Thursday, October 15, 2009

Harley Davidson (HOG) strangeness

I have a small short position in Harley Davidson (HOG) and their 3rd quarter earnings were released today. 

The headline numbers were predictable, 3rd quarter sales down 21.3% year over year, earnings down due to numerous write offs.  Stock opens lower.  So far so good for my short position.

As I look through the quarterly report and listened to their conference call two items caught my attention.
Source:  Harley Davidson press release 2009 October 15
              Harley Davidson shipments data

From their press release:


The Company is narrowing its guidance for full-year 2009 shipments, and now expects to ship 222,000 to 227,000 Harley-Davidson motorcycles to dealers, including 35,000 to 40,000 during the fourth quarter. The Company continues to expect full-year gross margins to be between 30.5 percent and 31.5 percent.

So lets split the difference and say they are going to ship 37,500 motorcycles in the 4th quarter 2009.   In 4th quarter 2008 they shipped 80,476 units.  Harley Davidson is telling us right now shipments (and thus motorcycle revenue) will be more than 50%  lower for the fourth quarter.

I'm not disparaging the brand or the company.  They are in a tough business right now; selling a 20,000 dollar completely discretionary product.  Harley Davidson was very clear about their plans to reduce production in the 4th quarter and how their credit write offs continue to increase. I have to give the company credit for their presentations, but the data does not look good.

The stock closed 5+% higher for the day?


  1. That is heart heartbreakingly hysterical. The shorter's lament. And excellent proof of why this rally has no bearing on reality. What's the S&P 500s P/E ratio now? 73.87.


  2. It is perplexing, but my guesses as to why the stock went up is a hope on a V shaped recovery and HOG's goal of 40% internationl sales by 2014. Considering overseas sales are falling slower than domestic sales and the weaking dollar, they could reach that mark without any sales growth! :/

    I am also worried about their balance sheet and all the motorcycle loans they are carrying on their books. Approximately 50% of all sales include a loan placed and held by HOG.

    HOG is a very high beta play on a V shaped recovery.