International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3

by Trefis Team
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Harley-Davidson
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The biggest battle for America’s iconic motorcycle maker Harley-Davidson (NYSE:HOG) is the declining demand in its home market. After a small growth in the first quarter, the U.S. heavyweight (601+cc) motorcycle market declined by almost 9% in the second quarter, hurt by weak anticipated sales in oil-dependent areas and the uncertain political climate, which is keeping customers from buying the higher-end motorcycles. The anticipated release of pent-up demand following the November election could see higher growth for Harley in the last quarter of the year, but till then, we expect lower sales in the U.S. to hurt Harley’s retail shipments.

hog Q&A 14The good news for Harley in Q2 was that the company managed to grow in a shrinking U.S. market, competing with Polaris’s Indian and Victory motorcycles and with its European and Japanese counterparts who are discounting aggressively. Softer demand in the U.S. is what prompted the company to lower its full-year guidance on motorcycle shipments to 264,000-269,000 units, down 1% to up 1% from 2015 levels, from the earlier estimate of 269,000-274,000 shipments, following the Q2 results.

The growth area for Harley in Q3 is expected to be its international sales. Markets outside the U.S. form approximately 30% of the company’s top line, and buoyed by solid performances in Asia, Europe, Middle East, and Africa, the company could somewhat offset the expected retail sales decline in the home market. In Q2, while Harley’s retail sales declined 1.9% year-over-year overall, international retails were up 4.3%, including an 8.2% rise in the EMEA region. This reflects the impact of the strong brand that Harley is, and the impact of the company’s push for more reach and availability in markets outside the U.S. The company has added 11 dealerships in international markets through the first half, and cumulatively aims to add 150-200 international dealerships by 2020.

Motorcycle demand in the U.S. has slowed, meaning that companies will now look for growth in terms of increasing market share and incentives. Harley already faces stiff competition from the European and Japanese manufacturers, which have benefited recently from the stronger U.S. dollar, and domestic competition in the face of Polaris. This could pressure Harley’s operations and deter it from even reaching its revised target of 264,000-269,000 motorcycle shipments this year. International growth, on the other hand, is expected to buoy Harley’s growth through the third quarter.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Harley-Davidson

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