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Motorcycle icon Harley Davidson reported better than expected second quarter earnings Tuesday before the market but with lower profit. $HOG said momentum building internationally and ridership improvement should continue.

Harley Davidson Looking Back

Harley-Davidson Inc NYSE: HOG Reported Before Open Tuesday

$1.46 Beat $1.20 EPS Forecast AND $1.63 Bil Beat $1.44 Billion Forecast in Revenue

Earnings

Harley-Davidson (NYSE: HOG) reported earnings for the second quarter of 2019 with a 19% drop in Net income to $195.63 million or $1.23 per share. Adjusted earnings declined by 4% to $1.46 per share. Consolidated revenue declined by 5% to $1.63 billion as lower shipments pulled motorcycles revenue down. The results however beat analysts’ expectations EPS of Refinitiv estimates of $1.20 and Revenue Refinitiv estimates of $1.44 billion.

Harley-Davidson Inc NYSE: HOG

Market Reaction > Pre-market $35.87 USD +1.62 (+4.73%)

Highlights

  • Worldwide retail sales decreased 8.4% in the second quarter.
  • U.S. retail sales were down 8% in Q2
  • International retail sales down 8.9%.
  • $HOG's bike deliveries are down by 5.3% from a year earlier
  • In Asia and the Pacific, Harley has seen motorcycle retail sales drop by 4,165 units from 2016 to 2018.
  • The region’s largest motorcycle market, India has also seen the company’s sales fall 21.6% from 3,690 units in 2016 to 2,676 units sold in the first quarter of 2019.
  • Sales of motorcycles, parts and merchandise fell to $1.43 billion during the second quarter from $1.53 billion during the same three months of 2018, a decline of 6%.
  • Bigger bikes are falling out of favor with younger riders. Sales of the industry’s largest bikes, with engines of 601 cubic centimeters or bigger, fell 4.9% in the second quarter versus a year earlier,
  • All but one of the 36 models sells are at least that big with some Hogs weighing in around 1,000 pounds.

Harley Davidson Q2 2019 Earnings

Tariffs

Harley-Davidson recently obtained regulatory approvals confirming that motorcycles shipped from the company’s Thailand operations to the EU would receive more favorable tariff treatment than if they were shipped from the US.  Hog adjusted 2019 outlook as a result of the timing of these approvals and softer than expected European retail sales as key drivers.

The company made progress towards its plan to build more riders through its More Roads to Harley-Davidson accelerated plan for growth and expects to substantially mitigate incremental EU and China tariffs early in the second quarter of 2020.

Ridership

Harley-Davidson ridership in the US has been up each year since 2001 and at an all-time high of over 3 million riders in 2018. In the US, rider training participation was up with the greatest increase among 18-34 year-olds. The mix of 18-34 year-olds was 2.7 percentage points of the total US new retail sales in the second quarter.

Outlook

  • Looking ahead into the full year 2019, the company expects Financial Services segment operating income to be down year-over-year and effective tax rate of about 24% to 25%.
  • Capital expenditures are anticipated to be about $225 million to $245 million, including $20 million to support manufacturing optimization.
  • For 2019, the company expects motorcycle shipments to be about 212,000 to 217,000 and motorcycle segment operating margin as a percent of revenue to be about 6% to 7%.
  • For the third quarter, the company expects to ship about 43,000 to 48,000 motorcycles. It now expects to ship about 212,000 to 217,000 bikes in 2019, down 5,000 from its April estimate of 217,000 to 222,000 bikes for the year. That forecast is down considerably from its 2019 guidance given a year ago, when it said it expected to ship 231,000 to 236,000 bikes this year.
  • Operating margins is dropping from the 8% to 9% estimated earlier in the year.

Harley-Davidson’s strategic objectives through 2027 are to build 2 million new riders in the US, grow international business to 50% of annual volume, launch 100 new high impact motorcycles and do so profitably and sustainably.

The company plans to maintain its investment and return profile and capital allocation strategy, while it funds strategic opportunities expected to drive revenue growth and expand operating margin through 2022.

Starting in the first quarter of 2018, the company began work to close its wheel manufacturing facility in Australia and consolidate its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. Full year savings of $25 million to $30 million for 2019 and ongoing annual cash savings of $65 million to $75 million after 2020 are still expected. For 2019, the company now expects to incur $40 million to $50 million of operating expense for this initiative.

Source: Harley Davidson, AlphaStreet

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