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Why Harley-Davidson, Inc. Stock Fell 16% in October

By Jeremy Bowman - Nov 9, 2018 at 5:48PM

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Shares of the motorcycle maker fell on macroeconomic issues and a weak earnings report.

What happened

Shares of Harley-Davidson, Inc. (HOG 1.04%) were sliding last month amid a disappointing third-quarter earnings report, ongoing trade tensions with China, and the broader slide in the market. According to data from S&P Global Market Intelligence, the stock finished October down 16%. As the chart below shows, the stock fell over much of the the month, tracking with the broader S&P 500:

HOG Chart

HOG data by YCharts.

So what

Harley-Davidson has been one of the victims of President Trump's trade war: The European Union slapped tariffs on its motorcycles, and investors have continued to worry about trade tensions with China, which has also punished the classic American motorcycle maker with tariffs.

The Harley-Davidson logo on a motorcycle

Image source: Harley-Davidson.

Harley's troubles continued when the company reported third-quarter earnings, pushing the stock down 2% as domestic sales continued to disappoint. Retail motorcycle sales fell 13.3% to 36.2 million vehicles in the U.S., and global sales were down 8% to 59.2 million. That slide has been ongoing; millennials have not been buying motorcycles at the same rates as older generations, so Harley finds itself with an aging customer base, a problem for which there is no easy solution.

Revenue jumped 16.8% to $1.12 billion in the quarter, helped by the timing of shipments, and adjusted earnings per share surged to $0.78. Both results beat estimates, but were overshadowed by the domestic weakness. CEO Matt Levatich said: "As we manage our business with resilience in a challenging time in our history, we are leveraging our strengths for a more promising road ahead. We are investing to build the next generation of Harley-Davidson riders and we are optimizing our business to drive profitability and cash flow."

Now what

In its guidance, the manufacturer said it expected full-year sales to be at the low end of its previous guidance of 231,000 to 236,000 vehicles. Year to date, the stock is now down 20%, succumbing to the same challenges as other motorcycle manufacturers. As long as motorcycle sales continue to slide, the stock should remain pressured.

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