Harley-Davidson Inc. on Wednesday reported a 10 percent rise in quarterly profit, as retail sales of its motorcycles picked up heading into the spring riding season after a weak start earlier this year.
The heavyweight bike manufacturer said sales in its U.S. dealer network climbed 13 percent during the first quarter, boosted by strong demand in March following two months of declining industry sales. The sales surge lifted Harley shares more than 5 percent to new all-time highs.
"This quarter should alleviate any concerns about inventory builds. Inventories should be pretty clean going into the spring selling season," said Carole Buyers, analyst with RBC Capital Markets, who rates the stock "outperform." RBC Capital Markets does not provide investment banking services to Harley-Davidson.
Harley-Davidson, the maker of the popular Fat Boy and Road King motorcycles, said first-quarter net income rose to $204.6 million, or 68 cents a share, from $186.2 million, or 61 cents a share, a year ago.
Analysts on average had expected earnings of 64 cents a share, with estimates ranging from 62 cents to 68 cents, according to Reuters Research, a unit of Reuters Group Plc.
First-quarter revenue rose 4.7 percent to $1.17 billion from $1.11 billion a year ago.
Harley-Davidson enjoyed nearly a decade of nonstop retail sales increases until the streak was broken in the first quarter of 2003 amid bad weather and the buildup to the Iraq war.
The company's retail sales slumped again in the fourth quarter of last year, shaking the confidence of some investors who saw it as a sign of waning consumer demand.
Investors "were worried about the retail registrations. People were worried about gross margins, and they were stronger than people anticipated," said Timothy Conder, analyst with A.G. Edwards & Sons Inc., who rates the stock a "buy."
The Milwaukee-based company on Wednesday left unchanged its 2004 motorcycle production target of 317,000 bikes, up 8.9 percent from the year before, after signaling in January that future shipments would increase at a slower pace than the double-digit rates of recent years.
It also reiterated its long-range goals of producing 400,000 Harley-Davidson motorcycles in 2007 and an annual earnings growth rate in the mid-teens.
Demand still exceeds supply
Harley-Davidson Chief Financial Officer James Ziemer said the company's motorcycles continue to sell at a premium to the manufacturer's suggested retail price. Production growth of 7 percent to 9 percent a year should maintain healthy demand while discouraging aggressive price markups that could turn off customers, he said.
"We're still in a situation where demand exceeds supply. We plan to keep it that way," Ziemer said in an interview.
The company said first-quarter revenue from Harley-Davidson motorcycles was $919 million, up 4.8 percent. It shipped 74,090 Harley-Davidson motorcycles in the quarter, an increase of 4.9 percent over the year before.
Parts and accessories revenue rose 5.8 percent to $169 million. Revenue from general merchandise such as apparel and collectibles was $54 million, down 3.7 percent from the year-ago quarter, which was boosted by sales of 100th anniversary-related products.