Harley-Davidson’s fourth quarter retail sales are anticipated to increase 5-7 percent, according to a research note provided to Powersports Business by Wells Fargo Securities senior analyst Timothy Conder.
Harley’s fourth quarter call is scheduled for Thursday morning. Key points from Conder’s report include:
- “Reaffirming our positive outlook on HOG. We believe Q4 2013 U.S. retail sales finished up 5-7% driven by strength across all Harley product families. Following October/November QTD yr/yr gains of 10-13% led by October initial deliveries of Rushmore product, December was negatively impacted by colder-than-normal weather in the Midwest/West and snow in the upper Midwest in this seasonally least significant quarter. Despite likely ‘modest’ 2014 yr/yr gross margin progress (yet to be defined by management, but assumed ~55bps), estimated 10% sales growth should allow for further S,G&A leverage. Fine-tuning our model assumptions with the only change to our 2015 estimate now $4.54 (prior $4.49). Our 2014/2015 estimates incorporate 8.4%/5.4% global retail unit growth and 9.0%/5.0% wholesale unit growth. Despite our 90bp below consensus EBITDA margin for 2014, our slightly above consensus revenue and 7.0MM of share repurchase produce our $0.07 above consensus EPS of $4.00 (see table on page 4). January 30 Q4 2013 results/initial 2014 guidance: Unit shipment and implied/explicit EBITDA margin guidance will be keys. Bottom Line: We remain constructive and would be building positions given recent market-related weakness.
- “2014 guidance. In addition to defining ‘modest’ gross margin progress, we believe management will focus investors on the ongoing S,G&A leverage opportunities. Additionally, we hope some context of a dividend payout ratio will be provided as the company remains committed to returning all incremental free cash flow to shareholders in the form of dividends and share repurchase. Note: The company will repay $303MM of 15% notes due to Berkshire Hathaway in February.
- “FY2015 Product. We expect Harley will likely update its Sportster/Dyna product lines (produced in Kansas City) as both have not seen material revisions in approximately 5 years.
- “2014 Street family shipment/retail estimates. We assume ~10,000 Street units will be shipped from April through year end with 2, 400 units of the Street 500 sku shipped in Q2 2014 to the ~200 U.S. dealers offering the Rider’s Edge program. Collectively we assume 4,000 Street units will be shipped and retailed in the U.S. and 6,000 shipped/4,500 retailed internationally during 2014.”
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