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Harley-Davidson's Sales Drop As Expected, But Manage to Beat Wall Street Estimates

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Harley-Davidson's Sales Drop As Expected, But Manage to Beat Wall Street Estimates

The iconic American brand has seen brighter days as the company reported a 24% profit drop due to weakening U.S. demand and increased costs due to tariffs on its US-made motorcycles. Harley-Davidson Inc (NYSE: HOG) motorcycles stand for their authenticity and the passion of its bikers but the company's core audience is aging. Consequently, this lifestyle trend is declining in the U.S. Despite the positive results of the company's strategy to combat that trend by entering new international markets, its bottom line has been damaged by tariffs. On the bright side, its shares went up 6.4% as the company managed to beat earnings expectations for both its revenue and profit.

Third Quarter Earnings

Third quarter sales were expected to drop but the results were at least better than those predicted by Wall Street analysts. Revenues did fall 4.9% to $1.07 billion but better than in the previous third quarter, when they went down 6% from a year earlier to $1.43 billion, whereas analyst estimates for the quarter were $1.44 billion. What is clear over the past few years is a negative trend that portrays a diminishing demand for heavyweight motorcycles.

Its net income fell from $113.9 million a year earlier to $86.6 million. Overall, Harley-Davidson shares have risen almost 9% since the beginning of the 2019 but dropped slightly more than 6% during the last 12 months. Its total retail motorcycle sales worldwide in the quarter declined 1.2 percent from 59,226 units a year ago to 58,522 units sold. Motorcycle shipments in the quarter decreased 5.8 percent during the one-year period from to 48,639 units to 45,837 units. The company expects shipments to fall further and be in the range of 38,500 to 43,500 motorcycles in the next and last, fourth quarter.

Turnaround Strategy – Shift to Electric

While the number of motorcycles Harley-Davidson has shipped and sold during the third quarter is important, many were more worried about the company's decision to halt production of its LiveWire electric motorcycle to investigate a quality issue. The good news is that the issue was singular and the production has resumed. This bike is the symbolic centrepiece of the company's turnaround plan that involves moving to electric vehicles and attracting younger bike drivers.

International Market

Harley-Davidson hopes to alter its fate by focusing on smaller motorcycles, particularly when it comes to its presence in China. These models are expected them to go on sale by the end of next year, so they don't have any real impact on the company's results for this quarter. The bikes will also be the first ones the company manufactured outside the U.S. so critics are expected for moving jobs abroad. The company was encouraged by a 2.7% increase in international sales, despite its bottom line being hurt by $21.6 million in higher tariff costs from China and Europe.

Competition

The iconic brand known for innovation and a distinct promotional identity but it has many strong rivals. Triumph Bikes, the largest British motorcycle and 100% privately owned company has always had its own distinct character based on holistic riding experience with the perfect balance of power and style. The Japanese Yamaha Motor Company (TSE:TYO) is targeting the middle class with stylish motorcycle and scooters with a good mileage thanks to its R&D and control teams.

The company successfully brands itself by being a regular participant in motorcycle and car racing. And there's the Italian Ducati Motor Holding S.p.A. whose motorbike is a global favourite for superior styling and performance. The company is owned by German automotive manufacturer Audi and its Italian subsidiary Lamborghini, which is in turn owned by the Volkswagen Group (OTC:AWGY) who just saw its worldwide deliveries rise by 9.2%, amounting to 904 200 vehicles in September. The group has managed to increase its market share in shrinking global markets.

Honda – Of Course

The list goes on and on to even include Honda motorcycle, owned obviously by Honda Motor Company (NYSE: HMC), Japan's third automaker that is the latest to join on the trend of cutting on diesel models to meet stricter emissions. Headquartered in India, its excellent machines have been loved for ages. Honda plans to phase out all diesel cars in Europe by 2021 so they can be exchanged for models with electric propulsion systems as the automaker aims to electrify all of its European cars by 2025. Honda is the latest automaker cutting production of diesel cars to meet stringent global emissions regulations.

Declining demand for diesel vehicles and stricter emissions regulations have clouded its manufacturing prospects in Europe. In February, Honda announced the closure of its only British car plant in 2021 which will result in a loss of up to 3,500 jobs. But Honda is a smart player and its main strength lies in its R&D to which it owes its large presence in the combustion engine market, including yachts, airplanes, and many others.

Even BMW is Struggling in Finding Its Way to an All-Electric Future

Even BMW Motoren Werke (ETR:BMW), the German luxury car maker that is successful since 1923 in the motorcycles segment, finds electrification to be challenging and not just cost-wise. Although German, some of its engines are produced in China, Austria, and Taiwan so it's not immune to the trade tensions. On its journey towards a fully electrified line-up, BMW plans to restructure its portfolio and focus more on selling its high profit margin models.

Outlook

With sales at home continuing to fall and challenges encountered internationally, along with the next-generation electric motorcycle already facing delays, the prospects for future growth remain cloudy despite improvements such as savings from manufacturing optimization initiative. It is clear Harley-Davidson needs to become smarter in finding new ways to appeal to younger generations before it can manage to overturn this sales slump and hopefully, start growing again.

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Posted-In: BMW electric vehiclesEarnings News Eurozone Global Markets Tech

 

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