Harley-Davidson Earnings: Durable Spending Pressures Infiltrate 2024 Heavyweight Shipment Outlook

Wide-moat Harley-Davidson's fourth-quarter results and 2024 outlook echoed consumer hesitancy patterns seen recently by other leisure goods manufacturers. In the fourth quarter, Harley motorcycle shipments fell 13% and electric shipped a mere 514 units, signaling dealer caution. Motor company gross margin felt the most pressure, down 360 basis points, to 22.9%, hurt by weak cost absorption and higher promotions, despite better mix and input costs. This led to a negative 6% motorcycle operating margin in the seasonally small period. For the first time since 2020 Harley saw price declines, a key factor we plan to watch given that it can signal the brand’s relevance with consumers. Although these results were mostly in line with our preprint expectations, we plan to lower our $43.50 fair value estimate by a high-single-digit rate to account for conservative near-term spending patterns on leisure products and a lower long-term outlook for electric units, still rendering shares cheap.