure is not only limited to the United States. Harley sells its line of motorcycles in Europe, Japan, and Canada.[x] However, in turn, Harley’s competitors come from the same countries as well. BMW, Honda, and Polaris Industries are just a few competitors in the heavyweight market.[xi] On its behalf, Harley does own 26% share of the total motorcycle market.[xii] This share helps Harley maintain its dominance in the market place as well as on its financial statements.

However, Harley did not always have it this well. William Harley and Arthur Davidson created the company when they put together a motorcycle in 1903 in their small shed.[xiii] During the early years of the 20^th century, Harley became financial sound. However, when the Depression hit, many companies had to fold. Harley made it through the Depression by making a V-Twin “knucklehead” engine that set land speed records and made Harley-Davison famous.[xiv] In the late 1960’s after some bad management decisions and stiff competition from Japanese makers, Harley was bought out by ATF.[xv] It was not until 1981 did Harley executives retake the company and make it is own entity again.[xvi] However, in 1985 four days before New Year’s Day Harley once again found itself in a position that would require it to close its doors or take on a buyer of the company.[xvii] With a last minute deal from Heller Financial, Harley Davidson was able to continue running.[xviii] Seven months later Harley went public and never looked back on financial strapped times. Since those trying times Harley, has experienced exponential growth.

Harley-Davidson Inc has reported strong earnings for many years. In Harley’s Annual Report it states:

As one can see Harley has preformed very well and is growing every year. The only large liability that has hurt Harley is that they have 597.1 million dollars in debt.[xx] Harley is still able to turn a profit every year, but the interest on the debt is the largest cost to their revenue. But to their credit their percentage of the total current liabilities verses their net worth is 36.8%, so they are well within manageable means.[xxi] The reason for such good revenue is that their net sales divided by their inventory is 15.143, which means they their sales greatly outnumber the inventory still in the plant.[xxii] These strong numbers help convey that Harley has been a strong producing company for quite awhile.

Harley has also done well in the current quarter. Though the events of 9/11 have brought a recession on the American economy, Harley has not slowed down in its production or its sales. In the fourth quarter of 2001, Harley saw all of its divisions increase despite a recession. Motorcycle revenue was up 19.3 percent from last year.[xxiii] Parts and Accessories segment saw a growth of 12.5 percent.[xxiv] Even the financial services division saw an increase of 31 percent from last year.[xxv] In addition, Harley experienced an increase of 14.4 percent in retail sales in the U.S. and a 10.7 percent increase in sales in Japan.[xxvi] Unfortunately, Harley experienced a loss of 2 percent in its European retail sales market.[xxvii] Overall, Harley experienced a net income increase of 25.9 percent and an increase of 12.9 percent unit growth worldwide in the fourth quarter.[xxviii] These strong numbers have helped convince Jeffrey Bleustein, chairman and CEO of Harley-Davidson Inc, to increase production from 243,000 units to 258,000 for 2002.[xxix] This increase in production and increase in profits for Harley help prove that through a bear or bull market consumers want Harley Davison Motorcycles worldwide.

This constant increase in money flowing into Harley has helped make Harley’s stock very attractive to the growth investor. On February 15^th, Harley-Davidson Inc (HDI) stock closed at $52.49 from $52.00.[xxx] This is up from last April when it was at $35.[xxxi] Harley has quickly been trading higher and higher even though the rest of the market has been sinking into recession. This, however, makes it a terrible stock for value investors, but for growth investors it makes it very attractive. Harley’s stock has steadily increased from 13.63 in 1997 to 54.31 in 2001, with a year-end P/E value of 24.12 in 1997 to 38.01 in 2001.[xxxii] The relative strength of the stock compared to the S&P 500 is 71.2 % with a total return (5 yr trailing) of 466.5%.[xxxiii] It is not surprising that Harley has had such growth. Harley has outperformed its industry in many categories for many years. Harley has a 10-yr Income Growth of 30.4%, while the Industry has only 16.38%.[xxxiv] Also, Harley has a 10-yr Operating Cash Flow Growth percentage of 25.4%, while the rest of the industry has 15.0% growth.[xxxv] An additional reason for Harley being a great growth stock is that the current P/E ratio for Harley is 38.90, while the rest of the industry is 67.8, which typically signifies a great growth stock.[xxxvi] For further proof, the National Association of Investors Corporation (NAIC) recommends this stock as a “Strong Interest” in their Established Growth Strategy.[xxxvii] For these many reasons, Harley is an attractive stock to add to a growth portfolio.

On the other hand, one must take some caution in this stock. There are two unfortunate problems that Harley must deal with if they are to be truly successful into the future. Harley’s main consumer base is aging too fast. The median Harley buyer is 46, which is up from 37 in 1990.[xxxviii] Competitors of Harley are finding it easier to slowly take market share from Harley, because they appeal to the younger generation where as Harley has not done a good job in doing so in past years. Also, if Harley does not make changes to appeal to younger generations, they will find that “Harley owners will be in wheel chairs by 2020 – and not from crashing their bikes.”[xxxix] Also, another problem is that Harley uses liberal accounting standards. Harley records shipments to dealers as sales.[xl] So, even though Harley reported a almost recession-defying net income this past quarter, it would only be because Harley has been stuffing the showrooms with bikes.[xli] But how many of those bikes is actually being bought by consumers and not just sitting as inventory in some dealers warehouse? These two problems of an ageing consumer base and liberal accounting practice could cause problems later on.

