In 1986 Harley-Davidson was stuck in the mud. By the end of last year, earnings growth of 42 percent had put Harley among Fortune’s top 20 growing companies. And the company is selling a lot more bikes.
In fact, they’re selling the brand as well – all the accoutrements of bikers to tap into their intense brand loyalty. Defying the hard biker image, the brand that had almost trademarked the smell of oil and leather is affixed not just to clothes but to deodorants, soft cushions and train sets. The flavor of all this is apparent in the annual report, which is more like a hymnal to Harley the bike, filled with pictures of distinctive customers of all ages.
As IR director Rod Copes says with satisfaction, ‘How many other brands do you know that the customers tattoo on their own bodies?’ But true loyalty, as every IRO knows, is not what you put on your skin, but what you have in your portfolio. And there too the 375,000 members of the Harley Owners Group (Hog) have delivered.
‘There’s a big overlap between people who ride the bike and buy the stock,’ says Copes, who was charged with kick-starting Harley-Davidson’s IR program in 1996. The Milwaukee, Wisconsin company, listed on the New York Stock Exchange, has 40 percent of its stock held by individuals, who have been showering the company with suggestions on how to make stock ownership part of Hog membership. While the company has a dividend reinvestment plan, Copes is hiring another staff member to follow up with research at the National Association of Investors Corp as well as look for ways to cooperate with the owners group. ‘It’s a great avenue for continuing and building on the shareholder base,’ he says.
Solo rider
Hitherto Copes has been living up to the ‘lone biker’ image by running a solo IR department, compiling fact sheets, press releases, databases, and so on by himself. However, he does not begrudge this forced attention to detail, since he has had to be a quick learner on IR since taking the job 18 months ago. And he is far from lonely in his task. ‘I talk to our CFO, Jim Ziemer, half-a-dozen times a day. He’s actively involved in IR and we have a close working relationship, which is also developing with the CEO.’
Copes came to the IR department with oil on his hands. With an engineering background, he was managing part of Harley’s power train plant when he saw the IR job posted. ‘I was interested in learning about other parts of the company and finance.’ Since the company went public back in 1986, the CFO had handled IR, with help from the director for communications. But as the CFO had many things on his mind, investors and analysts sometimes felt neglected, and Harley had ‘a somewhat unfriendly reputation on the Street,’ comments Copes.
On arrival, he did two things. One was to start a more formal IR program, basically becoming more responsive to the investor community by returning every phone call every day. That meant developing relationships with the sell-side as well as with Harley’s larger institutional holders.
The second initiative was to learn about the business of IR and the company. ‘So I came up the learning curve with help from Niri and Investor Relations magazine, coming to understand what IR is all about.’ He also found membership in the IR council of the Manufacturers’ Alliance for Productivity and Innovation extremely useful.
Above all, Copes spent a lot of time on the phone and at different conferences learning about investor relations and ‘trying to make changes internally so we could be more proactive in our communications.’
All revved up
The biggest help was, of course, the success of the company – ‘A story most companies would kill for,’ Copes recognizes. ‘But before, we’d let the numbers do the talking, and didn’t proactively go out there and give the editorial as well.’ Still, the story has not reached as far as it should, he admits. In an effort to change this, one of the first things CFO Jim Ziemer did was to try to set up some metrics for success, naturally including stock price and the P/E ratio. After all, Copes says, ‘Reading the IR literature, you learn that the ultimate objective is to gain the maximum sustainable P/E multiple – and we monitor that continuously. Unfortunately, we’re still a long way from our potential.’
‘Obviously every company thinks their P/E should be higher,’ he continues. ‘But we have one of the strongest brands in the world, twelve consecutive record years of increased earnings and revenue, demand exceeding supply for our product in the US, and production continuing to grow 10-12 percent a year,’ he says convincingly. ‘What we need to do is communicate that story, not just the numbers, and the P/E ratio will catch up.’
As everyone knows, bikers get almost as much pleasure from dismantling and reassembling their machines to see how they work, as they do from riding. Copes has enjoyed a similar analytic flair in rooting through the company to see what drives its financial success. ‘This is an amazing job. It’s a combination of knowing the entire corporation, and communications, finance and marketing. I don’t think any another job in the world gives you that type of exposure to all the different cultural areas, as well as the company itself.’
So far, he has no regrets, and is happy at the prospect of his original two-year placement being doubled to four. That enthusiasm survived February 1997’s IR initiation ceremony, when a knocking piece in Forbes precipitated a stock price drop from $44 to $33. There was an irony in this. It was almost surprising that Malcolm Forbes, a committed Hog, did not come roaring out of his grave on his bike. But his heirs were not clad in the same leathers. That was when Copes learnt about momentum players: they bailed out of the stock after the article came out, and Copes discovered the hard way that there had been a sizable proportion of them.
In retrospect he sees the Forbes piece as a blessing in disguise: ‘It purged 90 percent of the momentum people. They’d been three out of our top ten holders, and now their replacements are growth and value players.’
