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Harley-Davidson Inc. (HOG - Analyst Report) posted a 23.7% year-over-year rise in earnings to 73 cents per share in the third quarter of 2013 from 59 cents in the year-ago quarter. Earnings topped the Zacks Consensus Estimate by a cent.

Net income increased 21.4% to $162.7 million from $134 million a year ago. Consolidated revenues improved 7.2% to $1.34 billion, exceeding the Zacks Consensus Estimate of $1.16 billion.

The increase in sales and earnings during the quarter was attributable to increase in motorcycle shipments and continued improvement in operating efficiencies of plants. Operating income rose 15.9% to $251.5 million from $217.1 million in the third quarter of 2012.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products improved 8.4% to $1.18 billion in third-quarter 2013, driven by healthy improvement in motorcycle shipments. Revenues from Harley-Davidson motorcycles increased 10.7% to $857 million.

Operating income from Motorcycles and Related Products rose 21.2% to $175.5 million from $144.8 million year ago. The year-over-year improvement was driven by increased motorcycle shipments, higher gross margin and lower restructuring costs compared with the third quarter of 2012.

Harley-Davidson shipped 54,025 motorcycles to dealers and distributors worldwide during the quarter, which was in line with its guidance. Shipments in the quarter increased 2.3% from 52,793 motorcycles in the third quarter of 2012.

Harley-Davidson’s worldwide dealer retail sales of new motorcycles scaled up 15.5% to 70,517 units. In the U.S., shipments improved 20.1% to 48,529 units from the year-ago quarter.

In international markets, shipments went up 6.5% to 21,988 motorcycles. Shipments rose 10% in the Asia Pacific region, 15.6% in the Latin America region, 1.6% in the Europe, Middle East, and Africa (EMEA) region and 7% in Canada.

Retail sales benefited from the launch of revamped motorcycles under the Project Rushmore line, which resulted in a double-digit growth in touring motorcycle sales.

Revenues from Parts and Accessories increased 7% to $250.2 million, while revenues from General Merchandise – which includes MotorClothes apparel – declined 12.6% to $66.1 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment improved 1.5% to $163.4 million in third-quarter 2013. Further, operating income increased 5.1% to $76.1 million from $72.4 million in the prior-year quarter. Operating income had favorable impacts from higher net interest income.

Restructuring Activities

In third-quarter 2013, Harley-Davidson recorded a restructuring charge of $0.6 million compared with restructuring expenses of $9.2 million in the year-ago period. Upon the completion of restructuring activities in 2013, the company expects one-time overall costs of roughly $485 million, including approximately $3 million in 2013.

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

Financial Position

Harley-Davidson had cash and cash equivalents of $1.03 billion as of Sep 29, 2013, down from $1.8 billion as of Sep 30, 2012. Long-term debt decreased to $4.07 billion from $4.47 billion as of Sep 30, 2012.

In the first nine months of 2013, Harley-Davidson’s operating cash flow improved to $825.1 million from $712.5 million in the prior-year period. Capital expenditures increased to $111.7 million from $95.3 million in the first nine months of 2012.

Share Buyback

Harley-Davidson spent $92.8 million to repurchase 1.6 million shares in third-quarter 2013. The company had remaining authorization to buyback 11 million shares at the end of the quarter.

Looking Forward

For 2013, Harley-Davidson reiterated its shipment guidance of 259,000 to 264,000 motorcycles to dealers and distributors worldwide. The company affirmed the guidance for gross margin between 35.25% and 36.25% and capital expenditures between $200 million and $220 million for full year 2013.

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 #2 (Buy). In the same industry, Ford Motor Co. (F - Analyst Report), General Motors (GM - Analyst Report) and Honda Motor Co. (HMC - Analyst Report), each carrying a Zacks Rank #2 (Buy), are worth a look at the moment.

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