January 29, 2013 / 12:15 PM / in 5 years

Harley raises margin target as factory revamp kicks in

(Reuters) - Harley-Davidson Inc (HOG.N) said it expects profit margins to rise this year as the U.S. motorcycle maker begins to benefit from a revamp of its factories to allow them to react more quickly to shifts in demand.

The 110-year-old company has been working on upgrading the computer systems at its big factories in York, Pennsylvania, and Kansas City, Missouri, for more than a year. The upgrade will allow it to carry less inventory and sell more of its distinctive chrome-trimmed bikes at full price.

“We are seeing the benefits today,” Chief Executive Keith Wandell said of the system, based on SAP AG (SAPG.DE) software.

“There are still some glitches that we work through on a day-to-day, week-to-week basis,” Wandell said in a phone interview. “There will certainly be upside in our plants, in terms of our ability to produce.”

Harley forecast on Tuesday that 2013 operating margin would rise to between 35.25 percent and 36.25 percent of sales, up from 34.8 percent last year.

Its shares rose about 70 cents, or 1.3 percent, to $53.91 in morning trading on the New York Stock Exchange.

“I like the changes that are being made and in the near term there could be some upside,” said Jaime Katz, an analyst at Morningstar in Chicago. “But looking out further into 2014 and beyond, it becomes a little bit harder to capture margin gains and capture market share.”


The company said profit was $70.6 million, or 31 cents per share, compared with $105.7 million, or 46 cents per share a year ago, when it booked a 22-cent tax benefit related to the 2010 sale of Italian motorcycle operation MV Augusta.

Analysts, on average, had expected Harley to earn 32 cents per share in the quarter, according to Thomson Reuters I/B/E/S.

Revenue declined 1.5 percent to $1.01 billion from $1.03 billion a year earlier.

    Retail sales of motorcycles by Harley’s dealers - a measure of end-market demand - rose 8.4 percent in the quarter in the United States, Harley’s largest market. Outside the United States, the company saw declines in Canada and Europe, while retail sales rose in Asia and Latin America.

    “Given that our European business was down in 2012 and the economic concerns that remain in Europe for the near term, we no longer believe that we will meet our goal of international retail sales exceeding 40 percent of total retail sales by 2014,” Chief Financial Officer Jon Olin said on a conference call with analysts.

    About 35 percent of Harley’s 2012 retail sales were outside the United States.

    Milwaukee-based Harley said it expects to ship 4.5 percent to 6.5 percent more motorcycles in 2013 than it did last year, and plans $200 million to $220 million in capital expenditures.

    Harley’s rivals including Japan’s Honda Motor Co (7267.T), Suzuki Motor Corp (7269.T) and Yamaha Motor Co (7272.T), as well as Italy’s Ducati, which is owned by Volkswagen AG (VOWG_p.DE).

    As of Monday's close, Harley shares have risen about 20 percent over the past year, outpacing the 14 percent rise of the broad Standard & Poor's 500 index .SPX.

    Editing by Gerald E. McCormick and Maureen Bavdek

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