Harley to Close Australian Unit

Harley-Davidson Inc. (HOG - Analyst Report) plans to close its cast motorcycle wheels and wheel hubs manufacturing operations in Adelaide, Australia, controlled by its subsidiary, New Castalloy. The motorcycle maker intends to source those components through other existing suppliers around the world.

Harley acquired New Castalloy in 2006 when the latter was on the verge of closing amidst the bankruptcy of its parent company. After that, the Adelaide-based facility started producing cast wheels for Harley motorcycles. It has a workforce of 183 employees and 29 contract workers.

Harley’s move to close the operation is a part of its restructuring activities undertaken in 2009 to develop an efficient, competitive and flexible manufacturing capability. The company anticipates the transition of supply from the facility to be completed by mid-2013.

The transition is expected to generate about $9 million in annual ongoing savings beginning in 2014. The company expects to incur about $30 million in restructuring charges related to the transition, including about $10 million in 2011 and $20 million in 2012. Out of the total restructuring charges, 35% will be non-cash.

Harley, a Zacks #3 Rank (Hold) company, posted a 95.9% rise in profit to $183.6 million in the third quarter of the year from $93.7 million in the same quarter a year ago. On per share basis, profits rose to 78 cents from 40 cents, exceeding the Zacks Consensus Estimate by 4 cents. The increase in profit was attributable to higher shipment volume.

Total revenue rose 11% to $1.40 billion, driven by rise in motorcycle and related products revenues. It was higher than the Zacks Consensus Estimate of $1.30 billion. Operating income surged 59.3% to $242.7 billion from $152.4 million in the third quarter of 2010.

During the quarter, Harley completed the consolidation of final assembly operations at York, Pennsylvania. The company’s restructuring expenditures reduced significantly by 81.6% to $12.4 million in the quarter.

Due to the closing of Adelaide operations, the company expects annual ongoing savings of $315 million to $335 million upon completion of all the restructuring activities initiated since early 2009. It also expects the activities to result in one-time overall costs of $505 million to $525 million, including $75 million to $85 million in 2011 and $45 million to $55 million in 2012.

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