Set the bar low enough, and it's easy to step over it, which essentially describes Harley-Davidson's (NYSE:HOG) first-quarter earnings report that had it beating dour analyst expectations, but it still saw its business contract to levels not seen in, well, forever.
We may be getting to a point where the worst is over, though the report doesn't indicate we've reached bottom.
All the roads to Harley are still filled with potholes
The motorcycle maker's U.S. sales sank to just 28,000 bikes in the first quarter, a 4.2% drop from last year's disastrous earnings report, which showed a plunge of 12%. That's lower than during the worst parts of the recession.
Used motorcycle prices also loomed large in the report despite their having risen at dealerships for seven straight quarters. The disparity continues to exert pressure on the sale of new bikes.
International sales were also down 3.3%, and while tariffs played a role in the drop-off, product mix was a bigger component as Harley shipped more Sportster models and the fact its Street model was off the market for almost the entire quarter having had been recalled for faulty brakes.
Harley was able to generate earnings of $0.80 per share -- $0.98 if you remove restructuring and tariff costs -- which handily outpaced Wall Street's forecast of only $0.67 per share, but it was still down from the year-ago period's $1.03 per share, showing Harley remains in decline.
The motorcycle industry also remains in trouble, with sales down 4.7%, which at least means Harley gained market share this quarter. That's a better outcome than in previous periods when the bike maker's performance was worse than that of the industry as a whole, but the magnitude of improvement indicates the downdraft may finally be reaching its nadir.
New markets, new opportunities
If so, Harley-Davidson could engineer a turnaround. Historically, it focused solely on heavyweight motorcycles. Tt has therefore borne the brunt of the decline because it is missing out on nearly 60% of the market and this category has fallen out of favor. But when it introduces its new middleweight Streetfighter and Adventure Touring models next year, it will be in over 90% of the market.
Not that it's a panacea. Harley will be going up against well-established competitors who've developed a reputation for quality and performance, and likely a lower price point than where it will enter.
CFO John Olin told analysts on the earnings conference call that Harley's middleweight bikes "will be very profitable at a very strong overall margin," though not at the same level it realizes from its touring and cruiser bikes. Whether buyers respond to the implied premium it will charge remains to be seen, but entering into a new market at a time when buyers are turning away from your existing premium-priced product suggests convincing new buyers will be difficult.
A break in the clouds
Still, despite the headwinds, the quarter's evolution could indicate a change in direction is on the horizon. Where sales were down by double-digit rates in January and near double digits in February, they made a complete U-turn in March and rose by mid-single digit percentages.
Of course, the weather markedly improved and Harley did have some promotions going on, like low financing rates and upgrade offers to existing owners. All of these incentives ran earlier this year than in prior years, which could have played a part in those better March results, but it has also been working with its dealers to improve support and sales.
Also, some dealers getting the new electric LiveWire motorcycle later this year. Those that have installed fast-charging stations at their dealership reported seeing people coming in to hook up their cars because these were faster than other public stations. That doesn't necessarily translate into sales, or even preorders for the LiveWire, but it may increase foot traffic in a dealership that could generate some positive results down the road.
Much more to do
The less-worse results at Harley-Davidson are not a cause for celebration, however, as clouds remain on the horizon. For example, the European tariffs that rose from 6% to 31% last year in retaliation for President Trump's tariffs on steel and aluminum are set to rise to 56% in June. Harley was able to offset some of the impact of tariffs, though, by moving more production to its new factory in Thailand. That alone helped more than double sales to emerging Asian markets this quarter.
But stanching the bleeding is only the first step in a turnaround, which the company has yet to do. While the big improvement may indicate the worst is behind it, Harley-Davidson still needs to show it has the chops to grow motorcycle sales again, and that time still looks a long way off.