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Harley-Davidson's shares tumble on steeper fall in revenues

Stock MarketsJan 28, 2020 12:06PM ET
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© Reuters. FILE PHOTO: Customers look at the showroom inventory at Harley-Davidson of Frederick in Frederick Maryland

By Rajesh Kumar Singh

CHICAGO (Reuters) - Harley-Davidson Inc (N:HOG) on Tuesday reported a larger-than-expected decline in its motorcycles revenue, hurt by a continuing slide in retail sales in the United States, sending its shares lower.

Revenues at its motorcycles, parts & accessories and general merchandise segment fell 8.5% year-on-year to $874.1 million in the fourth quarter on the back of lower bike shipments. Analysts surveyed by Refinitiv on average expected revenues to decline 3.7% to $920.14 million in the quarter.

Its shares were down 3.2% at $33.71 in midday trade.

Harley's challenges in the United States, which accounts for more than half of sales, are well-documented - core customers are growing older and efforts to attract new and young riders have yet to show results.

In the December quarter, U.S. retail sales declined for the 12th straight quarter. Sales in the domestic market are projected to slide at a tempered pace in 2020.

In a reflection of the demographic headwind, the heavyweight motorcycle maker's stock price has declined by 44% in the past five years. In comparison, the S&P 500 has gained 63%.

Chief Executive Matthew Levatich told analysts that the challenges facing the company were "significant" as Harley's heavy and expensive bikes were competing for "people's scarce time, people's scarce funding and commitment."

To turn around the business, Levatich is focusing on increasing ridership in the United States and has plans to invest as much as $1.6 billion through 2022.

But with the company struggling to improve sales at a time when the U.S. economy is having its longest expansion in history, investors speculate whether Harley would consider strategic alternatives, including a potential sale of the company to help preserve its brand and maximize shareholder value.

On Tuesday, Levatich parried that question by expressing confidence in the company's strategy to make forays into middleweight, lightweight and battery-powered bikes and grow its business overseas, particularly in Asia, to account for half of its revenue by 2027.

Those efforts seem to be bearing fruit. Sales in Asia-Pacific were up 2.7% year-on-year in 2019.

And with the European Union allowing it to ship bikes from its facility in Thailand, sidestepping the trading bloc's 25% retaliatory tariffs on U.S.-built motorcycles, Harley's sales in Europe are also expected to get a boost this year.

The move is projected to help reduce the costs of EU and China tariffs to $35 million this year from $98 million in 2019.

In 2020, motorcycles segment revenues are expected to be about $4.53 to $4.66 billion compared with $4.57 billion last year. Lower tariff bill and higher savings are projected to improve operating margins by at least 70 basis points this year.

Harley-Davidson's shares tumble on steeper fall in revenues

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