Harley-Davidson Earnings: Higher Financing Costs Weigh on Consumers, and Dealers Tamping Shipments

Demand for consumer durable goods remains bounded by higher financing costs, affecting performance at companies like wide-moat Harley-Davidson. The company reported first-quarter results of $1.48 billion in motor company sales and $1.72 in adjusted EPS that narrowly edged our $1.42 billion and $1.71 respective estimates. Total sales fell 5% on a 7% decline in shipments and a 3% decline in pricing (attributable to the removal of pricing surcharges and promotional uptick) but benefited from a positive mix shift. The lower volume made cost absorption difficult, rendering a motorcycle operating margin of 16.2%, a 540-basis-point contraction, wider than the 220 basis points we expected. As dealers across the recreational vehicle landscape continue to be plagued by higher floorplan financing costs, they continue to remain cautious about taking new units. This remains the key normalization concern for all manufacturers on our RV coverage list and is unlikely to trend favorably until late 2024 given Fed rhetoric, keeping a meaningful demand turnaround at bay.