Harley-Davidson to Cut Jobs and Shipments

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Harley-Davidson, Inc. will cut 730 jobs and ship 2.5 percent fewer motorcycles this year in measures aimed at offsetting an anemic quarter and anticipated weakness in the industry.

The company today reported sagging sales put pressure on its financial results for the first quarter ended March 30, and the cuts are intended as a bulwark against the economic trend.

"With growing weakness in the economy, U.S. retail sales of Harley-Davidson motorcycles were down 12.8 percent in the first quarter. Although these retail results are disappointing, Harley-Davidson's U.S. dealers outperformed the heavyweight motorcycle industry, which was down 14 percent," said CEO Jim Ziemer.

"We've said on a number of occasions that we would closely monitor the retail environment and regularly assess our wholesale shipment plans, and we remain committed to shipping fewer Harley-Davidson motorcycles to our worldwide dealer network than we expect they will sell this year. In view of U.S. retail trends and uncertainty about the future of the economy, we now plan to ship 23,000 to 27,000 fewer Harley-Davidson motorcycles in 2008 than we shipped in 2007, resulting in total planned 2008 shipments between 303,500 and 307,500 units."

The company will work with union leaders to cut 370 unionized positions over the next several months, and another 360 non-production employees will be let go.

"We believe these actions will better position the company for a business environment that we expect to continue to be challenging," Ziemer said. He promised to continue investing in "marketing, product development and our international business to drive future growth."

The company expects to ship between 76,000 and 80,000 bikes in the second quarter.

The national economic malaise hurt domestic sales, but the weak dollar gave foreign sales a boost during the first quarter. Worldwide retail bike sales decreased 5.6 percent compared to the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 12.8 percent for the quarter.

At the same time, H-D retail sales increased 16.8 percent in international markets this quarter compared to the first quarter of 2007. First quarter retail sales increased 31.1 percent in Canada; the Europe Region was up 7.8 percent; the Asia Pacific Region was up 19.5 percent; and the Latin America Region was up 53.3 percent.

Revenue for the first quarter was $1.31 billion compared to $1.18 billion in the year-ago quarter, a 10.8 percent increase. Net income for the quarter was $187.6 million compared to $192.3 million, a decrease of 2.5 percent compared to the first quarter of 2007. First quarter earnings per share (EPS) were $0.79, a 6.8 percent increase compared to last year's $0.74.

H-D expects earnings per share this year to decrease between 15 and 20 percent from 2007 levels, resulting in expected earnings per share of $3 to $3.18.

Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported first quarter operating income of $34.9 million, a decrease of $24 million or 40.8 percent compared to the year-ago quarter. The decrease is primarily due to a reduction in income from securitization.

Q1 Motorcycles and Related Products Segment
Revenue from Harley-Davidson motorcycles was $1.02 billion, an increase of $125.7 million or 14.1 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 71,868 units, an increase of 4,107 units or 6.1 percent compared to last year's first quarter. Shipments in the first quarter of 2007 were affected by a strike at Harley-Davidson's production plants in York, Pa., that resulted in about four weeks of lost production at the facilities.

Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $181.9 million, a decrease of $6.3 million or 3.3 percent versus the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes apparel and collectibles, totaled $84.0 million, an increase of $7.9 million or 10.4 percent over the year-ago quarter.

Gross margin for the first quarter of 2008 was 36.4 percent of revenue compared to 35.9 percent for the first quarter last year. Operating margin remained unchanged at 20.0 percent in the first quarter of 2008 compared to the prior year.

Cash Flow
Cash and marketable securities totaled $333.2 million as of March 30. Cash flow from operations was $146.8 million and capital expenditures were $43.2 million during the first quarter of 2008. For the full year of 2008, capital expenditures are now expected to be between $235 million and $250 million.

Stock Repurchase
The company repurchased 2.6 million shares of its common stock at a cost of $100.1 million during the first quarter of 2008. On March 30, the company had 236.5 million shares of common stock outstanding.

As of March 30, there were 20.5 million shares remaining on two board-approved share repurchase authorizations. An additional board-approved share repurchase authorization is in place to offset option exercises.