Citrus

Is $3.25 Gas Helping Harley Davidson?

TomS,

The article may be right in that the seller may be saving "$100 on gas a week."

The article says 40 miles 'to' work so that makes 80 miles a day.

Do this 6 days a week and that is 480 miles of commuting a week.

If a bike does 50 mpg then the gallon usage is 9.6 gallons a week on a Harley.

If he used an SUV gas guzzler getting around 12 mpg, then he bought 40 gallons of gas a week from the guzzler.

The savings are thus 30.4 gallons a week.

At say $3.25 a gallon this is $98.8 a week in savings.

All of this being said, the guy is 'selling' Harleys so he
will make the most positive comment possible.

Still I think there is some truth to this as I recall
reading somewhere that things like scooters have
taken off in the past couple of years. Yes this
is not a trend that can be extrapolated to all
Harley sales but on the margin it probably is helping
a bit.

The big picture is Harley's product is discretionary and expensive. But the company is a strong cash generating machine
and though I see troubles continuing in 2008, over time
the situation will improve. For instance, foreign
sales are very strong right now as the weaker dollar
and the iconic name have meant buyers are buying. Domestic
sales were down about 14 or 15% in Q4 2007, international
sales were up about 17%. International is still
smaller in aggregate.

I think the company is on its way to retiring 33%
of its outstanding shares when all is said and done
over the next couple of years - from something
around 302 million a few years ago to currently
around 238 million and (my guess) something
close to 200 million over the next few years. They
bought back 20 million in 2007. It looks to me like
they are parlaying a billion a year so perhaps
we get 30 million this year. (I don't know if this
much is authorized, but I suspect the company
will be aggresive in any case.)

The dividend yield is 3.3% with no threat to its
existence. In fact if I were Harley I'd perhaps
nominally increase this but keep the buybacks
coming.

Debt to fund the buybacks can bite you but
Harley should not run into major problems as
long as they don't get too silly.

I have a small long term position and continue
to buy opportunistically.