After announcing a mixed Q1 print which saw revenues decline about 15.7% compared to a year ago and miss market expectations, shares of motorcycle manufacturer Harley-Davidson (HOG 56.95, -2.45) trade about 4.1% lower today.
HOG did manage to beat street views on the bottom line for Q1, reporting earnings per share (EPS) of $1.05. However, the revenue miss amid speculation earlier in the week of a possible incentive program to lure customers back to HOG bikes seems to be looming over the shares today.
To that end, revenues were down 15.7% compared to last year to $1.33 billion on motorcycle shipments of 70,831 versus guidance of about 66,00-71,000. All told, the small Latin America region was the best performing motorcycle geography in Q1. Latin America saw 24.2% unit growth in Q1, with notable sales declines in the U.S. (-5.7%) and Asia Pacific (-9.3%).
As the company expected, U.S. sales were adversely impacted by soft industry sales and the company's decision to reduce shipments of model year 2017 motorcycles. This decision helped dealers focus on selling down their model year 2016 retail inventory. International retail sales were down behind weak sales in Asia Pacific, partially offset by strong growth in Latin America. Retail sales in EMEA and Canada were both down as they compared against strong prior year growth of 8.8% and 16.3%, respectively.
More specifically, HOG noted that in line with its expectations, the company’s retail motorcycle sales in the U.S. were down 5.7% compared to the year-ago quarter, with the overall U.S. industry down for the same period. HOG’s U.S. market share for the quarter was 51.3% in the 601cc-plus segment, up compared to the first quarter in 2016. The company’s international retail sales decreased 1.85 compared to the same quarter in 2016.
Comparatively, HOG’s Financial Services segment which mostly provides wholesale and retail financing and insurance and insurance-related programs primarily to HOG dealers and their retail customers reported revenue declines of 0.1% to $173.22 million in the period.
Looking ahead, HOG continues to anticipate full-year motorcycle shipments to be flat to down modestly in comparison to 2016. In the second quarter of 2017, the company expects to ship approximately 80,000 to 85,000 motorcycles. Additionally, HOG continues to expect full-year 2017 operating and gross margin as a percent of revenue to be about in line with 2016 with full-year 2017 capital expenditures between $200 million to $220 million.
The story begins and ends with the bikes, though, a point of underperformance in Q1. HOG’s guidance was unchanged and earnings for the quarter were solid, but when HOG doesn’t beat bike sales estimates, it’s tough to justify a higher share price.