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Harley-Davidson can’t ride into its future fast enough.
Shares of the iconic motorcycle maker fell 8.5% in early trading Tuesday after a nasty fourth quarter earnings miss and cautious outlook for 2019. As with much of 2018, the company continued to deal with aging motorcycle riders putting off new bike purchases and the youth of America sidestepping bike ownership.
Cost pressures related to new tariffs from the Trump administration’s global trade war also weighed on Harley-Davidson’s bottom line.
Harley-Davidson CEO Matthew Levatich told Yahoo Finance that the industry challenges seen in 2018 in the U.S. will “persist” into 2019. But he is hopeful that a host of new, electric motorcycles set for release starting in 2019 will begin to alter how investors view the company’s long-term sales and profit potential. And, how millennials view the king of bikes.
Yahoo Finance by the numbers: Harley-Davidson’s fourth quarter adjusted earnings came in at 17 cents a share, missing analyst forecasts for 29 cents a share. Total sales tallied $955.6 million, below estimates for $1.05 billion. Harley’s sales dropped in three of its five geographic regions, paced by a 10.1% decline in the U.S. Sales in Latin America and Canada rose 2.7% and 2.4%, respectively.
Harley-Davidson forecast 2019 motorcycle shipments of 217,000 to 222,000. In 2018, Harley reached shipments of 228,000. Operating profit margins are pegged in a range of 8% to 9% versus 8.5% in 2018.
State of the industry: Without question, the U.S. motorcycle industry is undergoing one of the most turbulent periods in its long history. Harley-Davidson has thrown the kitchen sink at trying to chart a profitable path through the industry’s challenges. Some efforts include downsizing U.S. manufacturing capacity, investing more in R&D to develop new electric bikes and revamping its marketing messages to target younger riders.
But the ascent back to the top of the mountain won’t happen overnight for Harley and its rivals.
Interest among consumers to buy a new bike remains below peak, according to new research from UBS. The investment bank surveyed 2,100 U.S. adults who are at least 21 years old.
“As Harley's average buyer age moves further into their 50s, that view that they are too old to ride may become more of a headwind for HOG. Interestingly, looking at the data, 'unlikely' motorcycle buyers are almost entirely 'extremely unlikely' to purchase a motorcycle in the next 12 months,” writes the report’s lead author Robin Farley.
On tap: Harley-Davidson is hardly taking the rough road of the past few years sitting down when it comes to product. The company plans to release 100 new “high impact” bikes by 2027 as part of an effort to attract new riders, which Levatich views as essential for turning around its fortunes. Several of those will be of the electric variety that target younger folks that may live in cramped cities and who need turnkey transportation.
The company’s first electric bike dubbed the Livewire will debut later this year for a shade under $30,000. Levatich says he is happy with pre-orders for the bike. Meanwhile, this week the company showed off two other, smaller electric bikes that will debut beyond 2020.
“We don’t typically show product like that in development,” Levatich explained, adding that the positive response to the bikes on social media is pushing the company to get the bikes to market quicker.
Bottom line: The next 12 months for Harley-Davidson won’t be easy by any stretch of the imagination. So investors will have to balance that reality with a host of positives on the company, including a cash position of more than $1.2 billion and a clear pivot toward bikes that may attract the next generation.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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