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Harley-Davidson Inc. (HOG - Analyst Report) posted a 13.1% rise in earnings to $1.21 per share in the second quarter of 2013 from $1.07 in the same quarter of prior year. Earnings topped the Zacks Consensus Estimate by 4 cents. Net income increased 9.9% to $271.7 million from $247.3 million a year ago. Consolidated revenues improved 3.5% to $1.79 billion, exceeding the Zacks Consensus Estimate of $1.63 billion.

The increase in sales and earnings during the quarter were attributable to higher motorcycle shipments and continued improvement in operating efficiencies. Operating income rose 10.3% to $431.8 million from $391.5 million in the second quarter of 2012.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products improved 4% to $1.63 billion driven by healthy improvement in motorcycle shipments. Revenues from Harley-Davidson motorcycles increased 4.2% to $1.27 billion. Operating income from Motorcycles and Related Products rose 15.5% to $357.7 million from $309.6 million year ago. The year-over-year improvement is driven by higher motorcycle shipments, higher gross margin and lower restructuring costs compared with the first quarter of 2012.

Harley shipped 84,606 motorcycles to dealers and distributors worldwide during the quarter, which was in line with its guidance. Shipments in the quarter increased 1.3% from 83,502 motorcycles in the second quarter of 2012.

Harley’s worldwide dealer retail sales of new motorcycles scaled up 5.2% to 90,193 units. In the U.S., shipments went up 4.4% to 58,241 units from the year-ago quarter.

In international markets, shipments went up by 6.7% to 31,952 motorcycles. Shipments rose 12.3% in the Asia Pacific region, 39.2% in the Latin America region and 1% in the EMEA region and 3.6% in Canada.

Revenues from Parts and Accessories edged up 1.5% to $269.6 million, while revenues from General Merchandise – which includes MotorClothes apparel – increased 8.7% to $81.7 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment improved 1.4% to $162.8 million in the quarter. However, operating income decreased 9.5% to $74.2 million from $82.0 million in the 2012-quarter. Operating income had favorable impacts from higher net interest income on favorable cost of funds and lower operating expenses.

Restructuring Activities

In the quarter, Harley-Davidson enjoyed a restructuring benefit of $5.3 million compared with restructuring expenses of $6.2 million in the year-ago period. Upon the completion of restructuring activities in 2013, the company expects them to result in one-time overall costs of roughly $485 million, including approximately $3 million in 2013.

Harley anticipates savings of approximately $305 million in 2013 from the activities initiated in 2009, leading to annual savings of approximately $320 million beginning in 2014.

Financial Position

Harley had cash and cash equivalents of $1.3 billion as of Jun 30, 2013, up from $1.1 billion as of Jul 1, 2012. Total debt increased to $5.5 billion from $5.3 billion as of Jul 1, 2012. Consequently, long-term debt to capitalization ratio declined to 66.2% from 66.6% as of Jul 1, 2012.

In the first half of 2013, Harley’s operating cash outflow improved to $389.7 million from $288.2 million in the prior-year quarter. Capital expenditures increased to $66.6 million from $60.1 million in the first half of 2012.

Looking Forward

For 2013, Harley reiterated its shipment guidance of 259,000 to 264,000 motorcycles to dealers and distributors worldwide. For the third quarter of 2013, the company expects to ship 51,000 to 56,000 motorcycles compared with 52,793 motorcycles shipped a year ago.

Harley continues to expect gross margin between 35.25% and 36.25% and capital expenditures between $200 million and $220 million for the full year.

Our Take

Harley-Davidson commands roughly 50% share of the U.S. market, providing scale advantages over most competitors. Furthermore, the company maintains an extremely strong franchise.

Currently, the company retains a Zacks Rank #4 (Sell). In the same industry, Ford Motor Co. (F - Analyst Report), Tesla Motors, Inc. (TSLA - Analyst Report) and Daimler AG (DDAIF), each carrying a Zacks Rank # 2 (Buy), are worth a look at the moment.
 

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