H-D Shedding Pork in Tough Economy

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Harley-Davidson has spent the past 10 months shedding pork in a variety of areas, from a 14-week factory shut-down to a massive workforce reduction of 2,000-some personnel, but the move to end production of the Buell line and sell off its recently-purchased MV Agusta business became the next logical step for a company desperately seeking to streamline its operation in a down market.

Harley-Davidson, Inc. net income for the nine months ended Sept. 30 was $163.6 million, down 71.6 percent from the year-ago period. Revenue totaled $3.57 billion, down 17.1 percent.

Retail sales of Harley-Davidson motorcycles during the recently ended nine-month period decreased 22.9 percent worldwide — 25.5 percent in the U.S. and 16.5 percent in international markets. As a result, nine-month revenue from Harley-Davidson motorcycles was $2.62 billion on shipments of 187,085 Harley-Davidson motorcycles compared to $3.23 billion on 226,898 motorcycles in 2008.

The Parts and Accessories and General Merchandise businesses, usually bright spots in the portfolio, were less than sparkling during the first nine months, with P&A revenue down 11.8 percent to $623.1 million and General Merchandise revenue down 12 percent to $215.5 million.

As for Harley-Davidson Financial Services, it reported a nine-month operating loss of $110.8 million, compared to operating income of $107.7 million for the prior year period. The operating loss includes two non-cash charges recorded in the second quarter of 2009: a $72.7 million credit loss provision for a one-time reclassification of motorcycle loan receivables; and a one-time $28.4 million charge to write off goodwill associated with HDFS.

'REFOCUSING' THE BUSINESS

As reported earlier, Harley-Davidson, Inc. plans to cease Buell production and sell the MV Agusta business it purchased just 14 months ago — moves that represent an approach to the market that is 180-degree opposite of the company's stated intentions at the time it bought the Italian sportbike firm.

The Motor Co. says a key element of its go-forward strategy is to focus company resources on the Harley-Davidson brand — that is, "products and experiences, global expansion, demographic outreach and commitment to core customers" — through improvements in manufacturing, product development and business operations. To do that, however, it evidently needed to clean up some other investments.

"We are refocusing our business with the expectation that we can provide growth that is both profitable and sustainable over the long term," says Keith Wandell, Chief Executive Officer of Harley-Davidson, Inc. "We believe we can create a bright long-term future for our stakeholders through a single-minded focus on the Harley-Davidson brand."

H-D expects its restructuring activities — including the workforce reduction of approximately 2,400 to 2,500 positions in 2009 and 2010 together with the discontinuation of Buell operations — to offer an annual ongoing savings of approximately $140 million to $150 million.

The Motor Co. also seeks to pursue its previously announced "two path" study to determine whether additional major restructuring at its York, Pa. facility can make those operations competitive and sustainable long term, or alternatively, whether the company will relocate those operations to another U.S. location.

H-D says it has already started contract talks with the union representing employees at York and expects to make a final decision on the status of the facility by the end of this year.

—Submitted by Guido Ebert