Headline: Harley-Davidson's Q3 2024 Earnings Call: Company Faces Market Challenges

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Headline: Harley-Davidson's Q3 2024 Earnings Call: Company Faces Market Challenges

Harley-Davidson, Inc. (HDMC) faced a challenging period in the third quarter of 2024, encountering significant hurdles in the global market that led to declines in retail sales and revenue. The company experienced a 13% drop in overall retail sales, with a sharp 23% decline in the EMEA region. Despite these challenges, U.S. retail sales remained relatively stable, decreasing by only 1%, buoyed by approximately 10% growth in the touring segment. Harley-Davidson's consolidated revenue fell by 26%, with operating income dropping 49% to $106 million. Earnings per share decreased by 34% year-over-year to $0.91. The company has revised its full-year outlook and is taking strategic steps to enhance profitability and dealer support, with a focus on inventory reduction and cost management efforts.

Key Highlights:

  • Global retail sales for Harley-Davidson declined by 13%, with a 23% decrease in the EMEA region.
  • U.S. retail sales decreased by 1%, supported by approximately 10% growth in the touring segment.
  • Consolidated revenue fell by 26%, and operating income dropped 49% to $106 million.
  • Earnings per share declined by 34% year-over-year to $0.91.
  • The company aims to reduce dealer inventory by 20% by year-end and has revised its full-year outlook.
  • Harley-Davidson's EV segment, LiveWire, holds a 69% market share in the U.S., with a product announcement planned for November at EICMA.

Company Outlook: Harley-Davidson has revised its 2024 outlook, expecting retail and wholesale unit sales to range between 149,000-153,000 units, lower than previous forecasts. Revenue is anticipated to decrease by 14%-16%, with an operating income margin projected at 7.5%-8.5%. The company focuses on financing profitable growth while prioritizing dividends and share buybacks. It targets a 15% operating income margin by the end of 2025.

Negative Highlights:

  • Retail sales in the EMEA region experienced a sharp 23% decline.
  • The company reported a 32% decline in HDMC revenue and a 39% decrease in wholesale motorcycle shipments.
  • The gross margin fell from 31.7% to 30.1% year-over-year.

Positive Highlights:

  • Harley-Davidson Financial Services revenue increased by 10%, reaching $286 million.
  • HDFS operating income rose by 29% to $77 million.
  • The company repurchased 9.5 million shares worth $350 million during the year.

Underperforming Areas:

  • Full-year earnings per share were $4.27, an 8% decline from 2023.
  • Year-to-date total consolidated revenue reached $4.5 billion, a 6% decline from the previous year.

Q&A Highlights:

  • The company plans to implement selective promotional support in Q4 to manage dealer inventory.
  • Discussions about more affordable motorcycle offerings are ongoing, with specific plans for RevMax products in 2025.
  • Management focuses on conservative budgeting and cost efficiency, targeting $400 million in savings.

In summary, Harley-Davidson navigates a challenging economic climate with a strategic focus on inventory reduction, cost management, and dealer support. While facing declines in retail sales and revenue, the company management displays cautious optimism for future prospects, emphasizing the importance of operational discipline and market share growth in the touring segment. Harley-Davidson prepares to maintain its efforts in product innovation and performance in financial services, aiming for a stronger position in the coming years.

InvestingPro Insights: Despite Harley-Davidson's challenging third-quarter report, InvestingPro data highlights some intriguing aspects of the company's financial condition. As of the last twelve months ending in the second quarter of 2024, Harley-Davidson's P/E ratio stands at a low level of 6.14, suggesting that the stock might be undervalued relative to its earnings. This aligns with the company's focus on profitability and cost management efforts mentioned in the earnings report.

InvestingPro Tips emphasize Harley-Davidson's uninterrupted dividend payments for 32 years, demonstrating its commitment to shareholder returns even in difficult times. This is particularly relevant given the company's stated priority on dividends and share buybacks. Additionally, the tip noting that liquid assets exceed short-term liabilities provides assurance of the company's financial stability while tackling current market challenges.

Another InvestingPro Tip points out recent stock performance, showing that Harley-Davidson shares took a significant hit over the last week, with a 1-week price total return of -13.59%. This decline likely reflects the market's reaction to the challenging Q3 results and revised outlook.

For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that can provide more context about Harley-Davidson's financial health and market position. There are 11 more InvestingPro Tips available for HOG, which could be valuable for understanding its prospects while working towards the 2025 operating income margin target.