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Harley-Davidson's LiveWire Debacle to Overshadow Q3 Earnings

By Rich Duprey - Updated Oct 18, 2019 at 6:34PM

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The electric bike's financial impact is small, but stumbling out of the gate is a bad sign.

While the number of motorcycles Harley-Davidson (HOG 0.94%) has shipped and sold during the third quarter will still be an important topic of discussion when the bike maker reports results on Oct. 22, it's likely the decision to halt production and delivery of the LiveWire electric motorcycle is going to dominate the conference call with analysts.

The bike has been the centerpiece of its turnaround plan, and despite the actual number of motorcycles being comparatively very small compared to the regular gas-powered bikes Harley produces, it's the symbolic nature of the LiveWire as the tip of the spear in its move toward electric vehicles that overshadows everything else the company is doing.

Still, it will be the sale of Road Kings, Fat Boys, and Street Rods that determines how Harley-Davidson performs, so let's see what investors can expect when the motorcycle giant reports earnings.

Rider on Harley-Davidson LiveWire on a curving road with trees in the background

Image source: Harley-Davidson.

Motorcycles still not moving at home

It certainly won't be anything good. Analysts were already indicating channel checks showed U.S. sales were down between 5% to 10% in the period, and at the time there was still a month to go in the quarter, so it's not likely they suddenly improved.

But assuming sales didn't fall off a cliff at the end of the period, the result would be a slight improvement over last year's tumble into the abyss, when sales plummeted 13% from the prior year. However, that also means that Harley-Davidson had a very low hurdle to get over, and wasn't able to do so.

It would also be the lowest level of third-quarter sales in at least 20 years (I stopped counting after going back over two decades' worth of sales history), and because the second and third quarters are typically Harley's biggest, it suggests the bike maker hasn't found the bottom yet.

It's why the LiveWire problem looms larger than the actual sales numbers of the electric motorcycle. The bike is a critical component of its plan to now have 4 million Harley riders by 2027.

Harley's not burning rubber overseas, either

While the U.S. market is still currently its biggest, Harley is looking for international markets to stand on an equal footing. Where it previously wanted foreign markets to account for 50% of its unit volume, it is now looking for them to account for half its total revenue. At the rate the U.S. market is deteriorating, that might not be hard to achieve, except international sales are sliding, too.

Chart showing Harley-Davidson international sales from Q4 2015 to Q2 2019

Data source: Harley-Davidson SEC filings. Chart by author.

Harley-Davidson hopes to change direction with a greater focus on smaller motorcycles, particularly for China, where it intends to build motorcycles with engines of 250 to 500 cubic centimeters. 

It expects them to go on sale at the end of next year, meaning they won't have any real impact on the company's results for the coming quarter. The bikes will be the first Harleys manufactured outside the U.S., which could open a rift with labor over shipping jobs overseas.

LiveWire rollout a sign of what's to come

The initial rollout of the LiveWire was only going to be a relatively few motorcycles, and analysts weren't expecting it to sell more than 400 to 1,600 bikes in the first year because of sticker shock from its $30,000 price tag. But the botched launch could make even those sales look like pie-in-the-sky figures. Buyers who had placed deposits may very well cancel their orders and others may shy away until the kinks are worked out.

Dealers are expecting an update on Harley's investigation into the charging problem this Friday, which may provide some clarity on when production and shipments will resume, but that won't change Wall Street's already pessimistic forecasts.

Third-quarter sales are expected to drop 6.5% to $1.05 billion at the midpoint, with earnings tumbling 26% to $0.50 per share. With sales at home and abroad continuing to fall, its next-generation motorcycle mired in delays, and prospects for future growth still cloudy, it seems clear Harley-Davidson needs to become a much smaller company before it can hope to grow again.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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