Key Takeaways From Harley-Davidson’s First-Quarter Results

by Trefis Team
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Harley-Davidson (NYSE: HOG) reported better than expected first-quarter results by beating both EPS (Non-GAAP) and revenue estimates. The market expected a sluggish quarter for the company as it continued to face headwinds in the U.S. market. However, the company surprised the market by beating market EPS (Non-GAAP) estimates by $0.36 per share and the revenue estimate by $110 million. Both motorcycles and related products and the financial division of the company posted materially better results in comparison to the same period last year and the company’s bottom line was favorably enhanced with the latest tax cut implemented in the U.S.

Harley reported a 3.5% year-on-year (y-o-y) increase in its motorcycle revenue, however, total motorcycle shipment volume in the first quarter was significantly lower. Total motorcycle shipments declined by roughly 10% y-o-y. U.S retail sales declined by 12% y-o-y, depicting the continued weakness in the U.S. market for its product offering as a result of its aging population. The company continues to remain focused on enhancing its reach in its international market, however international retail shipments increased minimally by 0.2% in Q1. Despite the prevalent weakness, Harley-Davison expects to see stronger sales volume in its international market through the remainder of 2018. Total motorcycle shipments in Q2 is expected to range between 67,500 to 72,500 motorcycles, 9% higher sequentially (assuming mid-points).

The company confirmed that it continues to face cost headwinds as a result of rising steel and aluminum prices, further aggravated by the latest tariff and sanctions imposed by the U.S. However, the management confirmed that it means to mitigate the rise in its input costs and hence has not altered its previous margin guidance. Additionally, the company’s previously announced manufacturing optimization initiative is expected to result in additional restructuring and other consolidation costs of $170 million to $200 million and an increase in its capital investment by roughly $75 million through 2019. This initiative is expected to lead to an annual cash savings of $65 million to $75 million from 2020 onward.

However, despite an environment of rising costs, Harley-Davidson’s bottom line was supported by a favorable impact of the 2017 U.S. Tax Cuts and Jobs Act. The company reported an effective tax rate of 24.1% compared to 34.5% in the same period last year.

Harley continues to spend aggressively on new product development and marketing initiatives to revive its falling demand. We have kept our base case estimate for the company’s 2018 performance the same based on its first-quarter results. You can use our interactive platform to make changes to our assumptions to arrive at your own fair price estimate for the company.


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