Harley high-end sales up, how about OCC?

“Harley Struggles To Make Enough High-End Bikes
By Bree Fowler, AP Auto Writer
Manufacturing.Net - October 18, 2011

NEW YORK (AP) -- Harley-Davidson's net income more than doubled in the third quarter, but its stock price fell Tuesday on concerns that production problems were hurting the company's profit margins.

Harley, which makes motorcycles ranging from $8,000 sport bikes to custom touring models that can start at more than $30,000, said retail sales in the U.S. rose for the second straight quarter. It was a good sign for the company and showed demand continues to rise in its largest market.

But that success was partially offset by struggles with manufacturing. That limited Harley's ability to produce enough of the higher-end bikes that generate bigger profits.

When the economy took a turn for the worse a few years ago, the company's sales plunged and it embarked on a massive restructuring that shuttered plants and eliminated thousands of jobs.

The restructuring continued during the third quarter. Harley said it worked to consolidate production of more than 20 models of motorcycles on one assembly line at its York, Penn., plant and is retraining many of the plant's workers.

As a result, it wasn't able to produce as many of the larger touring and custom bikes dealers needed, shifting customers to smaller, less profitable models and reducing the average amount of money made on each bike sold.

Harley-Davidson Inc.'s gross margin -- or the proportion of revenue the company kept as profit -- fell to 33.7 percent from 34.9 percent a year earlier. That was largely a result of the production inefficiencies and currency issues.

Investors weren't pleased and Harley's stock price tumbled $2.91, or 8 percent, to $34.30 in midday trading. The stock fell as low as $33.89 earlier in the day. It was one of Tuesday's biggest losers on the New York Stock Exchange.

Keith Wandell, Harley's chief executive, said the Milwaukee-based company knew the restructuring would be a massive undertaking when it embarked on it two years ago.

"Are we disappointed that things haven't been perfect? Yes. But I will tell you that we are pleased with where we are in this transformation given the magnitude of the work," Wandell told analysts in a conference call.

For the third quarter, Harley earned $183.6 million, or 78 cents per share, up from $88.8 million, or 38 cents per share, a year earlier.

Analysts, on average, expected earnings of 76 cents per share, according to a FactSet poll.

Sales of new motorcycles rose 5.1 percent to 61,838 bikes and included a 5.4 percent increase in U.S. sales. Demand from overseas rose 4.4 percent from the same quarter last year.

Despite a still sluggish economy, customers have started to return to the motorcycle maker's showrooms and the recent quarter marked Harley's second straight with a domestic sales increase.

The company's U.S. retail sales rose 7.5 percent in the second quarter, the first domestic sales increase in five years. Overall sales also rose in the first quarter, but that was because of an increase in overseas demand.

In the latest quarter, revenue from bike sales and related products rose 13.4 percent to $1.23 billion.

Harley held its motorcycle shipment forecast steady for 2011, saying it still expects to ship between 228,000 and 235,000 new bikes worldwide. That would reflect an increase of 8 percent to 12 percent from 2010 levels.

Through the third quarter of this year, the company has shipped 182,387 motorcycles to its dealers and distributors, representing a 10-percent increase from the first nine months of 2010.

But Harley warned that its gross margin for the year will be lower than previously expected.

John Olin, the company's chief financial officer, said that while Harley's mix of products will improve "modestly" in the fourth quarter, the ongoing York restructuring will continue to hamper production of larger and more profitable bikes until it's largely complete at the end of next year.

The company also lowered its prediction for the total cost of the big restructuring it began two years ago, saying it now expects one-time charges of $480 million to $495 million, including charges of $70 million to $80 million this year.’