Friday, March 16, 2007

Calls of Note Part 4

Baird says preliminary dealer survey results suggest U.S. demand for Harley-Davidson (NYSE:HOG) is trending slightly below their forecast. Firm trimmed their estimates to reflect softer retail trends and weaker profits from financial services.

Firm contacted 39 Harley dealers in the last week to assess market conditions. A few trends have emerged, but their checks will continue through late March, which is the most important period in the quarter.

Preliminary results suggest Q1 retail volume in the U.S. will be up 1-2% versus their prior +3% forecast. Parts sales are trending flat as some dealers report strike-related shortages. Relative to expectations, dealers report modest disappointment with many citing weather as a factor.

Dealers are comfortable with new bike inventory and report a shortage in used bikes. Some dealers report that competitors are selling MY07 bikes below MSRP, but pricing has improved since Q4. A few credit the improved pricing environment to reduced shipments during the strike.

Most dealers (74%) report no change in terms of the availability of credit, but a handful indicates that conditions have worsened. Firm estimates that Harley sells about 10-15% of bikes to subprime borrowers, suggesting that tighter credit standards could curb retail demand.

Baird adjusted their estimates to reflect a slightly more conservative posture with respect to retail demand and HDFS profitability. However, it is important to note that HDFS represents just 13% of operating profit, so even a 20% drop in income from financial services would reduce EPS by just 3%. The more significant concern, reflected in firm's nearly flat U.S. retail forecast for 2007, relates to the impact of tighter credit markets on the availability of retail credit.

Notablecalls: Not much new, more like a review of already known concerns. Also, the chart is rather showing signs of bottoming. Not actionable, but good to know category.

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