Harley-Davidson (HOG) Q2 Earnings Beat Estimates, Fall Y/Y

Harley-Davidson, Inc. (NYSE:HOG) reported earnings of $1.48 per share in the second quarter of 2017, beating the Zacks Consensus Estimate of $1.37. However, earnings were lower than $1.55 recorded in the year-ago quarter.

Net income decreased to $258.9 million from $280.4 million, recorded a year ago.

Motorcycle and related products revenue declined to $1.58 billion in the second quarter of 2017 from $1.67 billion in the year-ago quarter. The figure missed the Zacks Consensus Estimate of $1.6 billion. The company also lodged consolidated revenues of $1.77 billion, which deteriorated from the prior-year tally of $1.86 billion.

Operating income decreased to $401.6 million from $412.3 million in the year-ago period.

Harley-Davidson, Inc. Price, Consensus and EPS Surprise

Motorcycles and Related Products

The decline in revenues from Motorcycles and Related Products was due to lower motorcycle shipments. Operating income slipped to $319.6 million from $322.7 million, a year ago.

During the quarter, revenues from Harley-Davidson motorcycles fell 4.5% to $1.27 billion. The company shipped 81,807 motorcycles to dealers and distributors worldwide during the second quarter of 2017, compared with 88,160 shipments in the second quarter of 2016.

Harley-Davidson’s worldwide dealer retail sales of new motorcycles dropped 6.7% to 81,388 units from 87,266 motorcycles in the year-ago quarter. This was due to weakness in the U.S. as well as some international markets.

Harley-Davidson’s sales in the U.S. declined 9.3% to 49,668 motorcycles. International sales went down 2.3% to 31,720 motorcycles from 32,480 motorcycles in the prior-year quarter. A minor improvement of 0.4% in sales in Canada was offset by a 9.3% plunge in the U.S., 8.5% decline in Latin America, 1.6% in the Middle East and Africa (EMEA) region, plus 3.2% dip in the Asia-Pacific region.

Revenues from Parts and Accessories fell 8% to $237.5 million, while revenues from General Merchandise — including MotorClothes apparel and accessories — tumbled 16.8% to $63 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment dipped 1.5% to $188.1 million in the second quarter of 2017. Operating income declined 8.5% to $81.9 million from the year-ago figure of $89.6 million.

Financial Position

Harley-Davidson had cash and cash equivalents of $988.5 million as of Jun 25, 2017, compared with $864.7 billion as of Jun 26, 2016. Long-term debt slid to $4.68 billion from $5.31 billion as of Jun 26, 2016.

For the six-months ended on Jun 25 2017, Harley-Davidson’s operating cash inflow improved to $627.1 million from $456.3 million. Capital expenditures diminished to $69.8 million from $107.5 million in the year-ago period.

Share Repurchases

Harley-Davidson spent $163.2 million to repurchase 3 million shares in second-quarter 2017. As of second-quarter end, it had authorization to buy back another 15 million shares.

Looking Forward

Harley-Davidson changed its expectation of motorcycle shipments to declining unit sales for 2017, as against the previous expectation of flat in 2016. The company expects to ship 241,000- 246,000 units in 2017, roughly reflecting a 6-8% decline from 2016.

In the third quarter of 2017, the motor company expects to dispatch around 39,000-44,000 motorcycles, representing a decline of 10-20% from the year-ago period.

The company altered its projection of operating margin for 2017, as against the previous expectation of a similar figure in 2016. It expects the operating margin to weaken 1% from the 2016 levels. Also, it expects capital expenditures of worth $200–$220 million this year.

Price Performance

Harley-Davidson underperformed the Zacks categorized Automotive-Domestic industry over the last three months. The company’s shares have declined 7.8% over the last three months, compared with the industry’s 5.4% gain.

Zacks Rank & Key Picks

Currently, Harley-Davidson carries a Zacks Rank #4 (Sell).

Some better-ranked companies in the auto space are Daimler AG (OTC:DDAIF) , Allison Transmission Holdings Inc. (NYSE:ALSN) and Fox Factory Holding Corp. (NASDAQ:FOXF) , all three sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daimler has expected long-term growth of 2.8%.

Allison Transmission has expected long-term growth rate of 11%.

Fox Factory has expected long-term growth rate of 15.9%.

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