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Will Rough Road Continue for Harley-Davidson?

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Mar. 26 2018, Updated 6:31 a.m. ET

Harley-Davidson on a rough road

Pioneer American motorcycle manufacturer Harley-Davidson (HOG) disappointed investors in 2017, and its stock witnessed a 12.8% drop. This Wall Street performance was worse than those of other auto industry players’ (IYK) stocks. Last year, General Motors (GM), Ford (F), and Honda (HMC) rose 17.7%, 3.0%, and 16.8%, respectively. Harley’s slowing sales and weakening profitability continue to hurt investors’ sentiments.

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Weak fundamentals

In 4Q17, Harley Davidson’s adjusted earnings rose 74.1% YoY (year-over-year) to $0.47. While its adjusted earnings reflected YoY improvements, its non-adjusted earnings fell sharply to $0.05 per share due to one-time tax and recall-related one-time charges. In addition, HOG’s global sales continued to suffer during the quarter and dropped 9.6% YoY.

In 4Q17, HOG’s touring and street motorcycle shipments fell 1.3% and 5.3% YoY, respectively, while its cruiser motorcycle shipments rose 6.6% YoY. Going forward in 2018, Harley’s management projected US sales would remain weak. The company now plans to focus on speeding up its efforts to drive its international market sales up in 2018 to generate growth.

Could bears continue to rule?

As of March 20, Harley-Davidson stock has already gone down by 15.5%, reflecting investors’ low expectations from the company in 2018. The company plans to focus on intensifying resource allocation and cost management this year to protect its profit margins.

In 2014, Harley-Davidson unveiled its Project LiveWire. Under this project, the company started offering demonstration rides of Harley-Davidson’s electric motorcycle. During its 4Q17 earnings conference call, the company’s management gave an update on its electric motorbike. According to the management, over 12,000 riders have already taken test rides on its electric motorcycle, and the company plans to make it available on the market within the next 18 months.

At the moment, dropping popularity and ridership seems to be the biggest challenge for Harley. It will be interesting to see how the company could grow its ridership in the coming year with the help of its new launches.

Continue to the next part to learn about key positive and negative factors for Toyota (TM).

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