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Is Harley-Davidson Too Old to Ride? Stock Falls as Sales Skid Again.

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  • Is Harley-Davidson Too Old to Ride? Stock Falls as Sales Skid Again.

    Sales at Harley-Davidson dealers continued to screech downward in 2018, falling 10% in the U.S. and 6% world-wide.

    Tuesday morning, the classic bike maker reported earnings for its December quarter that were even uglier than feared. It earned half a million dollars on the quarter, effectively zero cents a share, despite a slight sales beat with quarterly revenue of $1.15 billion. Analysts polled by FactSet had predicted 28 cents in earnings on sales of $1.05 billion.

    For 2018, Harley earned $3.19 a share?well shy of the average estimate of $3.34. Even ignoring tariffs and restructuring costs as the company struggles to right itself, 2018 ?adjusted? earnings were $3.78. That was short of Wall Street?s estimate of $3.85 in adjusted earnings.

    After dropping as much as 10% in premarket trading, the stock (ticker: HOG) was off 4% at $35 in midmorning.

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    On a conference call with investors, chief executive Matt Levatich got to deliver the aspirational lines, while financial chief John Olin wound up reviewing the downbeat results.

    Levatich talked excitedly about the high-performance LiveWire electric bike coming out this year, the ?halo? product in Harley?s planned line of electric products. ?It is the most thrilling motorcycle I?ve ever ridden,? said the CEO.

    He also bragged about merchandise sales, as a way to introduce the brand to potential bike purchasers. The company opened Harley-branded clothing stores and e-commerce storefronts on and Alibaba.

    CFO Olin marched listeners through a slide presentation of the bike maker?s declining 2018 numbers. ?We expect our business to remain under pressure in 2019,? said the CFO.

    Despite its efforts, the bike maker couldn?t get its dealers to take as many shipments as it had hoped. It shipped about 39,000 vehicles world-wide, some 7% fewer than in December 2017. For the 2018 year, Harley shipped 228,000 bikes, a 6% year-over-year drop and below its own guidance for at least 231,000.

    Dealers had reduced their inventories by an average of 350 motorcycles in 2018. Wedbush Securities analyst James Hardiman asked if that was enough, noting that Harley?s 2018 inventory turns?a measure of business efficiency?had deteriorated, compared to 2017.

    In a testy response, Olin said that turns had improved in 2018?s first three quarters, then gotten worse at year-end. ?At this point we feel very comfortable with where our year-end inventory is at,? said Olin.

    In the Mirror: At Monday?s close of $36.61, Harley shares were down 35% since early 2017, when newly elected President Donald Trump feted the company?s executives at the White House. His favor proved fickle. After Harley said it would move some production abroad to avoid tariffs imposed by Europe amid Trump?s trade war, the president called on riders to boycott the company.

    Riders have other beefs with Harley-Davidson. Dozens of self-described bikers have written Barron?s in recent months, complaining that they felt taken for granted as Harley kept raising prices without commensurate improvements in its products. The company has shown prototype electric motorbikes, but these silent wheels aren?t likely to appeal to its traditional customers.

    Demographics have bedeviled the bike maker. A decade ago, baby boomers were the right age to afford an expensive motorcycle and still ride one. Now, the boomers are getting old. Retail unit sales have declined since 2015 as the company scrambled to find younger buyers and international customers. Used bikes compete for sales with new Harley products.

    Other manufacturers are suffering, too. Italy?s Ducati just reported that its 2018 unit sales fell 5% world-wide, while its sales in the U.S. fell 11%.

    Recently, UBS analyst Robin Farley wondered if the motorcycle malaise isn?t simply demographic, but historical. Maybe younger generations just don?t see bike-touring as a cool hobby, anymore. Or at least not cool enough to spend $25,000-plus on a hog. ?Has motorcycling had its cultural moment?? she wondered in a Jan. 25 report.

    With a Neutral rating on Harley stock since mid-2016, the UBS analyst has long surveyed the company?s dealers and riders. Her recent survey of 2,100 U.S. adults suggested that younger respondents see motorcycles more as transportation than as a hobby.

    In Tuesday morning?s call, Harley executives acknowledged that motorcycle buyers are currently interested in smaller bikes than the touring heavyweights that made the company famous. So in addition to entry-level electric models, Harley will roll out middleweight bikes in 2020 that it hopes will fill the gap in its lineup.

