Harley's First Quarter 2016 Results - On The Right Road?

Harley-Davidson rode out its financial results for the first quarter of 2016, but are they taking the legendary motorcycle manufacturer down the right road?

Whether motorcycle enthusiasts or not, the world’s attention is usually focused on how well Harley-Davidson performs. From wearing the mantle of an iconic brand to being the apparent standard of the public’s appetite for cruisers, the American motorcycle manufacturer could consider it their industry-specific cross to bear.

Some experts had set today's financial report as a ‘do or die’ moment for Harley-Davidson, creating a Wall Street drama of using the first three months of 2016 as an indicator to whether the motorcycle manufacturer had turned the corner of its disappointing 2015.

For those who haven’t watched the latest episodes of ‘As the Motorcycle Turns’ there were several subplots being played out.

Harley-Davidson has long considered itself a premium motorcycle brand, being one of the first manufacturers to break the cycle seen during the tough recession years of lowering prices to maintain sales and attract new customers by setting its MSRP to what they feel their models are worth. Indeed, it’s said some motorcycle manufacturers are continuing to introduce new models with such slim margins, they’re looking for profits in riders accessorizing the new bikes.

Also, the iconic American brand has long fought the perception it’s facing an aging customer base, unable to attract a younger rider. Finally, some speculate the riding public just aren’t into the bigger, heavier cruisers.

2016 Harley-Davidson CVO Pro Street Breakout - Source Harley-Davidson

How did Harley-Davidson do?

Harley-Davidson, Inc. (NYSE:HOG) first quarter 2016 diluted earnings per share increased 7.1 percent to $1.36 compared to diluted EPS of $1.27 in the same period in 2015. Net income was $250.5 million on consolidated revenue of $1.75 billion compared to net income of $269.9 million on consolidated revenue of $1.67 billion in last year’s first quarter.

“I am pleased with how our first quarter results demonstrate the progress we’re making in both driving demand and delivering business performance in a highly competitive environment,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc.

The American motorcycle manufacturer shipped more motorcycle in the first three months of 2016 than it did in the same period the year prior. Harley-Davidson shipped 57,458 units from January to March, that’s 1.4% more than they did the year before.

The best market improvement came from Canada with 16.6 percent more motorcycle riding up north than the year prior. It was noted this is a result of the company’s transition to direct distribution.

Going down the list; Europe, Middle East, Africa (EMEA) Region enjoyed an increase of 8.8 percent and Asia 6.6 percent. Harley-Davidson didn’t fare so well at home with U.S. shipments slipping .05 percent when compared to last year and Latin America took a hit of 26.5 percent.

Looking at the U.S market, Harley feels they had a tough time due to increased competitive discounting, something mentioned earlier in this article as well as continued weakness in areas of the country that are dependent on the oil industry. The company does note U.S. market share for the first quarter was 50.9 percent.

Like other motorcycle manufacturers, Harley-Davidson enjoys revenue from more than just its bikes.

It appears more riders dressed themselves rather than their motorcycles with General Merchandise improving 6.3 percent when comparing the first three month of 2016 to that of 2015. Its Parts and Accessories segment was down when comparing this year to last but the decline was negligible and it’s fairer to say that particular area of sales was more or less the same.

A stream of revenue Harley-Davidson enjoys that many other motorcycle manufacturers don’t is customers financing their bike with the same company that built it. Its financing division enjoyed more revenue but ended up with a smaller profit. Harley notes this is due to a higher provision for ‘retail credit loan losses’ meaning they feel that for whatever reason, fewer riders will pay back their motorcycle loans as they originally agreed. As a financial service division, they essentially set aside a chunk of cash to satisfy, or pay off, a certain amount of motorcycle loans.

2016 Harley-Davidson Low Rider S - Source Harley-Davidson

It’s all about Market Share

There are different factors at play for not only improving Harley-Davidson’s market share but its new sales as well which we’ll look at in a moment. But a further indication of where the motorcycle manufacturer is trying to go is seen in the company’s overall strategic objectives.

According to the information released by Harley-Davidson, it continues to bring new riders into the sport of motorcycling while also broadening brand appeal demographically. In 2015, one-third of Harley-Davidson new motorcycle purchasers in the U.S. had not owned a motorcycle previously. In the U.S. for the eighth straight year, Harley-Davidson was the number-one seller of new on-road motorcycles of all displacements to young adults ages 18-34, women, African Americans and Hispanics, as well as Caucasian men ages 35 plus.

Readers who have been taking notes may remember late last year Harley-Davidson allocated a larger chunk of money in 2016 to market its motorcycles to not only its existing customer base but improve the area of younger riders.

These dollars were most obviously seen in March when the company launched its ‘Live Your Legend’ integrated marketing campaign. The campaign debuted in the U.S. during the NCAA Men’s Basketball Tournament and will continue rolling out globally through 2016. 

“The Live Your Legend message is a rallying cry to inspire new generations of riders to invest now in experiences that define their legacy,” said Levatich. “It’s one example of how we are creating powerful connections with new riders and strengthening our bond with our existing riders.”

Regardless of how well a motorcycle manufacturer does on social media or how slick the latest commercial may be, it basically comes down to what it’s selling.

Proving it’s not walking away from its performance rides, Harley-Davidson began shipping two new powerful cruisers in March, the Low Rider S and the CVO Pro Street Breakout. The addition of these models helped Harley-Davidson’s 2016 line-up easily become the most powerful line up ever offered in its long and illustrious corporate history.

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2016 Harley-Davidson Roadster - Source Harley-Davidson

As Clutch and Chrome mentioned yesterday in its review of the latest model, the new Harley-Davidson Roadster, this addition was held high as another example of how the company will attract those younger riders looking for a raw, racing edge to their ride.

As the newest member of the Dark Custom lineup, Roadster combines modern performance and retro-inspired styling with premium suspension components, an air-cooled 1200cc V-Twin engine that delivers a strong pulse of mid-range torque and a profile reminiscent of vintage racing motorcycles from the 1950s and 1960s.

It should be noted, this new model is riding straight for the spotlight with the Roadster starring in “Cut Loose,” the third commercial in Harley-Davidson’s ‘Live Your Legend’ global marketing campaign seen below.

Clutch and Chrome will leave the further dissection of the first quarter financial results and possible financial dramas to the experts on Wall Street. It appears Harley-Davidson should be happy with how the year has started but are sure to know, a road trip isn’t necessarily remembered for the first few miles laid down, but the entirety of the overall journey.

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