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Why Is Harley-Davidson (HOG) Up 3.2% Since the Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Harley-Davidson, Inc. HOG. Shares have added about 3.2% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Harley-Davidson Misses on Q4 Earnings, View Weak

Harley-Davidson reported earnings of $0.27 per share in the fourth quarter of 2016, which missed the Zacks Consensus Estimate of $0.32. However, earnings were higher than $0.22 recorded in the year-ago quarter.

Net income increased to $47.2 million from $42.2 million recorded a year ago.

Operating revenues (excluding financial services) declined to $933 million in the fourth quarter of 2016 from $1.01 billion recorded in the year-ago quarter. The figure missed the Zacks Consensus Estimate of $986 million. Harley-Davidson logged consolidated revenues of $1.11 billion, which deteriorated from $1.18 billion posted a year ago.

Operating income increased to $69.4 million from $67.2 million in the year-ago period.

2016 Results

Harley-Davidson reported earnings of $3.83 per share in 2016, up from $3.69 per share earned in 2015. However, earnings per share missed the Zacks Consensus Estimate of $3.88.

Net income fell to $692.2 million from $752.2 million recorded a year ago. Operating revenues (excluding financial services) decreased to $5.27 billion from $5.31 billion in 2015, also missing the Zacks Consensus Estimate of $5.38 billion.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products dropped to $933 million in the fourth quarter of 2016 from $1.01 billion recorded in the year-ago quarter. The decline was due to lower motorcycle shipments.

Operating income from Motorcycles and Related Products increased significantly to $9.27 million from $6.37 million a year ago.

Revenues from Harley-Davidson motorcycles fell 8.8% to $685.05 million. The company shipped 42,414 motorcycles to dealers and distributors worldwide during the fourth quarter of 2016, compared with 48,149 shipments in the fourth quarter of 2015.

Harley-Davidson’s worldwide dealer retail sales of new motorcycles dipped 0.5% to 46,610 units from 46,857 motorcycles sold in the year-ago quarter. The decline was due to weakness in some international markets. Harley-Davidson’s sales in the U.S. inched up 0.1% to 26,077 motorcycles. International sales went down 1.3% to 20,533 motorcycles from 20,813 motorcycles sold in the prior-year quarter. An improvement of 2.6% in sales in the Europe, Middle East, and Africa (EMEA) region, and 0.2% in Canada was offset by a 14.4% decline in the Latin America region and 0.4% in the Asia-Pacific region.

Revenues from Parts and Accessories dropped 0.2% to $169.4 million, while revenues from General Merchandise – which includes MotorClothes apparel and accessories – fell 8.1% to $72.9 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment improved 2.3% to $177.6 million in the fourth quarter of 2016. Operating income however declined 1.2% to $60.1 million from the year-ago figure of $60.9 million.

Financial Position

Harley-Davidson had cash and cash equivalents of $760 million as of Dec 31, 2016, compared with $722.2 billion as of Dec 31, 2015. Total debt fell to $6.81 billion from $6.87 billion as of Dec 31, 2015.

In 2016, Harley-Davidson’s operating cash flow improved to $1.17 billion from $1.10 billion in 2015. Capital expenditures decreased to $256.3 million from $260 million in 2015.

Share Repurchases

Harley-Davidson spent $459.1 million to repurchase 9.7 million shares in 2016. As of 2016-end, it had authorization to buy back another 19.3 million shares.

Looking Forward

Harley-Davidson expects motorcycle shipments in 2017 to be either the same or slightly lower than 2016.

In the first quarter of 2017, Harley-Davidson expects to ship 66,000 to 71,000 motorcycles, compared with 83,036 motorcycles shipped in the year-ago period.

The company also projects operating margin and gross margin to be similar to the 2016 levels. It expects capital expenditures of $200–$220 million this year.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been 10 downward revisions for the current quarter.

Harley-Davidson, Inc. Price and Consensus

 

Harley-Davidson, Inc. Price and Consensus | Harley-Davidson, Inc. Quote

VGM Scores

At this time, Harley-Davidson's stock has an subpar Growth Score of 'D', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The stock is suitable solely for value investors, based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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