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Harley-Davidson Falls As It Couldn't Match Wall Street's Optimism

By Rich Duprey - Jan 29, 2020 at 10:32AM

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The motorcycle maker posted its best sales results in three years, but that isn't saying much.

Harley-Davidson (HOG 1.04%) posted its best results in three years in the fourth quarter. Not that they were very good, as sales continued to decline, but there were enough highlights it could point to to make it look like the motorcycle maker's business is stabilizing.

Unfortunately, it looks like the future will see Harley-Davidson as a much smaller company, but at least it seems to still have a future.

U.S. riders still rejecting hogs

Harley said U.S. motorcycle sales fell 3.1%, the smallest decline it's seen in 12 quarters, on a 6% decline in shipments, indicating the bike maker is interested in getting dealer inventory right. But make no mistake, the bar Harley jumped over was set very low as sales in the year-ago (2018) fourth quarter had tumbled more than 10%, a figure that itself was going up against an easy comparison from 2017, when quarterly sales fell 11%. 

Chart of Harley-Davidson's quarterly U.S. sales growth

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

That Harley's sales were down "only" 3% isn't quite the achievement it might otherwise seem, even though it gained about 1% in market share in the quarter, to 50.4%. Share for the year is about the same as where it was at the end of 2018, at 49.1%.

The fourth quarter is also Harley's slowest season, so it needs to prove in the coming quarters that sales really are improving.

Because of previous production problems with its LiveWire electric motorcycle, Harley is still trying to fulfill pre-orders on the bike. Harley says reception by customers has been great, but no real details on sales are available. 

That's not necessarily unexpected, but it may hint at the actual number being a bit underwhelming.

Someone riding a Harley-Davidson LiveWire electric motorcycle in the city

Image source: Harley-Davidson.

Sun rising on Asian markets

Worldwide sales were only down 1.4% as Harley saw strong 6% growth in the Asia Pacific region, which has now surpassed Europe as its largest foreign market. Sales fell in every other region, but because of the positive number from the Asia Pacific region, Harley was able to post a 0.5% increase in overall international sales.

While sales from Japan, Australia, New Zealand, and Korea saw robust 5% sales gains in the quarter, it was the "other" segment for the region that had the best growth, with sales rising 7% year over year.

That bodes well for Harley-Davidson as it has partnered with one of China's most popular motorcycle makers, Qianjiang Motorcycle, to produce a small-bore 338 cubic centimeter bike for the Chinese market under the Harley banner. China sells some 2 million bikes in the 150 cc to 400 cc range. Harley is targeting 50% of its revenue to come from outside of the U.S. by 2027.

Unfounded optimism on Wall Street contributed to the miss

Harley-Davidson took it on the chin after reporting its results because Wall Street had an idea that the bike maker was going to be in an even better place at the end of 2019 than it actually was, even though there was no good reason for analysts to feel so ebullient.

Sales have not been good, there was no indication they would be better, and Harley has done little to improve the situation. Its bikes are too big and too expensive for the U.S. market, which still accounts for 58% of total sales.

Analysts had only expected revenue to fall by 3%, not the 8.7% decline Harley actually posted. Earnings came in at $0.09 per share on a GAAP basis compared to break-even last year, and at $0.20 per share adjusting for restructuring and tariff costs compared to $0.17 per share last year.

Harley isn't looking for growth in 2020 as consumers aren't yet ready to embrace the bike maker, so analysts might temper their expectations next time, but Harley has said it is looking to "drive significant revenue growth" beginning in 2021. That still seems pretty far-fetched, but if this quarter's performance is an indication that the bottom is in sight, it may just begin to achieve it. Just don't hold your breath.

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