Harley-Davidson 4Q profit tumbles

MILWAUKEE - Harley-Davidson Inc. says riders concerned about the economy are throttling big purchases, like the company's classic motorcycles, sending its profit down 26.3 percent in the fourth quarter.

Sales in the U.S. were down 14.2 percent in the quarter, the company said Friday. That outpaces the domestic heavyweight motorcycle market's fall of 9 percent.

CEO Jim Ziemer called the retail environment "challenging" for this year and said dealers report consumers are worried about the direction of the economy. They're holding off on larger purchases, like Harley-Davidson motorcycles, which start at $6,695 but can often cost more than $20,000 fully loaded.

"The big thing is not lack of interest," Ziemer said in an interview. "People are waiting to see what happens with the economy before making big decisions."

But the company said it expects moderate growth in both earnings per share and revenue this year. Analysts expected slightly lower revenue and higher earnings in 2008.

Harley-Davidson's shares rose as much as 5.8 percent to $42.45 in trading earlier Friday, but they fell to close down $2.16, or 5.4 percent, to $37.96.

Milwaukee-based Harley said its profit for the quarter ended Dec. 31 totaled $186.1 million, or 78 cents per share, compared with a profit of $252.4 million, or 97 cents per share, a year ago. Revenue dropped 7.7 percent to $1.39 billion from $1.50 billion in the period.

Analysts had expected a profit of 82 cents per share on revenue of $1.34 billion, according to a poll by Thomson Financial. The earnings estimates typically exclude one-time items.

Worldwide retail sales of Harley-Davidson motorcycles were down 6.1 percent in the quarter, and overseas, they were up 17.4 percent. That market now makes up more than one-fourth of the company's sales.

The company has been cutting its shipments so dealers don't have a big buildup of inventory. Its shipments for the quarter were down 12.5 percent to 81,206 units, a drop of 11,642 units.

For the year, profit fell to $933.8 million, or $3.74 a share, from $1.04 billion, or $3.93 a share, in 2006. Revenue slipped 1.3 percent to $5.73 billion from $5.8 billion in 2006.

Worldwide sales fell 1.8 percent in 2007, while U.S. sales were down 6.2 percent. The overall heavyweight market was down 5 percent for the year, Harley said. Internationally, Harley's sales finished the year up 13.7 percent.

Shipments for the year were down 5.3 percent to 330,619 motorcycle units, from 349,196 bikes in 2006. Harley-Davidson cut its bike shipments in the wake of expected falling sales and even idled its plants for a week in November.

First quarter shipments are expected to be between 68,000 and 72,000 bikes, compared to 67,761 units in the first quarter of 2007. But last year's first quarter shipments were down 14.8 percent because of a three-week strike at the company's largest plant, in York, Pa.

Bill Barker, an analyst with The Motley Fool, said Harley will have to watch its inventory in the next few quarters as it prepares to introduce new models this summer.

"That would be a bad situation for there just to be way too many end-of-the-year bikes in dealers in the early summer," he said.

Ziemer said Harley will monitor bike shipments. The company had a "dreadful" view of the fourth quarter, he said, and the outlook is cautious for 2008.

But even with those expectations, Harley-Davidson said it expects moderate revenue growth and earnings per share growth of between 4 and 7 percent this year compared to 2007.

Analysts are expecting a drop in revenue to $5.6 billion for 2008 and earnings per share of $3.79, according to Thomson.

Citigroup analyst Greg Badishkanian said in a research note the company's guidance may be "overly optimistic" given the recent declines.

Barker said Harley may be able to meet its guidance if it continues its aggressive buyback strategy. The company bought back 20.4 million shares of its stock in 2007 at a cost of $1.15 billion.

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