Harley Davidson Over Engineers The Numbers

Harley Davidson (HOG) reported disappointing Q4 and year end results. This was expected as the domestic US demand for product is naturally off. Overseas demand is up dramatically in many countries and one wonders why they are not looking overseas for more growth. It’s not a secret that other economies are doing well and more than a few consumers can afford a Harley.

Check out the year end cash and marketable securities position. Year end 07 they came in at approximately $402 million. That’s down from $896 at the end of 06. Where did it all go? 07 net cash from operating activities was actually up slightly to approximately $798 million from $762 million in 06.

Working Capital Ratio has dropped from 2.23 at the end of 06 to 1.88 at the end of 07.The traditional sources and uses of cash actually makes it look like the cash position went up. But liquidity is really down.

Finance debt is up approximately $400. The current portion has jumped by $288 million and the long term portion jumped $110. But yet cash from operations is the same. Inventories are up only slightly but receivables held for sale is up $234 million. In today’s credit environment I do not believe consumer lenders are looking for motorcycle loans.

Harley has continued with its share buyback and spent almost the same amount of money in 07 as in 06. Except in 06 they had a rising share price and in 07 they had the mirror image chart of a falling share price. Smart in 06. Not smart in 07.

The company continues to focus on the financial engineering side of the financials and are not paying attention to the fundamentals of running the business. They have also increased the total payout of dividends from $213 million to $261 million in the face of radically reduced profits.