Why Harley-Davidson, Inc. Stock Hit Full Throttle After Its Earnings Report

Tuesday's earnings report was a tour de force, and investors are right to be cheering.

Apr 22, 2014 at 5:45PM

Shares of Harley-Davidson, Inc. (NYSE:HOG) surged in early Tuesday trading, racing ahead from $67.54 to $72.86 at last quote. The surge was in response to a Q1 earnings report that showed the company had grown retail sales 6%, shipments 7%, and revenues 10% over the past three months.

Source: Harley Davidson

Running down the quarter's highlights:

  • Sales increased 10% to $1.73 billion, about $200 million more than analysts had predicted.
  • Profits surged 22%, to $1.21 per share -- also ahead of estimates.
  • Operating cash flow hit $203.6 million (versus negative cash flow in the year-ago quarter).
  • Subtracting capital expenditures of $25.9 million, free cash flow was $177.7 million, about 67% of reported net income.

Dealer sales to consumers are growing. Shipments portending future sales are growing even faster. And revenues are growing fastest of all, showing that the Harley brand retains significant pricing power.

What's behind the success? According to CEO Keith Wandell, "Project RUSHMORE motorcycles were in high demand in the quarter and we began shipping the Harley-Davidson Street 750 and 500 into select markets."

The first part of that boast, Project RUSHMORE, refers to Harley's wholesale revamp of how it develops and sells its bikes, aiming to boost production capacity, and cut the time from when a new motorcycle is first envisioned to when it hits the market nearly in half -- from a five and a half year development cycle down to just three years. The second part refers to Harley's nearly as ambitious plan to revamp its image as a builder of bikes for "wealthy, middle-aged American white men," and open new markets for smaller bikes, affordable to less affluent buyers around the world, with the ultimate aim of getting 40% of its global revenues from outside U.S. borders.

That latter initiative seems to be working out especially well, with international sales up 8% in Europe, 9% in Latin America, and an astounding 20% in Asia in the fiscal first quarter. For context, unit sales in the U.S. increased only 3%.

Even in the U.S., the news wasn't so bad. Sales growth of 3% in the middle of a cold, cold winter, after all, is nothing to (ahem) sneeze at. And it's especially gratifying to hear that IHS Automotive data is saying that last year Harley retained its No. 1 market share not only among "Caucasian men age 35-plus," but among the company's new target market, "young adults age 18-34, women, African-Americans and Hispanics" -- a demographic Harley clearly labels its "outreach" customers. Says Harley, "Retail sales... to U.S. outreach customers grew at more than twice the rate of sales growth to core customers in 2013." 

Final point: Harley's business is going full out, but what about its stock? How does that look to investors?

Well, at just over 20 times earnings today, paying a 1.7% dividend yield, and projected to grow at 16%, I'd have to say the stock's looking not too shabby. When you consider further that Harley's trailing results show the company to be generating significantly more free cash flow ($1.1 billion) over the past year than it reported as net income ($776 million) -- and that, as a result, the stock is selling for less than 15 times free cash flow even after this morning's jump in stock price -- the stock looks even more attractive.

Long story short, investors who bid up Harley shares in reaction to today's news are right on the money.  

Three stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 

Rich Smith has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information