Harley-Davidson stock revs up as margins improve, even as earnings miss and outlook slashed

By Tomi Kilgore

Motorcycle maker's stock initially tumbled when results were released, then quickly reversed course

Shares of Harley-Davidson Inc. powered higher Thursday, as investors shrugged off an earnings miss and lowered full-year outlook while cheering a big improvement in margins, which supported the motorcycle maker's focus on profits over unit sales.

"Harley-Davidson showed continued progress in delivery of our Hardwire strategy this quarter, despite the macro-economic conditions affecting both the business and our customers," said Chief Executive Jochen Zeitz. "Following the production suspension we experienced late in the quarter impacting motorcycle shipments, we achieved retail growth for the quarter in addition to a strong increase in gross margin."

The stock (HOG) had tumbled as much 10.3% in light premarket trading, moments after the second-quarter report was released, before quickly reversing course. It climbed 5.8% in morning trading, to put it on track for the highest close since March 9.

The company reported net income that fell to $178.0 million, or $1.22 a share, from $215.8 million, or $1.46 a share, in the same period a year ago. That missed the FactSet consensus for earnings per share of $1.24.

Revenue fell 1.6% to $1.45 billion, above the FactSet consensus of $1.32 billion.

Motorcycle revenue for the Harley-Davidson Motor Company business fell 4.7% to $890.9 million to miss the FactSet consensus of $924.7 million, as motorcycle shipments dropped 10.4% to 42,900 units, while parts and accessories revenue edged up 0.6% to $215.5 million to top forecasts of $215.1 million.

Revenue for the LiveWire electric motorcycles sank to $7 million from $13 million, while shipments tumbled to 33 units from 225.

On the bright side, gross margin improved to 34.8% from 30.9%, as better pricing, cost productivity and shipment mix more than offset reduced volume.

CEO Zeitz indicated on the post-earnings conference call with analysts, according to a FactSet transcript, that the margin performance reflects the company's focus on "profitable categories," rather than total units sold.

For 2023, the company cuts its sales growth outlook to flat to 3% from 4% to 7%, and for LiveWire unit sales to 600 to 1,000 from 750 to 2,000.

CFRA analyst Garrett Nelson downgraded Harley's stock after the results, but remained bullish given the strong margin performance.

"While the release was disappointing, shares are taking the news in stride...as gross margins came in better than expected and the stock appears to have discounted many of the concerns surrounding the story," including LiveWire losses, and judging by its underperformance this year, Nelson wrote in a note to clients.

The stock has lost 4.2% year to date, while the S&P 500 index has advanced 19.6%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-27-23 1154ET

Copyright (c) 2023 Dow Jones & Company, Inc.