Harley-Davidson will slash its work force by 1,100 jobs over the next two years and reduce shipments for 2009 by between 10 percent and 13 percent to cope with the economic downturn, the company announced today.
The cuts came as the Motor Co. reported fourth-quarter and full year financial results for 2008 that showed an 8.2 percent decline in U.S. retail unit sales for the year, accelerated by a 19.6 percent falloff in the fourth quarter. Worldwide retail sales decreased 13.1 percent for the year.
"We have a strong core business anchored by a uniquely powerful brand, but we are certainly not immune to the current economic conditions," outgoing CEO Jim Ziemer said. "We have a clear strategy to not only deal with the economic conditions, but also strengthen our long-term operations and financial results. We are executing that strategy with confidence and conviction."
He announced a three-part plan to revitalize the company that includes investing in the brand, workforce reductions and production cuts.
The company will cut shipments this year to between 264,000 and 273,000 new motorcycles, a 10 percent to 13 percent reduction from 2008. Dealers won’t feel that until the second quarter, though, as the company plans to ship 3 percent to 8.5 percent more bikes in this year’s first quarter compared to the first quarter of 2008, hiking shipments to between 74,000 and 78,000 new bikes this quarter.
"We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels," Ziemer told investors, "and we're going to show similar discipline in 2009. That's not only critical for the health of our business, but for our dealers' businesses, as well."
Job and production cuts will come over two years as the company consolidates its two engine and transmission plants in the Milwaukee area into its facility in Menomonee Falls, Wis.; and consolidates its paint and frame operations at its assembly facility in York, Pa. The company will also close its distribution facility in Franklin, Wis., shifting its parts and accessories and general merchandise distribution to a third party.
About 70 percent of the job cuts are expected this year. The cuts are expected to eliminate about 800 manufacturing jobs and another 300 office positions over two years.
The company plans to increase its marketing efforts to younger and “more diverse” riders and “focus on product innovations targeted at specific growth opportunities with its strong core customer base and new riders.”
H-D is also looking into options to get “the necessary funding to support Harley-Davidson dealers and customers throughout the year" through Harley- Davidson Financial Services (HDFS), said CFO Tom Bergmann, who’s also interim president of HDFS.
The company has already asked the Federal Deposit Insurance Corp. to designate Harley-Davidson Credit Corp. and Eaglemark Savings Bank as eligible for the Temporary Liquidity Guarantee Program, or TLGP, which guarantees unsecured corporate debt against default. That would cover the bills of Harley-Davidson's internal financial entities if they were unable to pay bills themselves.
Revenue for the fourth quarter was $1.29 billion compared to $1.39 billion in the 2007 quarter, a 6.8 percent decrease. Net income for the quarter was $77.8 million compared to $186.1 million in the fourth quarter 2007, a decrease of 58.2 percent. Fourth quarter earnings per share were 34 cents, a 56.4 percent decrease compared to last year's 78 cents.
Revenue for the full year 2008 was $5.59 billion compared to $5.73 billion in 2007, a 2.3 percent decline. Full-year net income was $654.7 million, compared to $933.8 million in 2007. Earnings per share were $2.79, a decrease of 25.4 percent compared to $3.74 in 2007.
For the full year, wholesale motorcycles shipments were 303,479 units, an 8.2 percent decrease compared to 330,619 units in 2007.
In the fourth quarter, revenue from motorcycle sales was $1.02 billion, a decrease of $95.4 million or 8.5 percent versus the same period last year. Harley-Davidson bike shipments totaled 76,581 units, down 4,625 units or 5.7 percent compared to last year's fourth quarter.
P&A revenue totaled $152.1 million for the quarter, down by $13.1 million or 7.9 percent compared to the year-ago quarter. Revenue from general merchandise, which includes MotorClothes apparel and collectibles, totaled $69 million, a decline of $4.4 million or 6 percent from the year-ago quarter.
Gross margin for the fourth quarter of 2008 was 31.6 percent of revenue compared to 35.7 percent for the fourth quarter last year. The company said the decrease owes to unfavorable shipment mix versus last year's fourth quarter, higher product costs and the cost of the Sportster motorcycle trade-up promotion, which the company said is increasing floor traffic. Fourth quarter operating margin decreased to 12.0 percent from 18.1 percent in the fourth quarter.
H-D shares have been in a freefall since late 2006, when they peaked just below $80, to open at $12.40 today. Shares plummeted to a new low of $10.73 in early morning trading before clawing back 77 cents to close at $11.90.
— Submitted by Holly Wagner