What To Expect From Harley-Davidson’s Third Quarter Results?

Harley-Davidson (NYSE: HOG) will report its earnings and conduct a conference call with analysts on October 23rd, 2018. The market expects the company to post an EPS of $0.53 (Non-GAAP) and a revenue of $1.07 billion, 32% and 10% higher on a year-on-year basis, respectively. The company is expected to continue to face headwinds in its US market due to declining sales volume and in the international markets due to tariffs. These headwinds are likely to negatively impact the company’s third quarter and H2’18 results. The stock has fallen around 20% since the start of the year, largely because of the prevalent weakness in the US motorcycle market.

The company is now focusing on the electric vehicles market in order to sustain its operations and deliver a long-term value to the investors. We have a price estimate of $44 per share for the company. Our key expectations for the company’s full-year worldwide shipments and 2018 results are highlighted in our interactive dashboard analysis – Our Outlook For HOG in FY’18. You can make changes to our assumptions to arrive at your own fair price estimate for the company.

Harley-Davidson reported a decline of 10% and 3.6% in its total motorcycle shipment volume in the first two quarters respectively. The company expects to ship approximately 45,500 – 50,500 motorcycles in the third quarter. The declining volume is a result of continued weakness in the US motorcycle market due to the aging population. However, the company continues to remain focused on enhancing its reach in its international market, with a plan to increase its international sales volume to 50% of the total sales compared to a current exposure of about 43%. That said, the international retail shipments grew marginally in Q2 and are likely to remain weak in the near term.

Backed by these factors, the company has downgraded its profit outlook for FY’18. HOG now expects its operating margin to range between 9-10% in comparison to its initial guidance of 9.5%-10.0%. The lower guidance reflects the negative impact of the imposed trade tariffs in the US and Europe. Additionally, the company’s bottom-line is expected to remain weak as a consequence of rising raw material prices, and cost headwinds of about $15-$20 million expected as a result of the recently imposed metal tariffs in the US.

In order to counter the decline in sales, Harley-Davidson has initiated the production of its motorcycles in the international markets, rather than exporting them from the US. This will allow the company to control its costs and sell its bikes at competitive prices in the international markets. In this quest, the company is establishing a new plant in Thailand to tap into the Asian markets. While this plant will take some time to ramp up its production, it is likely to boost the company’s top-line growth in the coming years.

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