Car Guy

Earnings Preview: Harley-Davidson

The market has been surprised by mention of 20-25% sales declines, but I'd be surprised if they hold up even that well. Overall auto industry sales were down 35% in the 4Q, so one would think luxury motorcycle sales would be down at least that much given their discretionary nature. In addition, 2/3 of auto demand is driven by the scrappage rate or replacement demand -- motorcycle sales don't have that kind of support.

Dividend has also got to be at risk. The $1.32/share dividend costs them >$300mm annually. Assuming a 25% sales decline, I calc they can only generate $400mm in net income (while not generating any cash), so the dividend has got to be reduced if not totally eliminated.

In the company's defense, I find it amazing how profitable they once were (gross profit of over $6k per bike!) and commendable that they are able to generate any profit at all assuming a 25% sales decline. With all the operating leverage, you just don't see that kind of profitability in the auto industry. However, I think Street expectations for HOG's top line and profitability are still too optimistic. I can't see them earning more than $2.00 in 2009 and tend to agree with GS that it could be as low as $1.43.