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Why Are 430,000 Harley-Davidson Motorcycles Being Investigated?

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Price movement

Harley-Davidson (HOG) has a market cap of $8.9 billion. Its stock rose by 1.9% to close at $48.73 per share on July 8, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 7.6%, 5.0%, and 9.2%, respectively, on the same day. HOG is trading 6.8% above its 20-day moving average, 6.7% above its 50-day moving average, and 5.8% above its 200-day moving average.

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Related ETFs and peers

The Vanguard Mid-Cap ETF (VO) invests 0.37% of its holdings in Harley-Davidson. VO tracks the CRSP US Mid-Cap Index, a diversified index of US mid-cap companies. VO’s YTD price movement was 5.3% on July 8.

The Vanguard Mid-Cap Growth ETF (VOT) invests 0.37% of its holdings in Harley-Davidson. The ETF tracks a market cap–weighted index of mid-cap growth companies selected by the Center for Research in Security Prices.

The market caps of Harley-Davidson’s competitors are as follows:

  • Polaris Industries (PII): $5.4 billion
  • Textron (TXT): $10.1 billion

Latest news on Harley-Davidson

The NHTSA (National Highway Traffic Safety Administration) is investigating 430,000 Harley-Davidson motorcycles with antilock braking systems from model years 2008–2011. Customers have filed complaints about brake failure without warning.

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Harley-Davidson’s performance in 1Q16

In 1Q16, Harley-Davidson reported revenue of~$1.6 billion from its Motorcycles and Related Products segment. That was a rise of 4.4% compared to the segment’s revenue of ~$1.5 billion in 1Q15.

The company’s retail sales in the United States and Latin America fell 0.5% and 26.5%, respectively. Retail sales in Canada, the EMEA (Europe, the Middle East, and Africa) region, and the Asia-Pacific region rose 16.3%, 8.8%, and 6.6%, respectively, in 1Q16 compared to 1Q15.

In 1Q16, Harley-Davidson‘s financial services revenue rose by 6.8% to $173.4 million, compared to 1Q15. Its net income fell to $250.5 million, and its EPS (earnings per share) rose to $1.36 in 1Q16, compared to $269.9 million and $1.27, respectively, in 1Q15.

Harley-Davidson’s cash and cash equivalents and inventories fell by 3.9% and 5.5%, respectively. Its finance receivables rose by 24.9% in 1Q16 compared to 4Q15. In 1Q16, its current ratio and long-term debt-to-equity ratio rose to 1.7x and 2.9x, respectively, compared to 1.5x and 2.6x, respectively, in 4Q15.

Projections

Harley-Davidson has made the following projections for 2016:

  • motorcycle shipments of 269,000–274,000, an increase of 1%–3% compared to 2015
  • operating margin of 16%–17% in the Motorcycles segment
  • capital expenditure of $255 million–$275 million
  • effective tax rate of ~34.5%

In 2Q16, the company expects to ship 83,000–88,000 motorcycles.

In the next part of this series, we’ll take a look at Coca-Cola (KO).

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