The Wall Street Journal-20080123-Can Ducati Outrun Downturn-
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Can Ducati Outrun Downturn?
Italian high-performance-motorcycle maker Ducati Motor Holding SpA is betting it can beat an economic downturn in the U.S. and Italy, its two largest markets, and increase its sales, earnings and market share during the next three years.
Under new management since May 2007, the company has set ambitious targets, including an increase in its compound annual growth rate of 10% through 2010.
Ducati went through a period of mounting debt and falling sales before a group of new shareholders bought a controlling stake in the company in March 2006. Now, it is in the midst of a turnaround; revenue rose 44% in the first nine months of 2007.
To maintain momentum, Ducati is embarking on a three-year industrial plan, aiming for 10 model launches by 2010 and a market share of 6.5%, up from 5% in 2007.
As part of the plan presented last week in Milan by Chief Executive Officer Gabriele Del Torchio and other senior managers, the company aims to focus on the high-end market, where motorcycles cost as much as 35,000 euros each (about $50,000) and wealthy buyers tend to be immune to economic slumps.
Ducati's stock has fallen 22% since the beginning of the year, hit largely by fears of a U.S. recession and slowing economies in Europe, analysts have said.
However, Mr. Del Torchio said the targets could be met even with a slowing U.S. economy, because of Ducati's affluent customer base. Ducati sold 10,019 bikes in the U.S. in December, Mr. Del Torchio said, a 22% on-year increase, and has a market share of 4%. In January, traditionally a slow month for motorcycle sales, sales were strong, the CEO said.
Through outsourcing of parts, the company aims to cut materials costs to 50% of sales by 2010 from 54% currently. Ducati will also invest 40 million euros a year over the life of the plan.
Ducati plans to leverage its iconic brand by increasing sales in areas such as accessories and apparel, products that generate sales with little cost, Mr. Del Torchio said.
Ducati's plan aims for earnings before interest, taxes, depreciation and amortization, or Ebitda, of approximately 20% of sales by 2010, compared with 13% of sales in 2007. For 2008, sales are expected to rise 15% and the Ebitda margin is forecast to reach 15%.
In the past, Ducati hit an 18% Ebitda margin, Chief Financial Officer Enrico D'Onofrio said, adding that competitors such as Harley- Davidson Inc. have margins as high as 30%.
The Bologna-based company also said it aims to reach return on equity of 15% by 2010.
The estimates are "very aggressive," said a Milan-based analyst who asked not to be named. The analyst said the targets are above consensus expectations.
The company said it based its plans on an expected dollar-euro exchange rate of $1.5 in 2008, $1.45 in 2009 and $1.40 in 2010. The current rate is about $1.45.
