Why Is Harley-Davidson (HOG) Down 1.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Harley-Davidson (HOG). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

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

Harley-Davidson Q2 Earnings Beat Mark, Sales Miss

Harley-Davidson reported second-quarter adjusted earnings of $1.33 per share, surpassing the Zacks Consensus Estimate of $1.15. Higher-than-anticipated operating income from both Motorcycles & Related Products as well as Financial Services segments resulted in this outperformance. The bottom line reflects a turnaround from a loss of 60 cents per share incurred in the year-ago quarter, a period that was severely impacted by pandemic woes.

The iconic motorcycle manufacturer generated consolidated revenues (including motorcycle sales and financial services revenues) of $1,532 million, surging 77% from the year-earlier quarter. However, revenues from the Motorcycle & Related Products unit came in at $1,332 million, missing the consensus mark of $1,365 million.

Segmental Highlights

Motorcycles and Related Products: Total revenues from the Motorcycle and Related products segment, which constitute bulk of the firm’s overall revenues, almost doubled on a year-over-year basis to $1,332 million for the reported quarter. This upside was primarily due to higher wholesale shipments and a favorable product mix. Consequently, the segment posted an operating profit of $186 million against second-quarter 2020 loss of $121 million. The metric also beat the Zacks Consensus Estimate of $177 million.

For the June-end quarter, revenues from the sale of motorcycles came in at $1,030 million, skyrocketing 131% year over year. The company shipped 56,700 motorcycles worldwide, doubling from 28,400 units in second-quarter 2020.

During the quarter under review, Harley-Davidson retailed 65,274 motorcycle units globally, up 24% year over year. Its retail motorcycle units sold in North America grew 43% from the year-ago quarter to 48,185. Meanwhile, sales in the EMEA (Europe, Middle East and Africa), Asia Pacific and Latin America declined 7%, 13% and 31%, respectively, from the year-ago period.

Revenues for Parts & Accessories were up 32% from the prior year to $223 million. Revenues for General Merchandise — including Motor Clothes apparel and accessories — also rose 47% from the prior-year quarter to $56 million.

Financial Services: Revenues for Harley-Davidson Financial Services totaled $201 million, edging up 2% year on year. Operating income jumped to $95 million from $5 million recorded in the year-ago period, thanks to lower provisions for credit losses. The metric also topped the consensus mark of $64 million.

Financial Position

For the June-end quarter, selling, general and administrative expenses increased to $220.4 million from $187.6 million witnessed in second-quarter 2020. The firm generated $482.3 million of cash from operating activities during second-quarter 2021. Capital expenditure totaled $18.8 million. The company paid dividends of 15 cents per share in second-quarter 2021.

Harley-Davidson had cash and cash equivalents of $1,741.9 million as of Jun 27, 2021 compared with $3,257.2 million recorded at 2020-end. Long-term debt decreased to $4,745 million from $5,932.9 million recorded as of Dec 31, 2020.

2021 Guidance

The company reaffirmed its forecast for the motorcycles segment’s revenues, which are expected to grow in the band of 30-35% in 2021. However, Harley-Davidson lowered the operating income margin expectation for the segment from 7-9% to 6-8%. In consideration of its ability to mitigate additional EU tariffs, operating income margin is expected at 7-9%. Operating income growth for Financial Services is now forecast within 75-85%, up from the prior view of 50-60%. Capital expenditure for the full year is projected within $190-$225 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 9.66% due to these changes.

VGM Scores

At this time, Harley-Davidson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Harley-Davidson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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