World-leading motorcycle manufacturer Harley-Davidson Inc (HOG) reported quarterly results earlier this week, and while the market was pleased to see the numbers beat what Wall Street was looking for, any early gains were erased when it was discovered that sales here at home have continued to slide.
Earnings season is always a hit or miss. Some companies report top- and bottom-line beats but are punished for guidance or some unexpected comment from management. Others report dreadful numbers, but stellar forecasts push the shares higher anyway.
I’m always interested to see the market’s reaction, and given that the first-quarter season is expected to be a collective dud, it’s certainly encouraging to see the majority of companies beating the Street’s low expectations.
But as always, many things are too good to be true, and while numbers may come in ahead of estimates, there are always those out there looking for something to complain about.
That’s the case with HOG.
Harley-Davidson Earnings
Harley-Davidson reported earnings of $1.36 a share in the first quarter, up from $1.27 a share last year and 7 cents better than expected. Revenue grew 4.8% to $1.75 billion and management reaffirmed guidance for 1%-3% growth in 2016 motorcycle shipments.
Breaking down the math, global sales saw a 1.4% increase, but domestic sales actually fell 0.5% to just 35,326 motorcycle units. While net income was also better than expected, it was down 7.2% from this quarter last year.
The initial reaction to the report was positive, with HOG stock climbing nearly 6% in premarket trading. But once the market had time to actually digest the numbers beyond whether they beat estimates, shares fell to close the day down 2.5%.
So here’s what I see. Harley-Davidson has been a global leader for some time, but it’s had trouble in recent years with declining sales and unfavorable currency. In addition, it’s also struggling with an aging customer base, which is part of the reason we’re seeing lower sales figures here at home.
However, management did note that while U.S. retail did fall in the first quarter, the “trends have significantly improved” in recent months.
The good news is that management has acknowledged the issue and put into place a strategy to fix them. Two new products were launched in March — the Low Rider S and the CVO Pro Street Breakout — and the new Harley-Davidson Roadster was unveiled on Monday. Shipments are expected to begin in May.
In addition, the company has begun an aggressive marketing campaign that is aimed at attracting younger consumers. And CEO Matt Levatich said that HOG is already starting to see the benefits.
From a technical perspective, HOG is currently trading right around support at the blue 50-day moving average just under $46.
It bounced off that level earlier this month, and at least so far, it looks like it’s doing it again.
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