    But when an analyst asked if Harley should take the more drastic step of lowering its prices, CEO Levatich rebuffed the suggestion.

    The Road Ahead: The track ahead of Harley stock looks washed out, with the stock trading at 10 times 2019 forecast earnings. But the company?s announcement indicates it expects continued sales erosion, with anticipated 2019 unit sales falling to a range between 217,000 and 222,000. Earnings will continue to suffer: Tuesday morning?s guidance points to an operating profit margin below 9%. That?s comparable to 2018?s level and 4 percentage points below 2017.

    Amid their challenges, Harley?s managers have been disciplined operators. By keeping a tight grip on working capital, the company increased cash flow from operations by $200 million in 2018. On an expenditure of about $155 million in restructuring costs, it expects to get $70 million in annual cost savings. Harley?s free-cash-flow margins and returns on invested capital have exceeded those at rival powersports manufacturers.

    And it returns money to investors. In 2018, Harley repurchased $380 million worth of shares and paid full-year dividends of $1.48 a share (for a 4% yield, at Tuesday?s stock price), returning a total of $620 million to shareholders.

    At these levels, the stock is worth the sleeves off your vest. It may be cheap enough to attract speculators willing to hang on and see if the iconic company?s electric models can spark interest. Maybe electric biker gangs will emerge, rolling into town and striking fear in the hearts of citizens with their silent menace.

    Write to Bill Alpert at [email protected]

    If we believe in “freedom”, we don’t get to choose whose freedom is most worth defending.
    Out of 5 million sperm... your the retard that got through? and I thought I was having a bad day!

  • #2
    Yep they're right
    I'm still waiting to see a financial return on my investment in a Harley
    But then, phuck the finances, I've had many years of never ending pleasure with it
    I just called, to say........go get pharked


    • #3
      I'm still waiting for the bottom to drop RIGHT out of the secondhand market. I might get one one day - no hurry.
      The trick is to grow old. "Growing up" is less important than surviving.


      • #4
        Its just a bad product


        • #5
          High priced luxury vehicle sales will naturally suffer during times of financial stress.

          Harley have been the toy of choice for many people because of their soulful pulse but like powerboats they are one of the first things to go when the owners realise they just aren't using them enough and can't justify the shed space / registration costs of something they would love to use more but don't.

          Low mileage second hand Harleys at $10k less than a brand new one is gonna hurt sales of new ones , quality of product doesn't come into it when all your buddies have got a Harley and you want to be part of the scene ….. till the novelty wears off .

          Yamaha make an air-cooled twin as good as any Harley but for most it just has to be a Harley.
          Earth Child - In harmony with the planet


          • #6
            + 1..........and let?s not forget that Indian / Polaris have etched out a credible share for themselves which is taking some of the Harley sales ?pie?.Similarly I would imagine that Triumph have probably eaten into the pie also at the expense of Sportster
            I don't like being outdoors Smithers, for one thing, there's too many fat children. - C. Montgomery Burns
            DBB Post Veteran
            1740 DBB Post Veteran - Second Tour (Completed 23/06/11)


            • #7
              Originally posted by Silky View Post
              Yamaha make an air-cooled twin as good as any Harley
              Bite ya tongue you heathen

              I just called, to say........go get pharked


              • #8
                I would be hard pressed to choose a new Harley. If I hadn't bought the Rocket 3 I would have bought a second hand Sportster, the Roadster.
                The Indian FTR 1200 is the brand new Sportster I'm not going to buy, now who wants to buy my Rocket 3?
                I think that the Rocket 3 is going on the market March or April.
                "Without free speech, free debate is impossible and, without free debate, the democratic process cannot work properly nor can misgovernment and corruption be fully exposed."
                Thanks Wendy


                • #9
                  fuck motorbikes...I wanna horse with wings and a squire to groom it, feed it and shovel the shit...two actually, I bet my missus would want one too. She always fukn does...


                  • #10
                    Well you're in the right place near Pegasus Bay.
                    "Without free speech, free debate is impossible and, without free debate, the democratic process cannot work properly nor can misgovernment and corruption be fully exposed."
                    Thanks Wendy