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HOG’s Sales Worries Continue, but the Stock Is Trying to Bottom

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Harley-Davidson

America’s top heavyweight motorcycle company by market share, Harley-Davidson (HOG), released its 1Q18 earnings today before the market opened. The company’s adjusted EPS (earnings per share) stood at $1.03, down 1.9% from $1.05 in 1Q17. HOG beat analysts’ consensus estimates for its Q1 earnings of $0.90 per share. This earnings beat helped boost investors’ confidence, and the stock was trading with 2.4% gains for the session at 11:00 AM EST.

Retail sales weakness continues

In the first quarter this year, Harley Davidson’s global retail sales fell 7.2% YoY (year-over-year). This fall was made up of a 12% YoY decline in US retail sales and 0.2% YoY gains in its international market segment’s retail sales. In the international market, the company’s motorcycle retail sales performed well in EMEA (Europe, the Middle East, and Africa) and Latin America, while sales in Asia-Pacific and Canada continued to suffer.

Stronger revenues

During the first quarter, Harley-Davidson’s revenues inched up 2.7% YoY to $1.5 billion, beating Wall Street analysts’ estimates of $1.2 billion. These gains in revenues were mostly driven by the company’s new launches in the Softail and Touring Motorcycle segments. Plus, solid Q1 revenues for HDFS (Harley-Davidson Financial Services) had a positive impact on total revenues.

Despite the positive impact of strong HDFS profitability, Harley-Davidson’s operating profit margin witnessed a major drop of 5.1 percentage points to 12.7% in 1Q18. At the same time, the company’s motorcycle segment’s gross margin fell to 34.7% in 1Q18, compared to 35.7% in 1Q17. These lower gross margins were mainly due to higher raw material costs and temporary manufacturing inefficiencies.

Guidance update

In the second quarter of 2018, HGO expects to ship 67,500 to 72,500 motorcycle units. This shipment guidance reflects an 11%–18% YoY fall in shipments. For fiscal 2018, the company maintained shipment guidance of 231,000–236,000 units, down about 11%–14% from its shipments in 2017. On the brighter side, management marginally raised its HDFS operating 2018 income guidance to flat to down modestly YoY during its 1Q18 earnings event. In February, HOG guided for its HDFS 2018 operating income remaining down YoY.

In the next couple of days, other automakers (XLY) General Motors (GM), Ford (F), and Fiat Chrysler (FCAU) are slated to release their 1Q18 earnings. Visit Market Realist’s Autos page to stay updated on analysts’ estimates for auto companies’ 1Q18 earnings.

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