Strong Demand In The Far East And West Offset Decline In Europe For Harley-Davidson
Harley-Davidson (NYSE:HOG) reported solid Q4 results to cap off what has been a strong year for the automaker. Revenues increased by 5.7% year-on-year (y-o-y) to $5.9 billion, only ~$300 million shy of its peak in 2006. The iconic manufacturer of heavyweight motorcycles rolled out its 2014 Project Rushmore bikes mid last year, which turned out to be the company’s biggest product launch in over two decades. Harley-Davidson also ventured into the lightweight motorcycles market with the introduction of the Street series. New product mix as well as lower operating expenses led to an 18% rise in net income to $734 million in 2013. [1]
Apart from selling motorcycles to independent dealers all around the world, Harley-Davidson offers its branded merchandise, mechanical and cosmetic bike accessories, and also provides wholesale/retail financing and insurance programs to dealers and customers. We have a $60 price estimate for Harley-Davidson, which is around 3% lower than the current market price.
See our full analysis for Harley-Davidson
Domestic Market And Emerging Economies Provide Growth
- U.S. Motorcycles:
Relevant Articles
- With Rate Cuts Around The Corner, Can Harley-Davidson Stock Recover To Over $50?
- Will Harley-Davidson Stock Return To Pre-Inflation Shock Highs?
- Can Harley-Davidson Stock Rise Over 50% To Pre-Inflation Shock Levels?
- What’s New With Harley-Davidson Stock?
- Harley-Davidson Stock Had A Stellar 2022. What Does 2023 Hold?
- What’s Happening With Harley-Davidson Stock?
U.S. is Harley’s biggest market, which constituted around two-thirds of the company’s motorcycle shipments in 2013. Retail sales in this region rose by 4.4% y-o-y to nearly 169,000 units. There is a difference in retail sales and wholesale shipments in the context of Harley-Davidson. While wholesale shipments are motorcycles shipped by the company to independent dealers, retail sales account for bikes consequently sold by these dealers to consumers. Despite a contracting core customer base of middle-aged Caucasian men in the U.S., revenues from the country increased by 7% to $2.6 billion by our estimates. This was largely due to launch of the Project Rushmore bikes, which marked the largest year-over-year new model year sales increase in twenty years for Harley.
Another upside for the company has been its growing popularity among its outreach customers, comprising young adults (ages 18-34), women, Hispanics and African-Americans. According to the company, the growth rate of outreach customer sales was two times that of core customer sales last year. In addition, the Street 500 and Street 750, built on the new “Revolution X” platform, are set to arrive in the U.S. by the second quarter this year. These motorcycles will aim to further boost sales in the country, by targeting a wider customer base, especially those who prefer lightweight and relatively cheaper motorcycles.
- Rest Of The World Motorcycles:
International sales (excluding U.S. and Europe) jumped by an impressive 17%, and contributed a fifth to Harley’s revenues in 2013. This surge was bolstered by an ~10% retail sales increase in Asia-Pacific. Apart from Japan and Australia, which are the two largest markets for the company in this region, emerging economies could drive growth for Harley in the coming future. The automaker opened its first dealership in the Philippines last year, as well as introduced the Street 750 in India in January this year, to signal its intentions of accelerating international expansion.
- Europe Motorcycles:
Although revenue from Europe increased by 2% in 2013, the region saw a consecutive year of negative growth in retail sales (-1%). However, despite sluggish economic conditions, Harley-Davidson managed to increase its market share in the European heavyweight motorcycle market by one percentage point to ~13%. Going forward, the company plans to introduce its relatively cheaper Street series in parts of Europe such as Italy, Spain and Portugal this year, in a bid to help ailing motorcycle sales.
Fueled by strong full-year results, Harley-Davidson expects to ship around 279,000 to 284,000 motorcycles this year, up 7-9% from 2013 levels.
New Models Push Up Pricing
Average revenue per motorcycle increased by 3% in 2013. This is mainly due to higher pricing of the Project Rushmore bikes, which in addition to being restyled, were also technologically upgraded. However, pricing might be offset by the Street 500 and 750 in the coming years. These two motorcycles will be available for $6,700 and $7,500, making them the cheapest Harleys on sale. As sales of the Street series gain traction, we can expect a decrease in the average revenue per motorcycle for the company.
Gross Margins In Line With Guidance
Harley’s gross margins stood at 35.4%, an increase of 60 basis points from 2012. During the third quarter earnings release, the company had expected gross margins of 35.25% – 36.25% for the full year. The company completed its five-year long restructuring operations last year, for which it spent a total of $479 million since 2009. The automaker saved $305 million due to its restructuring activities and expects to save $320 million a year from this year on. The company hasn’t provided an exact range for gross margins this year, but expects a “moderate” y-o-y increase in this figure. Due to higher pricing of new models and lower operating expenses, the company also expects operating margins for its motorcycle segment to range between 17.5%-18.5% this year, up from 16.5% in 2013.
See More at Trefis | View Interactive S&P Capital IQ Analyses
Notes: