) announced its earnings for the second quarter on August 1.
Despite strong growth in earnings and a marginal increase in sales
year-on-year, shares fell almost 4% amid concerns regarding
motorcycles demand for the rest of the year, which is expected to
Worldwide retail sales grew 2.8% y-o-y, boosted by robust growth
in regions including Asia Pacific (10%) and Latin America (38%).
This was partially offset by a decline in the EMEA region (6.4%).
Retail sales in the United States were up 4%, in spite of being
affected by an unusually early spring season, which pulled some
portion of sales to the previous quarter. The company's
year-to-date market share increased 2.3 percentage points to 56.1%,
which is a new record.
Sales in Latin America and Asia Pacific have been trending
upward over the past few years. Combined sales in Asia Pacific and
Latin America in this quarter constituted 10.1% of worldwide retail
sales. This compares to 9% in the second quarter of 2012. By
contrast, sales in the EMEA region have declined as a percentage of
worldwide sales, primarily due to a large decline in sales in
Europe - Europe constituted 20.3% of worldwide sales in second
quarter 2010, while now it makes up 17.1%. We expect these trends
to continue, as the company attempts to capitalize on consumer
spending changes in these regions through branding and marketing
The company reported marginal growth in gross margins on a
year-on-year basis, mainly due to higher shipment volumes, price
increases of the 2012 models, and lower manufacturing costs as a
result of the restructuring plan. This was partially offset by
foreign exchange losses. In spite of the currency hedges set up by
the company, we expect gross margins in the coming quarters to be
negatively affected by exchange rate fluctuations. Operating income
grew 40.8% due to the higher gross margins and lower restructuring
related expenses relative to the same quarter last year.
Looking forward, the company's management is not very optimistic
about performance in the next couple of quarters. This is for a
number of reasons. The economic slowdown will affect shipment
volumes and sales worldwide, especially in the Euro-zone. The
macroeconomic uncertainty will also lead to exchange rate
fluctuations, which will affect margins. Margins will also be
affected by restructuring spending, which is estimated to be about
$40-50 million for the rest of this year. In spite of this,
management expects gross margins to be around 35% for this year,
boosted by savings from restructuring, more efficient manufacturing
processes and higher motorcycle prices.
We currently have a Trefis price estimate of
, which is about 40% above the market price.
How a Company's Products Impact its Stock Price at Trefis