Harley has recognized and addressed these problems by coming out with a new motorcycle and by celebrating its birthday. This past November, Harley came out with a new motorcycle called the V-Rod. The V-Rod is a performance cruiser that has been totally redesigned from its traditional bike concepts. Harley worked with Porsche to build a liquid-cooled engine that will allow the rider to rev a little higher and hotter in each gear thereby increasing acceleration.[xlii] This new motorcycle is still a traditional heavyweight motorcycle, but its new exterior design and capacity for speed are trying to appeal to the younger generation. In addition, Harley will celebrate 100 years of making motorcycles. The world tour of festivities will commence in July 2002 and end in 2003 in Milwaukee where it all started.[xliii] Harley is using this birthday celebration to help teach younger generations of their past, influence sells of motorcycles through birthday sales, and other public relations activities to influence the culture of Harley Davidson onto the customer. The birthday celebration in Milwaukee is expected to draw in over 250,000 people.[xliv] These solutions are Harley’s way of making sure that Harley-Davidson continues to be profitable into the future.

Harley-Davidson Inc. has been making quality motorcycles for almost 100 years. Though many times Harley experienced rough times, Harley has managed to maintain a great level of quality motorcycles that have created an “American icon”. These icons have made Harley a financially responsible company and a great stock to add to the portfolio of the growth investor.

[i] Alex Taylor.  “Hogs Run Wild on Wall Street.” Fortune 3 Sept. 2001. 19 Feb. 2002

                    <http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=20

                    3772>.

[ii] Jonathan Fahey. “Love Into Money.” Forbes 7 Jan. 2002: 60.

[iii] “Harley-Davidson Reports Record Fourth Quarter and 16^th Consecutive Record Year;

2001 Net Income Increased 25.9% on 15.7% Higher Revenue.” PR Newswire 17

Jan 2002.

[iv] “Company Information.” Market Guide 19 Feb. 2002

<http://yahoo.marketguide.com/MGI/busidesc.asp?target=/stocks/companyinformation/busidesc&Ticker=HDI>.

[v] Ibid.

[vi] Ibid.

[vii] Ibid.

[viii] Ibid.

[ix] Ibid.

[x] “Harley-Davidson Reports Record Fourth Quarter and 16^th Consecutive Record Year;

2001 Net Income Increased 25.9% on 15.7% Higher Revenue.” PR Newswire 17

Jan 2002.

[xi] “Harley Davidson Inc.” Hoover’s Online 19 Feb 2002.

<http://www.hoovers.com/co/capsule/6/0,2163,10706,00.html>.

[xii] Jonathan Fahey. “Love Into Money.” Forbes 7 Jan. 2002: 61.

[xiii] Ibid.

[xiv] Ibid.

[xv] Ibid.

[xvi] Ibid.

[xvii] Ibid.

[xviii] Ibid.

[xix] “Financial Statements.” Standard & Poor’s NetAdvantage Feb. 2002. 19 Feb 2002

<http://www.netadvantage.standardandpoors.com/>.

[xx] “Balance Sheet.” Market Guide 19 Feb 2002.

<http://www.multexinvestor.com/MGI/mg.asp?target=%2Fstocks%2Fcompanyinformation%2Fbalancesheet%2Fabalancestd&Ticker=HDI>.

[xxi] “Financial Statements.” Standard & Poor’s NetAdvantage Feb. 2002. 19 Feb 2002

<http://www.netadvantage.standardandpoors.com/>.

[xxii] Ibid.

[xxiii] “Harley-Davidson Reports Record Fourth Quarter and 16^th Consecutive Record Year;

2001 Net Income Increased 25.9% on 15.7% Higher Revenue.” PR Newswire 17

Jan 2002.

[xxiv] Ibid.

[xxv] Ibid.

[xxvi] Ibid.

[xxvii] Ibid.

[xxviii] Ibid.

[xxix] Ibid.

[xxx] “One Click Scoreboard” Quicken Online 19 Feb 2002.

<http://www.quicken.com/investments/strategies/?symbol=HDI>.

[xxxi] Alex Taylor.  “Hogs Run Wild on Wall Street.” Fortune 3 Sept. 2001. 19 Feb. 2002

                    <http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=20

                    3772>.

[xxxii] “Performance Report” Market Guide 19 Feb 2002.

<http://yahoo.marketguide.com/MGI/mg.asp?nss=print&target=%2Fstocks%2Fcompanyinformation%2Fperformance&ticker=HDI>.

[xxxiii] “Fundamentals” Quicken Online 19 Feb 2002.

<http://www.quicken.com/investments/stats/?symbol=HDI>.

[xxxiv] Ibid.

[xxxv] Ibid.

[xxxvi] Ibid.

[xxxvii] “One Click Scoreboard” Quicken Online 19 Feb 2002.

<http://www.quicken.com/investments/strategies/?symbol=HDI>.

[xxxviii] Jonathan Fahey. “Love Into Money.” Forbes 7 Jan. 2002: 62.

[xxxix] Ibid 63.

[xl] Joseph Weber. “Harley Investors May Get A Wobbly Ride.” Business Week 11 Feb

2002: 65.

[xli] Ibid.

[xlii] Fahey, Jonathan. “Love Into Money.” Forbes 7 Jan. 2002: 62.

[xliii] Schaffler, Rhonda.  “Harley-Davidson, CNNfn.” Market Call (CNNfn)

                    18 Jan. 2002.

[xliv] Jonathan Fahey. “Love Into Money.” Forbes 7 Jan. 2002: 65.

“Financial Statements.” Standard & Poor’s NetAdvantage Feb. 2002. 19 Feb 2002

“Harley-Davidson Reports Record Fourth Quarter and 16^th Consecutive Record Year;

Weber, Joseph. “Harley Investors May Get A Wobbly Ride.” Business Week 11 Feb

								Search this site: search tips sitemap
Who is Eric?	Economics	English	Ethics	History	Interests	Leadership	Psychology	Politics	Links