Harley-Davidson (NYSE:HOG) took a hard hit as the US economy slipped into a recession between 2008-2010. Amid many of the concerns regarding the slowdown in the growth of the company, a significant number of investors and analysts questioned whether shipment levels of the company would recover back to their levels of former glory after the economy crumbled. Shipments declined from 350,000 units in 2006 to nearly 200,000 units by 2010.
Despite a slowdown in growth over the past few years, Harley has been able to secure a 24% rise in its shipment volumes since the figure recorded in 2010, with shipments now standing close to 260,000 units. The company and its stakeholders are now banking on the recovery of the European economy and launch of new models to help improve retail sales in the future and improve top line growth subsequently. Given that the domestic sales in the US constitute nearly two-third of the annual shipments of the company, Harley could be looking at a possible rise in their retail sales in US majorly.
European and US markets flashing promising signals
The rise in volumes in the European market could mainly be foreseen as a result of the company launching the Street 500 and 750 in many European countries such as Spain, Portugal and Italy by the end of this year. It is further expected that the company will enter into other markets in the region, while simultaneously increasing shipments of these bikes during the fourth quarter, which could give volumes the necessary push they need to help achieve the much needed volume growth. The execution of Project LiveWire by the company, to test the concept of electric motorbikes in Europe, could lead to the introduction of such bikes in European countries if the response received by this project is favorable. This is an indication of the entry of Harley into an electric motorcycle market, which already anticipates sales of 1.4 million units by 2023.
With respect to the US, Harley was unable to perform as well in terms of sales due to low availability of the Street bikes of the company during the second quarter. The Road Glide's 2014 model was also absent from showrooms which further caused sales to come in lower during the second quarter. With the third quarter showcasing some improvements in the sales reported by the company, the launch of the Road Glide and its future model is expected to boost sales in for the company in the US particularly. Next quarter sales, especially due to increased availability of the Road Glide, look as though they may come in strong. The Street bikes are further expected to add to the increments in sales that are expected during the next quarter, as many begin to prefer cheaper and lighter bikes to suit their driving needs.
Third Quarter Financial Overview
The third quarter reported a pick up in the dealer new motorcycles sales worldwide and in the US. Worldwide, dealers were able to sell 73,217 motorcycles, compared to the 70,517 units sold in the corresponding quarter a year ago. US dealers were able to sell nearly 50,167 motorcycles during the third quarter, which was a 3.4% rise over the earlier figure reported a year ago.
Revenues for motorcycle totaled to $815.4 million, which was 4.9% lower than the $857 million reported in the third quarter a year ago. Total revenues amounted to $1.13 billion. Operating income of the company decreased by 16.6%, and was recorded at $146.3 million. Gross margins also noted a decline, coming in at 34.9% for the recently concluded quarter.
Net income for the quarter was reported at $150.1 million, translating into diluted earnings per share of $0.69. Net income was $12.6 million shy of meeting last year's reported income.
As per its guidance, Harley-Davidson is expecting shipments for the year to range between 270,000 and 275,000 motorcycles. This is expected to be 3.5%-5.5% higher than the shipments recorded in 2013.
An analysis of share price trends year to date indicate that the shares of the company trade at more or less the same levels as they did at the beginning of the year. In retrospect, the dips in share prices from September through mid-October were an ideal entry point for investors as share prices dipped as low as $55.48. Since then, share prices have trended upwards. However, investors continue to wonder whether this upward trajectory is likely to carry on into the future. Analysts estimate that share prices are likely to touch $72.33 in a year's time, but not without volatility, which can be gauged from the 52 week low of $54.22 and a 52 week high of $74.13. Trading at nearly 18x their earnings, the share offers investors a 1.6% dividend yield making it a moderately good stock for investors seeking income through dividends.
All that being said, the future of the company looks bright as it is taking initiatives to improve sales in Europe and US; two of its most important regions in terms of sales. With the economic environment now becoming more conducive in the US and with Europe in seemingly good shape, the sales target set for this year, and the growth of revenues in the future do not seem farfetched. Investors could be looking at a stronger fourth quarter for Harley, with even better results in the next few quarters to follow as it rolls out newer bike models in the European market. With the electric bike market signaling signs of growing in the future, Harley could add this to their product portfolio, which would further improve top lines. Though the results of the recently concluded quarter might suggest that the company is not in a good shape relative to last year, as growth has continued to decline in many aspects, the future seems promising as an uptick in sales is expected in the near term.
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