Harley-Davidson Makes Some Scratch
Wednesday, January 25, 2012
The motorcycle market is stabilizing (it seems) on a new normal – well below the million-unit annual sales of the still familiar boom years. The MIC reported a timid 0.3% increase in 2011 sales
, good news in that it’s not more bad news. More encouraging was the 2011 earnings report from Harley-Davidson
H-D is back in black, reporting more than a half billion in 2011 income ($584.1 million). That is more than double its 2010 profits, and a reversal of a $55 million loss in 2009. While nowhere close to peak numbers in the previous decade (the Bar and Shield netted $933.8 million in 2007), Harley-Davidson
is doing what a publically-traded company should, make money for its shareholders.
It’s a feat not lost on investors, with Harley-Davidson stock having crashed and rebounded with the company’s fortunes. Months before the credit crisis in 2008 HOG stock held steady at around $40 a share. After the crash share value sunk, bottoming out in March 2009 when it traded for as low as $7.99. Now the share price is back over $40, closing yesterday after its positive earnings report at $43.32.
Share price is back to pre-crash levels, along with income in the hundreds of millions. An accomplishment made more remarkable considering Harley produces less motorcycles – quite a bit less. The Motor Company shipped 233,117 bikes to dealers and distributors in 2011. Compare that to the 330,6019 produced in 2007.
So… what else, beside those 100,000 bikes, is missing compared to 2007? Buell Motorcycles for one thing, liquidated in late 2009
. The dealer ranks have been culled too. And we assume when CEO Keith Wandell mentions in the 2011 Earnings Conference Call that H-D has “nearly completed efforts to rightsize the U.S. dealer network” that “rightsize” doesn’t mean expand (conference call transcript source Seeking Alpha
Also missing are full-time union jobs – rightsized during Harley's aggressive restructuring efforts.
H-D’s negotiation tactics for its labor contracts in recent years has followed a simple and efficient formula: workers at Plant A take our deal (with full-time union jobs cut outright or replaced with “casual” part-time workers) or else we’ll move production to Plant B. Workers at Plant B get the same ultimatum, or production moves to Plant C or Plant A or a different state…
The prime example is H-D’s plant in York, Pennsylvania, which had up to 2800 full-time jobs before the market woes. After threats to move production to Kentucky, in late 2009 York workers ratified a labor contract that cut full-time jobs from 1950 to around 750
, with another 250 “casual” workers.
The restructuring efforts are already reaping financial rewards. The 2011 earnings report reckons $68 million in restructuring costs were offset by $217 million in savings. That’s $149 million for the bottom line. And the savings will only improve through 2012 and beyond, as new labor contracts at H-D's Wisconsin and Kansas City plants start to take effect (paring off 325 and 145 full-time positions respectively).
While unpopular, Wandell’s restructuring plans and the transition to a leaner, flexible workforce have already paid off on the balance sheet. There are still plenty of unanswered questions about the future of the motorcycle market in general, and H-D in particular (foremost among these an aging rider population). But the Motor Company, and its investors, are making money, for now…
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