Sir Auric - u still short on HDI?
Dunno if u saw this, but ...
Harley's True Believers Need a Deprogramming
By Herb Greenberg
10/11/2001 11:37
So Harley Davidson's HDI earnings and revenues were better than the Street expected. By golly, listening to Tuesday's conference call, you got the impression that Harley is the best company in America.
Weak economy? Not for Harley. The only thing down for Harley, it seems, is credit losses. The mere mention of anything negative about Harley, in this column, gets the creaky old Hostile React-o-Meter spinning outta control!
It's easy to see why -- and it's not just because Harley's stock was up Tuesday by nearly 12%. Unlike the best shorts, Harley is no one-hit wonder. It's an American institution. A great American institution. It screams Americana. More than that, it's a great American brand. And great American brands make great cult stocks. Any short-seller worth his or her sanity knows better than to bet against a cult, because investors will always be willing to look the other way until the very end.
Those believers look the other way when the CEO and CFO, sitting side by side on the conference call, can't tell a questioner off the top of their heads how inventory is split between domestical and international markets. (Like they don't know that?!) The believers look the other way when the company misses analyst estimates on the performance of several lines of businesses. They look the other way when accounts receivable are up 9.6% and sales, sequentially, are flat. But most importantly, they look the other way when the company boasts that it's offering below-market rates, through its own finance company, to sell its bikes. Companies generally don't discount when business is good. If people can't get enough Harleys, why offer 4.9% financing?
Good question, and it's one nobody asked on the conference call. As is often the case on calls, questions were mostly taken from friendly analysts, who seem as ga-ga over the company as longtime institutional holders, who hopped on Harley from the first day it went public 15 years ago and have enjoyed the ride ever since. Yet Harley has also attracted (and run over) plenty of shorts, whose interest was stirred about a year or so ago by decelerating sales growth. A spreadsheet tells that story: After peaking at 24% in the second quarter of 2000, Harley's total sales growth rate had been declining until last quarter. Sales growth fell to as low as 12.7% in the first and second quarters of this year, before popping up last quarter to 19%.
At the same time, and this is very important, the company securitizes receivables of loans to consumers -- packaging them together and selling them as a bond-like security to institutions. The result is that the receivables get off the books and the company gets cash. It's perfectly legit, although it could be argued that it is a form of off-balance-sheet financing.
Here's what you might not know: As part of the securitizing process, the company books a noncash gain on the sale of the securitization. The company doesn't disclose the size of the gain, but estimates by some analysts are that the gain last quarter amounted to roughly the amount by which Harley beat estimates; the same thing happened the quarter before. The securitized amount is an arbitrary figure that can change at management's whim. From an earnings standpoint, it's a low-quality way to boost results. It's almost like creating a cookie jar that a company can dip into to manage earnings. Or so it seems.
That brings us back to why Harley would offer ultra low-rate financing if it's not having a problem selling bikes. It might be that the low rates would help the company win financing business away from other lenders. The more loans Harley makes, the more loans it can securitize and the more of those noncash gains it can book. It's almost as if Harley is becoming more of a finance company -- something that has tripped up many a company. I can't help but wonder whether Harley, which gives customers an extraordinarily long 72 months to pay off their loans, is really a subprime lender in disguise -- and whether they should rename it Banco de Harley. To be fair, the average loan is paid off in 22 months.
But, hey, why worry? This is Harley. Won't matter till it does. And maybe it never will.
Harley officials didn't return our calls Wednesday. As always, this column welcomes Harley's comments on the securitization and other issues. If and when they do comment, we'll pass it along.
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And, the following extract from recent Greenberg article ....
Gloom Gathers in Verisign's Webby Corner
By Herb Greenberg
10/26/2001 14:40
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Fried-Day:
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Harley hotline: If you hadn't noticed yesterday, Harley-Davidson HDI Chairman Jeffrey Bleustein exercised options on 240,888 shares, out of his total holdings of 2.7 million shares, with plans to sell the stock in a transaction valued at more than $12 million. The company says the sale is part of Bleustein's plan to diversify. This represents his first sale since giving away 10,000 shares as a gift a year ago.
The timing of his sale coincides with a deterioration in the quality of the company's earnings. And if Bleustein, after all this time, is starting to diversify, you can't help but wonder if other insiders will follow his lead. (Actually, former president, chairman, CEO, and longtime director Richard Teerlink has peeled off substantial holdings in recent months. Maybe Bluestein is taking his cues from him! ) |
