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Why Harley-Davidson’s 3Q15 Earnings Sparked a Selling Spree

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Harley-Davidson’s 3Q15 earnings

Harley-Davidson (HOG) released its 3Q15 earnings on October 20. The company reported EPS (earnings per share) of $0.69, similar to its EPS in the corresponding period last year. Its net income, however, came in at $140.3 million, which is $10 million lower than its net income reported in the same quarter last year.

If you are wondering why EPS were similar compared to the corresponding quarter last year despite falling net income, it’s because of Harley-Davidson’s share buyback program. In the first nine months of 2015, the company has repurchased $883 million worth of its stock. The bulk of the share repurchase was done in 3Q15, when Harley-Davidson spent $536 million on share repurchases.

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Harley-Davidson is not alone in returning capital to shareholders through buybacks. Big names in corporate America including General Motors (GM) and Ford Motor Company (F) have generously used buybacks in the last couple of years to enhance shareholder value. However, whether buybacks have really created shareholder value as intended is a widely debated issue.

Stock cracks

Markets also gave a thumbs down to Harley-Davidson’s 3Q15 earnings. The stock price fell by 17% after the earnings release. Finally, the stock closed at $48.2, falling 13.9% from the previous day’s closing.

The graph above shows recent movement in Harley Davidson’s stock price. The year has not treated Harley-Davidson well. Its stock price has fallen more than 26% since the beginning of the year. The stock has underperformed the broader US markets (VTI)(DIA).

Series overview

In this series, we’ll explore Harley-Davidson’s 3Q15 earnings in detail. We’ll discuss what factors could drive its earnings in the coming quarters. We’ll also cover the key points from the company’s 3Q15 earnings conference call.

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