Harley-Davidson’s stock on track for highest close in almost two years after earnings crush estimates

The Milwaukee, Wisconsin-based company managed to rebound from a production shutdown in May 2022, after a third-party supplier said it had a regulatory compliance matter relating to a component. That forced Harley-Davidson to suspend production for a two-week period.

Motorcycle shipments rose 18% in the quarter over same period a year earlier, propelling revenue up 12%, to $1.142 billion from $1.016 billion a year ago. That was ahead of the FactSet consensus of $918 million. The beat came during what is typically a seasonally weak period, as motorcycle riders await the launch of new models in the new year.

“Compared to our estimate, better top-line performance (which benefited from strong unit growth and favorable pricing) alongside manufacturing leverage and operating cost control helped drive upside in the quarter,” said William Blair analysts, who have a market-perform rating on the stock.

The report was the first under the company’s new three-segment structure: Harley-Davidson Motor Company, or HDMC, which comprises design, manufacturing, marketing and sales of the company’s motorcycles and related products; Harley-Davidson Financial Services, or HDFS, which provides financing and insurance products and services to its dealers and retail customers; and LiveWire, the group that oversees design, marketing and sales of LiveWire electric motorcycles and related products.

The latter was a subsidiary of Harley-Davidson that went public last September via a reverse merger with a special-purpose acquisition company, or SPAC, called AEA-Bridges Impact Corp. Harley-Davidson has retained an 89% stake in LiveWire and will continue to consolidate its results into earnings.

Chief Executive Jochen Zeitz told analysts on the earnings call that the company’s five-year Hardwire strategic plan to drive profitable growth had delivered a strong finish in its second year of implementation.

“We have changed our overall approach and focus as a business from prioritizing unit growth at all costs to a more holistic view on profitable growth of motorcycles, parts and accessories, apparel and licensing and Harley-Davidson financial services,” said Zeitz, according to a FactSet transcript.

That profit focus means a strong push for the company’s most profitable motorcycles, which are housed in its Touring, Dodge Cruiser and Trike segments. These segments “offer a potential to inspire more engagement while compelling new customers and drivers to choose Harley-Davidson,” said Zeitz.

The company is also targeting nonriders by expanding its line of clothing and apparel, creating its own aesthetic with inspiration from the past, he said. “Harley-Davidson lifestyle is where we see the overall apparel and licensing opportunity, especially as it relates to nonriders, but also [to] existing and new brand aficionados,” he said.

The company is expecting supply-chain inflation to ease in 2023 as logistics costs continue to stabilize, according to its chief financial officer, Gina Goetter.

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It expects HDMC operating-income margins of 14.1% to 14.6% and HFS operating income to fall by 20% to 25%. That’s due to higher interest rates pushing borrowing costs higher.

“Given the macro backdrop, we are also expecting loss rates to rise above 2022 and are planning for losses” between 2% and 2.25%, Goetter told analysts on the call.

For LiveWire, the company expects to deliver between 750 and 2,000 units, below a previous forecast for as many as 7,000 bikes, as it’s moving the launch of its Del Mar model to the second half of the year from an original spring date.

Elsewhere in its earnings report, Harley-Davidson posted net income of $42 million, or 28 cents a share, for the quarter — up from $22 million, or 14 cents a share, in the same period a year earlier, and ahead of the FactSet consensus of 7 cents.

For the full year, it expects HDMC revenue to grow 4% to 7%.

The stock has gained 39.7% in the last 12 months, while the S&P 500
SPX,
+1.47%
has fallen 9%.