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Harley-Davidson Inc. (HOG - Analyst Report) posted a 9.7% year-over-year rise in earnings to 34 cents per share in the fourth quarter of 2013 from 31 cents in the year-ago quarter. Earnings topped the Zacks Consensus Estimate of 32 cents.

The year-over-year increase was due to higher revenues and lower operating expenses in the Motorcycles segment. Net income increased 6.8% to $75.4 million from $70.6 million a year ago.

Consolidated revenues improved 1.7% to $1.19 billion, exceeding the Zacks Consensus Estimate of $1.03 billion. Operating income rose 5.1% to $122 million from $116.1 million in the fourth quarter of 2012.

2013 Results

Harley-Davidson reported earnings of $3.28 per share in 2013, up from $2.72 per share in 2012. Earnings per share surpassed the Zacks Consensus Estimate of $3.26.

Net income increased to $734 million from $623.9 million a year ago. Revenues increased 5.7% to $5.9 billion from $5.58 billion in 2012, exceeding the Zacks Consensus Estimate of $5.26 billion.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products improved 2.1% to $1.03 billion in fourth-quarter 2013. Revenues from Harley-Davidson motorcycles increased 1.4% to $781.8 million.

Operating income from Motorcycles and Related Products rose 14.3% to $60.7 million from $53.1 million year ago. The year-over-year improvement was driven by increased revenues and lower operating expenses compared with the fourth quarter of 2012.

Harley-Davidson shipped 46,618 motorcycles to dealers and distributors worldwide during the quarter. Shipments in the quarter inched down 0.95% from 47,067 motorcycles in the fourth quarter of 2012.

Harley-Davidson’s worldwide dealer retail sales of new motorcycles scaled up 5.7% to 45,875 units. In the U.S., shipments improved 6.3% from the year-ago quarter to 27,387 units.

In international markets, shipments went up 4.7% to 18,488 motorcycles. Shipments rose 6.1% in the Asia-Pacific region, 5.5% in the Europe, Middle East, and Africa (EMEA) region and 13.3% in Canada but declined 2.8% in the Latin America region.

Revenues from Parts and Accessories increased 4.8% to $169.3 million, while revenues from General Merchandise – which includes MotorClothes apparel and accessories – improved 2.5% to $75.9 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment declined 1% to $158.3 million in fourth-quarter 2013. Operating income decreased 2.7% to $61.3 million from $63 million in the prior-year quarter. Operating income had a favorable impact from higher net interest income, which was offset by higher provision for credit losses.

Restructuring Activities

In fourth-quarter 2013, Harley-Davidson recorded a restructuring benefit of $0.4 million. For 2013, restructuring benefit amounted to $2.1 million.

From the commencement of restructuring activities in 2009 till their completion in 2013, the company incurred overall costs of $479 million.

Harley-Davidson generated savings of $310 million in 2013 from restructuring. The company expects annual savings of approximately $320 million from 2014.

Financial Position

Harley-Davidson had cash and cash equivalents of $1.07 billion as of Dec 31, 2013, almost in-line with Dec 31, 2012. Total debt increased to $5.26 billion from $5.1 billion as of Dec 31, 2012.

In 2013, Harley-Davidson’s operating cash flow improved to $977.1 million from $801.5 million in the prior-year. Capital expenditures increased to $208.3 million from $189 million in 2012.

Share Buyback

Harley-Davidson spent $176.3 million to repurchase 2.7 million shares in fourth-quarter 2013. During 2013, Harley-Davidson repurchased 7.7 million shares for $455.6 million. The company had remaining authorization to buyback 8.6 million shares at the end of the quarter.

Looking Forward

For 2014, Harley-Davidson announced its shipment guidance of 279,000–284,000 motorcycles to dealers and distributors worldwide, up 7%–9% over 2013. The company expects operating margin between 17.5% to 18.5% and capital expenditures between $215 million to $235 million for full-year 2014.

In the first quarter of 2014, Harley-Davidson expects shipments to range between 76,500–81,500 motorcycles.

Our Take

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

Currently, the company holds a Zacks Rank #3 (Hold). Some better-ranked automobile stocks worth considering are Tesla Motors, Inc. (TSLA - Analyst Report), Geely Automobile Holdings Ltd. (GELYY) and Dongfeng Motor Group Company Limited . Tesla carries a Zacks Rank #1 (Strong Buy), while the other two carry a Zacks Rank #2 (Buy).

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