Harley-Davidson Q1 Profits Plunge; Takeover Talk Continues

Harley-Davidson Inc HOG reported Tuesday that first-quarter earnings fell 22.8 percent from the same period last year, and an analyst said the iconic motorcycle company remains an attractive takeover target.

“It’s not unusual that private equity has been looking at it,” said Ivan Feinseth at Tigress Financial Partners. “I think the company is undervalued.”

Harley Has Inventory Issues

Word that private equity firms may be circling the company, most notably KKR & Co. L.P., has been circulating for about six months. Harley was down more than 4 percent in morning trading at 56.92.

Harley said first-quarter net income was $186.4 million on consolidated revenue of $1.50 billion versus net income of $250.5 million on consolidated revenue of $1.75 billion in the first quarter of last year.

Earnings per share was $1.05 compared to $1.36 in the same period of 2016.

Harley has been burdened by excess 2016 inventory and has offered dealers some cost reductions, Feinseth said.

Another analyst, who asked not to be identified, said Harley was offering a $1,000 credit to dealers for each 2016 model sold through the end of the month. He and Feinseth said a Reuters story that characterized the incentives as “rebates” was wrong.

Harley Says Sales Drop Expected

"First quarter U.S. retail sales were in line with our projections and we remain confident in our full-year plan despite international retail sales being down in the first quarter," said Matt Levatich, CEO, Harley-Davidson. "We are very pleased with our continued growth in U.S. market share and the progress our U.S. dealers made in reducing their inventory of 2016 motorcycles in the quarter."

There’s a wide variety of opinion on whether Harley’s aging demographic and premium prices are hurting the company. Feinseth rejected those criticisms and said the company remains a firm Buy.

First quarter worldwide Harley-Davidson retail motorcycle sales were down 4.2 percent compared to the same period in 2016. Harley-Davidson retail motorcycle sales in the United States were down 5.7 percent compared to the year-ago quarter, with the overall U.S. industry down for the same period.

Harley-Davidson's U.S. market share for the quarter was 51.3 percent in the 601cc-plus segment, up compared to the first quarter in 2016. Harley-Davidson's international retail sales decreased 1.8 percent compared to the same quarter in 2016.

"We recently announced our plan to build the next generation of Harley-Davidson riders globally. We are energized by our focused strategy, and we believe our powerful brand and commitment to excellence will position us to drive demand for our products and grow our sport," said Levatich.

Related links:

Is Barron’s Wrong on Harley-Davidson? Harley-Davidson Not Being Rewarded For Q1 Beat