Harley-Davidson Is Cruising in Neutral

·3 min read

Harley-Davidson Inc. (NYSE:HOG) remains a work in progress, beating first-quarter earnings expectations but still pulling up the rear with its electric bike program, which is merging with AEA-Bridges Impact Corp. (NYSE:IMPX) later this year.

The Milwaukee-based motorcycle maker on Wednesday reported earnings of $1.45 per share (excluding some items), barely topping the $1.44 per share estimated by analysts. Revenue from motorcycles and related products rose to $1.5 billion, the company reported, once again barely exceeding analyst expectations of $1.3 billion. Its full-year forecast remained unchanged.

On Thursday afternoon, shares were trading at $36.86, a gain of 1.49% or 54 cents. Regardless, the GF Value Line suggests the stock is fairly valued currently based on historical ratios, past financial performance and future earnings projections.

Harley-Davidson Is Cruising in Neutral
Harley-Davidson Is Cruising in Neutral

For the first quarter, the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services saw revenue growth of 6%, driven by global motorcycle pricing and growth across Parts & Accessories and Apparel. The operating income margin was 15.6%, which was down 2.9 points versus last year. Global pricing was able to offset cost inflation, officials said, but the margin was negatively impacted by lower shipments due to the ongoing semiconductor shortage.

Harley-Davidson Is Cruising in Neutral
Harley-Davidson Is Cruising in Neutral

As for its LiveWire bikes, sales seem to be slowing. Jalopnik's Erik Shilling reported the company sold 387 of the all-electric motorcycles last year.

Its a figure that I almost cant believe given that Harley aspires to sell tens of thousands of LiveWires, and its been out for a few years now," he wrote.

Operating income saw a decline of 27%, driven by the significant loss reserve release in 2021 and the normalization of losses in 2022 that were in line with expectations.

GAAP diluted earnings were $1.45 per share. Management repurchased $248 million worth of common stock (or 6.2 million shares) on a discretionary basis during the quarter.

"As we enter the second year of our five-year Hardwire strategic plan, we are pleased to see strong consumer demand for Harley-Davidson products across all regions, management said in a statement. Our teams continue to work through the impact of the ongoing global supply chain disruption, and despite the challenging macro environment, we are optimistic for improvements in the second half of the year."

Consolidated revenue was up 5% in the first quarter versus 2021, according to a release. Operating income declined 16% as a result of higher supply chain inflation, production challenges due to semiconductor availability and company losses returning to normalized levels following record lows in 2021.

The gross margin was down 2.8 percentage points compared to the year-ago quarter. Global pricing contributed approximately 4 points of margin benefit and largely offset the cost inflation; however, the gross margin was also negatively impacted by unfavorable motorcycle mix due to the inability to produce to demand given the chip challenges.

Global retail motorcycle sales in the first quarter were up 2% versus prior year, driven by growth in the Europe, Middle East and Africa and Asia Pacific regions. North American retail performance (down 5%) was adversely impacted by production shortages, which resulted in significantly lower dealer inventories.

For the full year, executives reaffirmed their initial guidance and expect revenue growth of 5% to 10%, an operating income margin of 11% to 12% and operating income to decline by 20% to 25%. Capital investments should total $190 million to $220 million.

The outlook assumes that logistics and manufacturing moderately improve in the back-half the year as we get beyond the peak levels of inflation experienced in 2021 and the semi-conductor supply stabilizes, the release noted. The company now expects raw material inflation to continue through the balance of the fiscal year.

This article first appeared on GuruFocus.