Harley-Davidson Cuts Shipment Guidance, Revenues Decline In Q2 2017

Harley-Davidson (NYSE:HOG) announced its Q2 2017 on July 18, 2017 and the company reported an EPS (earnings per share) of $1.48, 4.5% lower than the same period last year and revenues of $1.77 billion, down from $1.86 billion in the same period in 2016. While these results beat consensus estimates which were lower for both EPS and revenues, softening industry environment in the U.S. has impacted the company significantly.

Below is a summary of the company’s performance for Q2 2017:

Despite the decline in volumes, Harley Davidson was able to maintain its gross margin and operating margin in line with Q2 2016. However, as the industry slows down, the company is taking the following steps to manage its impact.

• Disciplined supply management. Reduction in shipment guidance for 2017 to 6% compared to 8% last year. This reduction in volumes is likely to impact the company’s operating margin negatively by one percentage point.
• Reduction in plant production leading to hourly workforce reduction in some of the U.S. manufacturing plants

Harley-Davidson’s long term strategy to build riders and continue investment in new products remains intact and is likely to drive growth in the future. The company is taking the following steps to attract more younger and diverse customers to its bikes:

• Expanding international reach. In Q2 2017, the company added new dealerships in China, Thailand, Korea, Switzerland, Italy, U.A.E, and Russia. The company also plans to open an assembly facility in Thailand to expand its reach in Asia Pacific.
• Sharpening the customer-led approach for a deeper understanding of consumer life stages leading to a more targeted approach to create increased relevance for the brand. The company is also looking to use authentic Harley-Davidson apparel to increase brand awareness.
• Enhancing the Harley-Davidson Riding Academy to increase its impact and increasing the number of dealerships which offer this program.
• Activating ridership through its partnership with Eagle Rider, which will rent new Harley-Davidson motorcycles in several locations in the U.S.

While the softening industry environment in the U.S. is impacting Harley-Davidson’s revenues adversely, the company’s long term growth strategy should help it tide over this slowdown. International expansion, focus on new products, and improved brand awareness can drive growth for Harley-Davidson in the long term.  We will be revising our price estimate for Harley-Davidson based on these results and revised shipment guidance.

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