Harley Davidson (HOG) Financial Services Unit Sells 5 Year Notes Yielding 3.875%

I don't know why anyone would lend money to this business at such a low yield. Credit bubble.

Barron's: "Harley Davidson Shares Exhausted"

After quadrupling since early 2009, the motorcycle company's stock looks set to lose traction.

So Far

This has not been a good earnings season for companies in the Credit Bubble Stocks short portfolio: so far MGM, HOG, WGO and GBE have all disappointed.

Still on deck: USG Corp (USG) on 20-Oct-10.

Harley Davidson (HOG) Reports Disappointing Third Quarter Results

HOG got whacked for 7% today due to disappointing third quarter results. From the earnings call:

[D]uring the quarter, our worldwide dealers' retail sales of new Harley-Davidson motorcycles were down 7.7% compared to last year. In the U.S., retail sales were down 9.4% and continued to be affected by choppy economic conditions.

And as I have said before, I can't tell you definitely when retail growth will return, but I can assure that we are managing the business prudently with the focus on our future.

Does that mean that the recovery is off the table? Also interesting:

For the first nine months of 2010, 80% to 85% of our new loan originations were prime, compared to our historical experience of approximately 75% prior to these underwriting changes.

Meaning, 15% to 20% are subprime? We're still making subprime motorcycle loans?

Harley-Davidson (HOG) Earnings Quality?

Harley-Davidson (HOG) reported earnings today and the stock leapt 13%. You can view the presentation here [pdf].

Just like MGM in the first quarter, HOG is surprising us in the second quarter with worldwide retail sales down 5.5% year-over-year and U.S. retail sales down 8.4% y-o-y! Operating margin for the motorcycle segment  Q2 2010 was was $158 million, down from $174 million.

Worse than second quarter 2009!

It looks like most of the earnings "surprise" came from a lower loan loss provision on the $5.6 billion in retail "finance receivables," i.e. motorcycle loans. Even though 4.5% of that book of loans is 30+ delinquent.

"Valuation Does Not Matter"

"There is no P/E too high for economically sensitive stocks like Harley Davidson or any specialty retailer as they all trade at ridiculous forward multiples. There is no P/E multiple too low for non economically sensitive stocks like Pfizer."

Why I'm Short Harley

“I need $3,000,” Tito Vazquez, 45, says as he looks at his gleaming Harley-Davidson motorcycle. “But the economy's a mess right now and my credit cards are all maxed out.”

Which brings him here, to Collateral Lender, a few blocks east of ultra-posh Rodeo Drive, in Beverly Hills. In short, it is a pawn shop. Like most pawn shops in Los Angeles - home to not one but two failed mortgage lenders, Countrywide Financial and IndyMac Bank - it is doing a roaring trade.

For Mr Vazquez, that is not good news: Collateral Lender has so many Harleys it does not have room for any more.