Friday, January 23, 2009

Harley Davidson (HOG): "Oink"

It appears my limit short order @ $18 [Jan 13: Shorting Now Available] on Harley Davidson (HOG) might not hit this decade... sheesh.

Earnings were once again, poor ... and we have 1,100 new bulldozer operators ready to put to work under SuperObama's stimulus. HOG has been right up there in the pantheon of favored "conspicious consumption" short ideas we've been proposing since 2007 [Jan 25, 2008: I Can't Believe this Pig...err HOG was up Today] [Sep 7, 2007: More Retail Tells? Harley Davidson and Office Depot] This is what I wrote almost a year ago to the day....

Talk about the prototypical company to short in this recessionary environment where the consumer is getting squeezed. I cannot short individual names, but there was a great opportunity to short this at $42 this morning (it's already down to $38). This is like the men's version of Coach (COH) - any spike, it should be shorted. At least for another year. I can't think of another company that better represents the excesses of credit (house ATM, over spending) we've had over the past decade.

$42? Now it's at $11. That would of been a nice "get" if we had a real mutual fund running. Here is the latest damage.
  • Harley-Davidson Inc (HOG) said on Friday that it will cut nearly 12 percent of its workforce and close several plants as the global pullback in consumer spending crushed its earnings even worse than Wall Street had expected. (boo yah! economic recovery in 6 months! oil up 3% tells us so!)
  • Manufacturers of discretionary items like motorcycles, boats and recreational vehicles have been especially hard hit by the confluence of economic problems. (ooh, these names make my heart flutter - consumer discretionary.... mmm)
  • Analysts at Goldman Sachs think Harley's sales in the United States -- its largest and most important market -- will tumble 30 percent this year, the largest decline since the early 1970s. (hmm, analysts at Fund My Mutual Fund say it's about time you got on board)
  • Harley said it was taking several actions to cut costs, including plant closures that would result in the elimination of 1,100 jobs. The company employs about 9,000 workers, according to its most recent annual report.
  • Its fourth-quarter net income fell 58 percent to $77.8 million, or 34 cents a share, from $186.1 million, or 78 cents a share, a year earlier. That was well below the 57 cent a share profit analysts had expected the company to report, according to Reuters Estimates.
  • Edward Aaron, an analyst at RBC Capital Markets, called the results "a big miss." (again, what world do these analysts live in - apparently they do not interact with people on Main Street)
  • During the fourth quarter, worldwide retail sales of Harley motorcycles fell 13.1 percent, pulled down by a 19.6 percent drop in the U.S. But sales also fell in once-robust overseas markets, including Latin America, which saw a 28 percent decrease. (hmm, Baltic Dry Index up 0.002% - doesn't square) In response to the slowdown, Harley said it would slash its production of motorcycles in 2009 by as much as 13 percent.
  • But Aaron at RBC wasn't sure. "It's not clear to us that this cut will be sufficient." (it won't be - we'll check back in "2nd half 2009" when the "recovery" should be in full swing)
I suggest Harley petition the Fed to be a bank holding company - I mean they do financing and thus deserve a conduit straight into the people's tax dollars. Just like GMAC and Chrysler get tax dollars so they can offer near subprime credit candidates zero percent 5 year loans, so should Harley. It's only fair. Because as the government playbook shows us: to solve a problem of bad loans you should... go back to offering bad loans. Only in America!
  • Harley Davidson Financial Service was the latest trouble at the in-house lending unit, which helps more than half of Harley's customers finance the purchase of their bikes.
  • That unit, which accounted for about 15 percent of Harley's operating profit of $1.4 billion last year, relies on a healthy securitization market for both its operations and profits -- and that market has been largely paralyzed as a result of the credit crisis.
  • In the fourth quarter, higher projected credit losses at the unit forced Harley to take writedowns of $35.1 million on retained securitization interests and $28.4 million on finance receivables held for sale.
  • Harley's lending unit was also slammed by the credit crisis and is looking at a "range of options" to obtain the liquidity it needs to fund loans to customers.(pssst... "bank holding company" - fixes everything! Take the risk from your balance sheet and toss the risk on Federal Reserve balance sheet and it's all good. The Federal Reserve Balance sheet is like magic - all the problem go away there. I'd like to offer my credit card debt to the Fed - ah yes, I am not too big to fail. Nevermind.)
So what's selling?
  • Edward Jones analyst Robin Diedrich said. "The people that are buying are clearly avoiding the more expensive, higher margin bikes and buying the cheaper ones.
Life is so different in the U.S. without the house ATM to subsidize the consumer. Thankfully your government officials are moving heaven and earth (and your tax dollars) to subsidize (push down rates) so that we return to the era (and problems) that got us here. Remember folks, the solution to a debt laden, easy money society is.... more debt, and easier credit. Alan Greenspan must be tickled pink that we've finally seen his light.

Anyhow these stocks are so beaten down there has to be some snapback rally at some point. Hope springs eternal. I eagerly await the next round of "2nd half 2009 recovery" Kool Aid so I can finally add some of these fundamentally flawed situations to the short side of the ledger.

No position but looking to short on any "hope" rally

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