What happened
Shares of Harley-Davidson (HOG 1.89%) were hammered 13.7% from where they closed last Friday, according to data from S&P Global Market Intelligence, after the motorcycle giant announced it was suspending all assembly and shipments for a two-week period.
A third-party supplier notified Harley on Tuesday that it was facing a regulatory compliance issue relating to the component part it made for Harley. The motorcycle maker said it was shutting down production "out of an abundance of caution."
Image source: Harley-Davidson.
So what
Harley-Davidson has been in a secular sales slump for its big bore motorcycles, a situation that was exacerbated by the COVID-19 pandemic. While it enjoyed a bit of a rebound once the lockdowns were lifted and embarked on a new roadmap that changed the focus on the types of motorcycles it makes, U.S. sales fell in the first quarter even as international sales rose.
Because the U.S. continues to be Harley's primary market, though, representing 65% of total sales, it is still a drag on performance. Revenue rose for the period only because of higher pricing.
NYSE: HOG
Key Data Points
Now what
Harley-Davidson was already trying to contend with difficult supply chain issues, rising commodity costs, and rampant inflation. Its motorcycles are already premium priced, something it has been loath to adjust for fear of undermining the exclusivity of its brand.
Although revenue was 6% higher for the quarter, hitting $1.06 billion, 7 percentage points of the increase came from global MSRP price hikes, along with pricing surcharges in select markets. In the U.S. it sold 4,200 fewer bikes than it did a year ago, but almost 4,300 more internationally, for a slight tick higher in total sales.
Shutting down its factories could cause a significant impact to this quarter's results, though Harley only issued a vague and terse statement about the problem, without identifying the supplier, the component, or how many units will be affected.
Just like the automobile industry, Harley's business is feeling the crunch brought on by the global computer chip shortage, which worsened for the motorcycle maker as the quarter progressed. CFO Gina Goetter told analysts that production in March had been much worse than earlier in the period because of supplies, though she believes the situation will begin improving in the back half of the year.
With U.S. sales crimped because of a lack of inventory due to supply chain problems, suspending assembly and delivery for two weeks could have a material impact on Harley-Davidson's results.
