Shares of the well-known big bike manufacturer fell over 8% on early Tuesday morning after a poor fourth quarter earnings report and a very cautious outlook for 2019. As with the majority of 2018, Harley Davidson was dealing with an aging consumer base putting off buying new motorcycles and with a very low influx of new consumers from the younger generation.
This with the addition of Donald Trump’s new tariffs have put increasing pressure on the costings of Harley Davidson’s products, which is effectively pulling down the company’s earnings.
The CEO of Harley-Davidson Matthew Levatich said in a recent interview that “the industry challenges that have been shown in 2018 in the US will continue into 2019.” However he is hopeful that a new line of Harley products, Electric Motorcycles which are set to make their debut in 2019 will begin to show investors that Harley is able to move with the times, and how this will increase sales in a move that should touch with younger generations.
Harleys Fourth quarter adjusted earnings, showed at 17 cents per share, which widely missed analyst expectations of 29 cents. With total sales tallying $955.6 million USD, which undershot estimates again by $50 million USD. Sales in three of five regions where Harley operates dropped which was almost a domino effect from the 10.1% decline in the US. Harley has optimistic outlooks for 2019 increasing their forecast of bike shipments from 217,000 units up to 222,000.
There is no question however that the US motorcycle industry is currently facing one of the most volatile and turbulent periods in the industry’s history. Harley is definitely trying to combat falling with the rest, by determining a modern and profitable path through the darkness. Key points to this include, downsizing their US manufacturing capacity, and investing heavily into their research and development programs aimed at the new generations of potential motorcycle riders, so they can develop products they want.
The path back to the top is not going to be an easy ride for Harley and other members of the industry and it certainly will take time. UBS the investment bank surveyed 2,100 American adults who are at least 21 years old and their report shows, “As Harley's average buyer age moves further into their 50s, that view that they are too old to ride may become more of a headwind for HOG. Interestingly, looking at the data, 'unlikely' motorcycle buyers are almost entirely 'extremely unlikely' to purchase a motorcycle in the next 12 months,” said robin Farley.
Over these past few years Harley has not been sitting down when it comes to their struggles, The Company plans to release 100 new heavy hitting bikes by 2027 as part of an effort to increase sales and bring on board the new generation of motorcycle riders, which will be a vital part of Harleys continuing success. Harley’s first electric bike nicknamed “livewire” will have its debut in the 3rd quarter of 2019 with an estimated retail value just shy of $30,000 USD. With pre order statistics showing a great interest in Harleys latest modern product, they are kicking up a storm with two more smaller electric bikes set to hit the showroom in 2020. Matthew Levatich commented saying that Harley don’t typically show bikes that are in development, but with social Medias positive response to the new age of Harleys. Levatich wants to get these products to the consumers faster.
The coming year is not going to be an easy ride for Harley, so investors will have to keep a close eye on updates, what you need to look out for are the sales figures and new products coming into the market, and of course the long history and positives of the company’s fundamentals. With Harley making such a large effort with the new generation of bikers, and adapting to the new “green initiative” we cannot wait to see what Harley will be showing us for the rest of 2019.
Simon Reynolds- Bradshaw Management