Harley-Davidson reports big profit beat, though motorcycle sales keep falling

By Tomi Kilgore

Motorcycle sales are being 'significantly impacted' by high interest rates, a less confident consumer and affordability concerns

Shares of Harley-Davidson Inc. eased slightly in volatile trading Thursday, after the motorcycle maker beat fourth-quarter profit expectations by a wide margin, even as motorcycle shipments continued to fall as consumers held back on higher-priced purchases.

Revenue also bested Wall Street forecasts, but continued to decline as an improvement in the mix of sales was offset by declining volume and price and sales incentives.

"[W]e recognize that the overall macro environment, including high interest rates, add complexity to our customers' decisions to purchase discretionary products," said Chief Financial Officer Jonathan Root, according to an AlphaSense transcript of the post-earnings conference call with analysts.

The stock (HOG) slipped 0.4% in afternoon trading, but had run up as much as 5.8% and fell as much as 4% in intraday trading.

Net income dropped to $25.8 million, or 18 cents a share, from $41.9 million, or 28 cents a share, in the same period a year ago. But that beat the FactSet consensus for earnings per share of 4 cents.

The big profit beat comes even as gross margin, declined 3.6 percentage points to 22.9%, as higher sales incentives to counter lower volume and increased manufacturing costs offset lower material costs and improved sales mix.

Total revenue declined 7.8% to $1.05 billion, but topped the FactSet consensus of 998.2 million.

Motorcycle shipments fell 13.2% to 29,500 bikes - the third straight quarter of declines - while motorcycle sales declined 12.5% to $583 million and parts and accessories sales dropped 13.9% to $130 million.

Harley-Davidson apparel sales sank 21.9% to $57 million.

The company said global motorcycle shipments declined due to "prudent dealer inventory management and market conditions," while apparel sales dropped as "high dealer inventory levels" resulted in lower replenishment.

For 2024, the company expects motorcycle sales to be flat to down 9%.

Geographically, motorcycle sales in North America fell 8.9% to 17,500, as the current high interest-rate environment weighed, while sales in Europe, Middle East and Africa (EMEA) sank 22.7% to 6,800, amid weakness in the France and Germany markets.

Harley said it sold 514 LiveWire electric motorcycles in the fourth quarter, up from 69 a year ago, and expects to ship 1,000 to 1,500 EMs in 2024.

Meanwhile, revenue at Harley-Davidson Financial Services increased 15% to $246 million, amid higher interest income, while the business segment's operating income fell 9.4% due to higher interest expenses and an increased provision for credit losses.

For 2024, the company expects revenue for its motorcycle unit, Harley-Davidson Motor Co., to be flat to down 9%, as retail motorcycle shipments are expected to be flat to up 9% at 163,000 to 178,000 units while wholesale shipments are expected to be down between 1% and 10% at 163,000 to 178,000 units.

Harley's stock has rallied 24.6% over the past three months through Wednesday, but has dropped 30.1% over the past 12 months. In comparison, Consumer Discretionary Select Sector SPDR ETF XLY has gained 18.7% over the past year and the S&P 500 index SPX has advanced 21.3%.

-Tomi Kilgore

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02-08-24 1329ET

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