In the end, the first quarter earnings last year – ‘another record’ – effectively rebutted the article and brought the stock back up. ‘But I had spent some four weeks stuck to the phone talking to everyone who owned from two to two million shares, telling them that the fundamental story hadn’t changed.’ To help manage the crisis, the company brought in outside communications experts Clark & Weinstock, and decided it was not worth trying to rebut Forbes, ‘who can produce ink by the barrel. We were going to be as proactive as possible and talk to anyone who called. But basically the fundamentals hadn’t changed so we didn’t even write a letter to the editor.’
Gotcha covered
One measure of Copes’ fast learning ability is that he has increased Harley’s sell-side coverage from ten to 15 analysts. ‘Part of that is just being easier to get hold of on the telephone, offering a quicker response, and getting the messages out there to the Street. Our investors and customers are also really trying to get analysts to cover us as well.’
Instead of just one or two analyst meetings a year, Copes now organizes four or five, along with an annual roadshow after the fourth quarter’s earnings release. ‘That’s a four-day, five or six city tour with the CEO, CFO and myself doing breakfasts, group presentations and three or four one-on-ones in each city visited.’ There’s also an analyst meeting at the annual dealer conference in July, when Harley introduces new products to its 1,000 dealers worldwide. They can’t offer a test drive to most analysts, since many don’t have a motorcycle license – yet. ‘I’m working on that angle. I’ve promised a weekend ride to any analyst who can get a license.’
Bikers or not, many of these analysts are regional and local, and Copes attributes the lack of big brokerage coverage to the fact that Harley isn’t a likely customer for new investment banking business. ‘I’m finding out more about Wall Street and IR. Obviously equity research ties in with banking.’ So the biggest obstacle to increased Wall Street analyst coverage may be Harley-Davidson’s squeaky clean balance sheet. The company has no long-term debt, and is financing its own ambitious expansion plans from internally generated cash.
Even so, Copes’s cold calling to the Street has produced solid results. He anticipates that Morgan Stanley will begin joint coverage soon by star auto analyst Stephen Girsky and Catherine Lewis, the firm’s new leisure analyst. That highlights another problem with analysts: their sector focus. Harley-Davidson is America’s only pure play motorcycle stock, so analysts range from auto parts specialists to entertainment, leisure or branded consumer goods experts.
Moto Mickey
‘We don’t really think we’re an auto parts company; we’re more similar to a Disney than a General Motors,’ Copes says, invoking images of Mickey Mouse in leathers. In fact the investor conferences Harley participates in tend to be more leisure, growth and brand-oriented forums. ‘This is that we think is really consistent with our message, and now we’ve seen an upsurge on this side with a number of new analysts coming on line.’
The other problem is size, since Harley-Davidson’s rapid growth has it on yet another hazy boundary. It’s currently around $4 bn in market capitalization, on its way to $5 bn – ‘making us a big cap and putting us on more radar screens. But each broker has a different way of categorizing us, mid, small or large.’
Another lesson of the Forbes crisis was to get more into shareholder targeting and seriously cultivating attention from the buy-side. Harley’s targeting effort is thanks to the Carson Group, hired at the inception of the IR program. Meanwhile Copes’ incoming associate will have to be in the saddle and roaring from day one, in charge of looking after the individual shareholders, and revamping and maintaining the IR section of Harley’s web page – a site that many individual investors are already using. Currently a link takes visitors from the home page to PR Newswire’s ‘company news on-call plus’ service, featuring press releases, SEC filings and a text version of the annual report.
However Copes is not convinced the internet is the way to talk to investors. ‘Mostly we use blast faxing for our financial press releases, following up with a conference call for the analysts.’ Above all, he relies on the IRO’s most trusty instrument: ‘I think the phone call goes a lot further.’ Besides, Harley-Davidson on the internet could never come close to experiencing the real thing.
Analyst notes
Shawn Milne
Hambrecht & Quist
Milne welcomes the improvements in Harley-Davidson’s IR, even though he’s had it as a ‘hold’ for a year.
‘It’s been easier to access data and get a prompt response,’ he adds. ‘The information flow is so much better. Occasionally Copes has had to get back to me in terms of the deep financials – the nitty-gritty – but he’s getting up to speed on that. What’s smart is the test ride offer.’
Tim Reiland
Cleary Gull Reiland & McDevitt
Reiland is a ‘wannabee’ biker – but something about a wife and four kids inhibits the high speed approach.
‘Harley’s IR program has come a long way,’ he remarks. He should know, having covered the company for ten years. ‘Rod Copes has been a breath of fresh air. Jim Ziemer’s a great guy, but he’s the CFO of a multinational corporation, so he doesn’t have the time to do the basic blocking and tackling.’
Reiland complains that Harley still doesn’t forecast. ‘That’s just their culture, their way, but they have a much better control on their situation now.’
‘The dealer show in particular is a highlight,’ he adds. ‘Other companies do stuff like that but, you know, it’s hard to match all those new motorcycles.’
Jay Van Cleave
Robert W Baird & Co
Van Cleave joins in the roar of approval for the IR success of the Harley-Davidson dealer show, adding his appreciation for management’s annual roadshow. He cites their attendance at institutional investor events and their meetings with his company’s clients as examples of the new proactive IR, describing the new program as ‘highly successful, using the company’s very real advantages, especially its highly visible and easily recognizable brand name.’
