Harley-Davidson Inc, the biggest US motorcycle maker, said fourth-quarter profit fell 58 per cent on weaker demand, missing analysts' estimates and pushing shares to the lowest level in almost 12 years.
The company plans to cut 1,100 jobs and close three facilities to save at least $60 million a year, the Milwaukee- based manufacturer said. Revenue fell 6.8 per cent to $1.29 billion. Harley wouldn't project 2009 earnings and said it's reducing shipments by as much as 13 per cent to prevent excess inventory.
The cuts “are probably enough for them to be profitable, but probably don't go far enough to be optimal for current market conditions,” said Ed Aaron, an analyst at RBC Capital Markets Corp. in Denver. “This is a capital consuming business in a bad credit environment.” Aaron rates the shares “sector perform.”
The stock dropped 90 cents, or 7.3 per cent, to $11.50 at 4:15 pm in New York Stock Exchange composite trading, the lowest since June 1997. Earlier, the stock fell 19 per cent, the biggest intraday decline since April 2005. Per-share earnings trailed the average estimate of 57 cents from 17 analysts in a Bloomberg survey.
Sales at Harley, the maker of Fat Boy and other cruisers, tumbled through 2008 as the US economy slowed and access to consumer credit tightened. List prices for Harleys range from $6,999 to $35,499. Harley is the world's largest seller of cruisers, models for leisure riding that are often equipped with engines 1000cc or larger, chrome exhaust pipes and 1950s styling.
“We have a strong core business anchored by a uniquely powerful brand, but we are certainly not immune to the current economic conditions,” Chief Executive Officer Jim Ziemer said in a conference call on Sunday.
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Net income declined to $77.8 million, or 34 cents a share, from $186.1 million, or 78 cents, a year earlier, when sales totalled $1.48 billion. Quarterly profit was the lowest in nine years.
The company projected costs of $110 million to $140 million to cover the job cuts and make adjustments for falling demand.
About 70 per cent of the job cuts will take place this year and the rest in 2010. The employment reductions equal 11 per cent of Harley's workforce, according to data compiled by Bloomberg.
“We really think this is where we need to be to restructure the company, given where the economy is,” Ziemer said in an interview on Sunday.
The company will close two engine and transmission plants near Milwaukee and move work to a plant in Menomonee Falls, Wisconsin. It will consolidate paint and frame operations at its York, Pennsylvania, assembly plant, close a distribution facility in Franklin, Wisconsin, and stop its domestic transportation fleet operation.
Ziemer declined to say whether further cuts are being studied or discuss severance terms for fired workers.
Results in the quarter were hurt by a $24.9 million operating loss at Harley's finance unit.
“The finance unit is so intertwined with the company now,'' Aaron said. “It's the facilitator of motorcycle sales.”
The company is looking at options to increase capital funding for Harley-Davidson Financial Services to help improve sales to customers, Chief Financial Officer Tom Bergmann said on the conference call.
Those include accessing unsecured debt markets, expanding an existing $500 million asset-backed security facility and trying to borrow funds under a new federal asset-backed security program, Bergmann said. He estimated the unit needs to raise about $1 billion this year.
The company has the option of cutting its dividend payment and diverting funds to the finance arm, Bergmann said in an interview.
“It's a major cash flow item,'' said Bergmann, named interim president of the finance unit after the January 8 departure of Saiyid Naqvi. “We'll continue to take a look at that.”
Revenue for 2008 fell 2.3 per cent to $5.59 billion. Annual net income dropped 30 per cent to $654.7 million, or $2.79 a share, from $933.8 million, or $3.74 a share, in 2007.
Ziemer, who announced last month he'll retire in 2009 after 40 years with Harley, said the company's board is continuing a search for his successor.
“When that process is done, we'll let everyone know,” Ziemer said. “We've got a long period of time in 2009 left.”
Harley's debt rating was cut two grades on January 16 to BBB+ from A by Standard & Poor's, which cited “concerns about the motorcycle market in the near-to-intermediate term against the backdrop of the recession.”
Japan's Honda Motor Co is the world's largest motorcycle maker, selling more than 10 million bikes annually.