Harley Continues Ride Into Headwinds Of Tough Motorcycle Market

It’s a tough motorcycle market out there according to Harley-Davidson, but the American manufacturer feels the plans they laid out late last year are working.

These thoughts appear to be the takeaways from Harley-Davidson as it reported its financial performance for the second quarter of 2016. What everyone else will think about the numbers could be a different conversation.

Taking the results directly from Harley-Davidson’s press release, the manufacturer’s worldwide retail motorcycle sales in the second quarter were down 1.9 percent on weak U.S. industry results. Harley-Davidson retail motorcycle sales in the U.S. were down 5.2 percent compared to the year-ago quarter, with the overall U.S. industry down 8.6 percent for the same period. Harley-Davidson U.S. market share for the quarter was 49.5 percent, an increase of 2.0 points over the same period in 2015. International retail sales increased by 4.3 percent over the prior year quarter.

It would be easy to paint a dark picture of these results, and yes we’re referring to Motley Fool who appears to have some strange campaign against Harley-Davidson, but looking at the actual number of motorcycles the historic brand continues to sell it’s easy to see why the manufacturer has a positive outlook.

In the last three months 87,266 new Harley-Davidsons have been sold worldwide, 144,724 if the entire six months of 2016 are added up. When compared to 145,592 sold in the same six month in 2015, somehow that 1.9 percent seems so much smaller.

“We are pleased with our ability to gain market share in the U.S.,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. “Competitiveness in the U.S. remains intense, and our demand-driving investments are showing traction.” 

CVO Road Glide Ultra - Source Harley-Davidson

The Down and Dirty              

The most love for Harley-Davidson over the last three months came from Europe, Middle East and Africa, referred to as EMEA. Harley points to a strong reception to the new 2016 motorcycle models for the growth of 8.2 percent in the second quarter and 8.4 percent for the first six months in that particular part of the world.

Asia Pacific retail sales were up 0.8 percent in the quarter and up 3.4 percent for the first six months compared to 2015. Canada retail sales grew 2.0 percent in the quarter and 7.2 percent for the first six months versus a year ago with the numbers reflecting Harley-Davidson taking direct control of distribution of its motorcycles in that part of North America.

As with the classic Dicken’s novel, reports like this can be a tale of two stories. Many in the motorcycle world look at the number of motorcycles sold as an indication of popularity while those who own shares in Harley-Davidson want to know what return they’ll enjoy from their investment.

On that topic, Harley-Davidson, Inc. (NYSE:HOG) second quarter 2016 diluted earnings per share increased 7.6 percent to $1.55 compared to diluted EPS of $1.44 in the same period in 2015.

As with other motorcycle manufacturers, Harley-Davidson makes money from more than just selling bikes. Revenues from Parts and Accessories, the items riders need to fix and customize their motorcycle was up slightly, .05 percent while General Merchandise which would include helmets and apparel was down 2.3 percent.

An area unique to Harley-Davidson in the motorcycle world is the manufacturer owning its own financing company. Offering new owners the opportunity to pay monthly for their dream ride, Harley-Davidson Financial Services Segment income and revenues were up 10%.

Easy to overlook, interesting trends can be taken from these numbers. Not only could it indicate more buyers are financing their motorcycles but they’re paying the loans as agreed. This is a sharp contrast to the tough times the motorcycle industry faced during the recession when bikes weren’t being bought and those who had loans were defaulting on them.

Based on the performance year to date as well as what Harley-Davidson considers ‘market softness in the U.S. [and] the continued competitive environment and global economic uncertainty’ the company is taking the precautionary step of lowering its full-year shipment guidance. The company now expects to ship 264,000 to 269,000 motorcycles to dealers worldwide in 2016.

Although the reason for this is noted as being ‘consistent with the company’s long-standing commitment to manage supply in line with demand’ Harley-Davidson knows all too well the financial world of Wall Street is particularly hard on any company that misses any corporate goal.

Sportster Seventy Two - Source Harley-Davidson

What’s Next?

Regardless of what the actual goals are however, industry experts may wonder what Harley-Davidson feels growth and success looks like?

Late last year Harley-Davidson allocated a large chunk of money for 2016 to market its motorcycles to not only its existing customer base but improve the area of younger riders. This was first seen with a major advertising campaign in the U.S. during the NCAA Men’s Basketball Tournament which has continued on a global scale.

Sponsoring a large number of events at bike rallies, making the needed efforts to be named the official motorcycle of Daytona Bike Week and Sturgis as well as bringing more raw power to its lineup than has ever been seen before, Harley-Davidson is making a Herculean marketing effort.

When these efforts get traction aren’t just an interest to fans of Harley-Davidson and financial experts but anyone interested in the larger engine cruiser marketplace. Many note, where the Bar and Shield goes so does the success of this particular segment of motorcycles.

This theory will be tested over the next few weeks as other motorcycle manufacturers who ride in the same world report their own results.

As far as the Milwaukee manufacturer is concerned, they’re cautiously optimistic.

“While our investments to grow product awareness and ridership globally are beginning to take hold in a number of markets, current conditions in the U.S. and economic headwinds in other parts of the world combine to raise caution for us as we continue to focus our strategy to drive demand and deliver strong returns to shareholders,” said said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc.

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