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Motorcycle icon Harley Davidson reported much better than expected first quarter earnings Monday before the market. $HOG saw momentum building rapidly as the US economy opened up and ridership soared. $HOG rose 10% on the report.

Harley 2021

Harley-Davidson Inc NYSE: HOG Reported Before Open Monday

$1.68 Beat $0.79 EPS Forecast AND $1.23 Bil Beat $1.22 Billion Forecast in Revenue

Earnings

Harley-Davidson (NYSE: HOG) reported earnings for the first quarter of 2021 of $259.1 million. On a per-share basis they earned a profit of $1.68. The results beat Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 79 cents per share.

The iconic motorcycle maker posted revenue of $1.42 billion in the period. Its adjusted revenue was $1.23 billion, also surpassing Street forecasts. Six analysts surveyed by Zacks expected $1.22 billion. Harley-Davidson shares have increased 10% since the beginning of the year. The stock has more than doubled in the last 12 months.

 

Harley-Davidson Inc NYSE: HOG

Market Reaction > $44.49 ▲ 4.11 (+10.18%) at NY lunch

Highlights

  • Harley-Davidson  saw a 30% jump in North America motorcycle unit sales, quarterly sales for HOG had fallen on a yr/yr basis for eight straight quarters. 
  • Lower sales incentives, gross margin increased by 5.1 percentage points from last year.
  • Combined with cost-cutting initiatives, this boost in gross margin helped push adjusted EPS higher by 273% y/yr to $1.68.

HOG Rewire to Hardwire

About a year ago the company named Jochen Zeitz as its new CEO. He has been credited for turning around athletic shoe and apparel company Puma when he was the CEO there about a decade ago. When Zeitz took the helm at HOG, he wasted little time in implementing key restructuring actions. Analysts were concerned HOG's core customer demographic was aging out and younger generations have not caught the  motorcycle riding bug.

As part of its "Rewire" turnaround plan, Harley cut its model lineup by 30%, slashed its workforce by 14%, and pulled out of underperforming markets.

In a bid to attract younger customers Harley launched its first electric motorcycle called the "LiveWire."  Moving forward Zeitz is looking to amplify HOG's electrification plans by creating an entire electric motorcycle division. Accordingly, HOG also brought in new Ford (F) CEO Jim Farley to join the board, who is navigating an EV-based turnaround at the automaker.

Now we we are seeing the reopening of economies, brightening consumer sentiment, and recovering job market are positive factors with pent-up demand for freedom and be outside. Not quite 'Easy Rider' but you get the picture. The healthy pricing power that HOG exhibited in Q1 is another confidence-building data point that suggests there could be some staying power to this upswing. 

Outlook

With the completion of its Rewire initiative, HOG is now moving on to its 2021-2025 strategic plan called "The Hardwire." Core components of this plan, such as a broadening view of its customer base and increased investments in its touring and large cruiser segments, are expected to support its enhanced guidance.

One concern is that HOG could soon be facing much higher tariffs in Europe. According to reports, the EU plans to revoke the "binding origin information" credentials on all of HOG's products. This means that the company will no longer be able to secure a 6% tariff rate by delivering products from its factory in Thailand, and instead will see a 56% import tariff slapped on its products starting in June.

This development is problematic for HOG's EMEA segment, but investors are currently honing in on the monumental improvement experienced in HOG's most important market, North America.  If Q1 truly is the start of a revival at HOG, then the sting of the concerning tariff news will be significantly lessened.

HOG believes this newly-found momentum will continue throughout the year as it now expects to generate motorcycle segment revenue growth of 30-35% compared to its prior outlook of 20-25%.  

Ridership

Prior to COVID Harley-Davidson ridership in the US had 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. This has seemingly gone more towards the younger segment as we opened up in Q1 2021.

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 incurred $40 million to $50 million of operating expense for this initiative.

Source: Harley Davidson

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