Harley-Davidson poised for a comeback?

Harley-Davidson had surprisingly good earnings and introduced three new motorcycles this month.

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    A Harley-Davidson motorcycle sits at a dealer July 20 in New Berlin, Wis. Despite weak sales, the manufacturer's profit has soared because of cost-cutting efforts, which have included substantial layoffs.
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Harley-Davidson is getting a lot of favorable attention:

• Its quarterly earnings report last week beat analysts' expectations so soundly that the stock jumped more than 13 percent in a single day.

• It was featured prominently this month in a New York Times story about US manufacturers boosting profits even with slumping sales.

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• Earlier this week, the iconic motorcycle manufacturer unveiled three new models: an $8,000 new Sportster SuperLow, aimed at entry-level riders; an updated, $11,800 XR1200X for performance-minded bikers; and a $22,500 Road Glide Ultra for touring enthusiasts.

Can Harley-Davidson keep the good times rolling, even if the economy's stuck in a rut?

Investors don't seem convinced. After hitting a seven-week high on Monday, its stock price has slumped nearly $2 a share to close at $27.01 on Thursday. The stock price, which trades under the ticker symbol HOG, is down nearly two-thirds from its 2006 high.

"When it comes to things the company can control, we think HOG is doing quite well," wrote Gerrick Johnson, an analyst of BMO Capital Markets Corp., in an investment note last week. "Cost cutting (including wrangling concessions from unions), reducing inventory, new product development, and attracting new demographics are all areas where we see strength."

"However, there are things the company cannot control that still keep us on the sidelines," he added. "Our research indicates that the demand situation is not really improving. Perhaps it is not getting worse, but feedback from dealers – and not just HOG dealers, but dealers across the
motorcycle/powersports spectrum – is still very mixed with quite a few dealers still struggling."

In 2006, Harley-Davidson's motorcycle sales peaked at 349,000. But "by the end of 2010, we expect Harley-Davidson motorcycle shipments in the year to be down approximately 40 percent from the 2006 peak," said John Olin, the company's chief financial officer in a conference call with analysts last week.

That suggests the company will be right-sizing, to use Mr. Olin's phrase, rather than growing sales until the economy picks up again.

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