Previously, we’ve looked at Harley-Davidson’s (HOG) 3Q15 revenues and shipments. In this part of the series, we’ll explore the trend in the company’s operating profits. We’ll also analyze its management’s guidance for the next quarter.
Operating profit fell
- In 3Q15, Harley-Davidson’s Motorcycle segment generated an operating profit of $143 million—$3 million less than what the company reported in the corresponding quarter last year. In 3Q15, the Motorcycle segment contributed almost two-thirds of the company’s consolidated operating income.
- The Motorcycle segment’s operating margin in 3Q15 was 12.5%—0.4 percentage points lower than in 3Q14.
- The Financial Services segment generated an operating income of $73 million in the quarter. This was $5 million less than in the corresponding quarter last year.
- According to Harley-Davidson, the Financial Services segment received high net interest income, as the company’s outstanding receivables had risen in previous quarters.
- However, higher net interest income was offset by low rates that Harley-Davidson has offered in recent promotional activities. Provisioning for bad loans also came in higher in 3Q15. According to Harley-Davidson, 80% of its loan origination this year has been to prime customers. Subprime loans have accounted for the remaining 20% of its loan originations in 2015.
- According to Harley-Davidson, “The company now expects full-year 2015 operating margin of approximately 16 percent to 17 percent for the motorcycles segment, compared to prior guidance of 18 percent to 19 percent for full-year operating margin.”
- Harley-Davidson has been facing competitive pressure from its non-US-based competitors in the US market. Non-US-based companies have gained an edge due to a rising US dollar.
- US-based car companies including Ford Motor Company (F) and General Motors (GM) have also been at a competitive disadvantage to their Japanese (EWJ) peers including Honda Motor Company (HMC).