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Harley-Davidson (HOG) to Post Q2 Earnings: What's in Store?

Zacks Equity Research

Harley-Davidson, Inc. HOG is set to release second-quarter 2019 results on Jul 23, before the opening bell. In the last reported quarter, it delivered a positive earnings surprise of 19.40%. The company surpassed estimates in two of the trailing four quarters. However, it came up with average negative earnings surprise of 12.98%.

In the past three months, shares of the automotive company have underperformed the industry it belongs to. The stock has declined 12.3% compared with the industry’s 0.7% fall.

Let’s discuss the factors that are likely to make an impact on the upcoming quarterly announcement.

Factors to Influence Q2

The company intends to expand the next generation of its riders globally. By 2027, the company aims to launch 100 high impact motorcycles in a profitable and sustainable manner. In sync with its strategy to expand its portfolio, the company acquired StaCyc, Inc. in March 2019. The inclusion of this California-based company will enable Harley Davidson to enter the kids’ electric bike market. Also, to boost its production outside the United States, the company entered into an agreement with a Chinese manufacturer to produce small motorcycles for global markets.

As the company continues to inspire diverse new riders around the globe, it is also aligning its efforts toward marketing and sales support. In 2018, the company opened 56 dealerships. It continues to do so with the aim to add 150-160 dealerships internationally in the next eight years. Further, the company is improving online presence by offering merchandised products through Amazon.

However, the company faces significant pressure across the global motorcycle industry. While these challenges require utmost attention and management, the company is after their long-term objectives. The company also faces higher tariff-related costs stemming from the European Union and China. This has resulted in lower production and shipments, which has reduced inventories below the company’s decided levels. These factors can hurt the company’s second-quarter results.

Harley-Davidson is likely to witness an increase in its financial services’ retail credit losses over time due to changing customer credit behavior and efforts to increase loan approvals to sub-prime borrowers. 

Customers’ shifting preferences from heavy-weight motorcycles to smaller and fuel-efficient motorcycles is likely to hurt sales. Further, unfavorable mix and foreign currency translation are expected to affect second-quarter 2019 results. 

Harley-Davidson, Inc. Price and EPS Surprise


Harley-Davidson, Inc. Price and EPS Surprise

Harley-Davidson, Inc. price-eps-surprise | Harley-Davidson, Inc. Quote

What the Zacks Model Says

Our proven model does not conclusively show that the company is likely to beat earnings estimates in the quarter to be reported. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below:

Earnings ESP: The company has an Earnings ESP of -4.06%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $1.17 and $1.21, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. However, a negative Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some auto stocks worth considering, which have the right combination of elements to deliver an earnings beat this time around:

Group 1 Automotive, Inc GPI has an Earnings ESP of +0.73% and carries a Zacks Rank #3. It is slated to release second-quarter 2019 results on Jul 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc CMI has an Earnings ESP of +3.67% and currently carries a Zacks Rank of 3. It is slated to release second-quarter 2019 results on Jul 30.

Penske Automotive Group, Inc PAG has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 3. It is slated to release second-quarter 2019 results on Jul 30.

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