Harley-Davidson (NYSE:HOG) finally turned in a good quarterly earnings report Monday as first-quarter U.S. motorcycle sales jumped to their highest level in four years and earnings per share nearly quadrupled.
The gains follow a change in when the bike maker introduces its new models, from late summer to early in the calendar year, to coincide with when bike riders are most interested in buying, and suggests the "Rewire" roadmap CEO Jochen Zeitz has laid out for turning the company around is gaining traction.
A broad-based recovery
Revenue of $1.4 billion in the first quarter was up 10% year over year as motorcycle segment revenue rose 12% from 2020 on the back of strong demand for Harley's touring bikes. That's also without the full benefit of the introduction of its first adventure touring bike, the Pan America 1250, which was unveiled in February.
Zeitz has a vision for Harley as a somewhat smaller, more focused motorcycle company aligned with its dealer interests that also caters to its core customer while exploring new markets with growth potential. The LiveWire electric motorcycle is one such market, adventure touring another.
But former CEO Matt Levatich's plan to all but abandon the U.S. market in favor of international growth has been thrown overboard. International growth is still important, but the number of markets the company will have a presence in has been narrowed, with the least profitable ones rejected.
That change showed up in Harley's results as shipments to foreign markets were down precipitously, but they were much more profitable. The commitment to the U.S. is paying off, too, as Harley sold over 7,250 more motorcycles this quarter than a year ago, a 31% increase from last year.
Pointing to the realignment of Harley's priorities, which include making sure its incentives are on the same page as its dealers, Zeitz said, "We can see the initial signs of consumer excitement and optimism returning and I am confident Harley-Davidson in 2021 is a significantly leaner, faster, and more efficient organization."
Trade war redux
Unfortunately a wrench was thrown into the machinery after European regulators announced Harley motorcycles will suffer from dramatically higher tariff rates that were a result of the trade war that began in 2018.
The EU's Economic Ministry in Belgium notified the bike maker it will have to pay a 56% total tariff on its motorcycles regardless of where they're built beginning June 1. Previously, only bikes imported from the U.S. were subject to a stiff tariff (31%), which raised the cost of each bike by about $2,200, while motorcycles from Harley's other global plants only had to pay 6%. Harley had been able to avoid some of the pain associated with the trade spat by moving production of bikes for the European market to its plants in Brazil, India, Australia, and Thailand.
Now the trade ministers have determined all of Harley's motorcycles will be covered by a new, higher tariff.
The bike maker is appealing the ruling, but bike sales in Europe, which had been its second-biggest market before the pandemic, could very well plummet further.
Conversely, the global coronavirus outbreak showed Harley how it can live without Europe for the most part. First-quarter sales amounted to just 4,900 bikes, a 36% year-over-year decline, and 15% fewer than the 5,800 it sold in the Asia Pacific region.
Time will tell
Despite the overall good numbers, Harley-Davidson still needs to prove this isn't a one-off effort, as there was an obvious benefit from the stimulus checks that hit bank accounts in March, which the bike maker ran promotions around.
It needs to show the demand for its high-end motorcycles remains when consumers don't have the benefit of being artificially incentivized to spend. Second-quarter results will begin to hint at whether the turnaround is real, but it's a welcome reprieve that Harley is once again reporting real growth.