Harley-Davidson CEO Discusses Q4 2010 Earnings Call Transcript

Harley-Davidson (HOG)

Q4 2010 Earnings Call

January 25, 2011 9:00 am ET

Executives

Lawrence Hund - President of HDFS and Chief Operating Officer of HDFS

Keith Wandell - Chief Executive Officer, President and Director

John Olin - Chief Financial Officer and Senior Vice President

Amy Giuffre - Director, Investor Relations

Analysts

James Hardiman - Longbow Research LLC

Sharon Zackfia - William Blair & Company L.L.C.

Craig Kennison - Robert W. Baird & Co. Incorporated

Rod Lache - Deutsche Bank AG

Patrick Archambault - Goldman Sachs Group Inc.

Timothy Conder - Wells Fargo Securities, LLC

Edward Aaron - RBC Capital Markets, LLC

Gregory Badishkanian - Citigroup Inc

Robin Farley - UBS Investment Bank

Presentation

Operator

Good morning. My name is Christie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Amy Giuffre, Director of Investor Relations, you may begin your conference.

Amy Giuffre

Thank you, and good morning, everyone. Welcome to Harley-Davidson's Fourth Quarter 2010 Earnings Conference Call. This call is being webcast live on harley-davidson.com, where you will also find slides containing supporting details. These slides can be accessed by clicking on Investor Relations, then Events and Presentations.

Our comments today will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this call.

This morning, we'll hear from Harley-Davidson's CEO, Keith Wandell; CFO, John Olin; and President of Harley-Davidson Financial Services, Larry Hund. At the close of prepared comments, we will open the call for your questions. [Operator Instructions] So let's get started. Keith?

Keith Wandell

Thank you, Amy, and good morning, everyone, and thanks for joining us on the call. As you saw on this morning's press release, Harley-Davidson made great progress in 2010 on restructuring our company to take advantage of the opportunities that we believe lie ahead.

First, let me say just how much our entire leadership team appreciate all the extraordinary work of our employees to achieve these results and make this transformation possible. We dealt with a lot of changes in a short amount of time, and our employees have truly done a great job. I'd also like to thank our dealers for all their hard work to bring a great Harley-Davidson experience to customers in what has continued to be a challenging business environment.

Let's take a quick look at where we are, what we've achieved and where we're going. Through our strategy to deliver results through focus, which we rolled out in late 2009, we've been restructuring the business and focusing our investments in ways that will strengthen the Harley-Davidson brand, lower our cost structure, foster continuous improvement and promote growth in the U.S. as well as globally. And while we feel good about all what we've achieved, we know it's crucial for us to stay fully on the throttle here.

In 2011, we will continue the important work of transforming our manufacturing operations, our product development capabilities to be more lean and world-class, and these initiatives are key when it comes to our ability to bring new innovative products to the market in a more timely manner and to grow.

In manufacturing, the transformational new labor agreements and structural changes in Pennsylvania and Wisconsin will, when completed, provide a seasonal flexibility, model mix flexibility and efficiency improvements that we expect will allow us to be more responsive to market demand and deliver greater returns. This week, we will begin labor negotiations in Kansas City to address these same issues of competitiveness, flexibility and efficiency. Now our overall goal is to having world-class, team-based, lean operating structure across all our production operations with continuous improvement and standardized processes at the center of everything we do.

Turning to product development. Our new products are hitting the mark. For example, more than 2/3 of the SuperLow sales are to customers new to Harley-Davidson, and we believe the new Blackline motorcycle, unveiled last weekend, will further bolster our market penetration among young adults, where we already hold the number one share position.

Our transformation in product development is focused on improvement in two key areas. One is to reduce the time it takes to run new products to market through lean engineering methodologies, and the second is to increase our development capacity to simultaneously handle more product development initiatives through best-in-class planning systems. Well, here, too, we've made a lot of ground work and are well on our way. Over the coming years, we will begin to see the fruits of these efforts.

So in summary, 2010 was a very busy year for us, and I'm extremely proud of all our accomplishments. As we look forward, all these changes will allow us to be more customer-lead in everything that we do. For 2011, we continue to have a measured outlook, while at the same time, we're encouraged by indications of a strengthening economy, and we anticipate further improvement in our performance.

So I'll be back later in the call for questions. Now I'd like to turn it over to John Olin, who will walk us through the numbers.

John Olin

Thank you, Keith, and good morning, everyone. I'll review the financial results starting on Slide 9. We'll start with the fourth quarter results. During the quarter, Harley-Davidson Motorcycles and Related Products revenue was up 20%, behind a 23.8% increase in shipment of Harley-Davidson motorcycles. Our financial performance included significantly improved gross margin as we lap last year's fourth quarter, which included Buell exit costs.

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