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Harley-Davidson (HOG) Posts Loss in Q4, Kicks Off Hardwire Plan

Harley-Davidson (HOG) Posts Loss in Q4, Kicks Off Hardwire Plan | NASDAQ

Harley-Davidson, Inc. HOG reported fourth-quarter adjusted loss of 44 cents per share. The Zacks Consensus Estimate for profit was pegged at 24 cents. The bottom line also compares unfavorably with the year-ago earnings of 20 cents a share. Higher-than-anticipated loss from the Motorcycles and Related Products segment resulted in this dismal performance.

The iconic motorcycle manufacturer generated consolidated revenues (including motorcycle sales and financial services revenues of $725 million, down 32% from the year-earlier quarter’s $1,072 million. Notably, revenues from the Motorcycle & Related Products unit came in at $531 million, missing the consensus mark of $789 million by a wide margin.

HarleyDavidson, Inc. Price, Consensus and EPS Surprise

HarleyDavidson, Inc. price-consensus-eps-surprise-chart | HarleyDavidson, Inc. Quote

Segmental Highlights

Motorcycles and Related Products: Total revenues from the Motorcycle and Related products segment, which constitute bulk of the firm’s overall revenues, plunged 39% year over year to $531 million in the reported quarter. This decline was primarily due to lower wholesale shipments compared to the prior year on account of the company’s aggressive approach to supply and inventory management and the shift in timing of the roll-out of new model year motorcycles from August each year to early first quarter in a bid to better align with seasonality.

Further, the segment posted an operating loss of $196 million, much wider than the loss of $46 million reported in the prior-year quarter. The operating loss also came in wider than the consensus mark of $41.5 million.

For the December-end quarter, revenues from the sale of motorcycles came in at $319.9 million, slumping almost 52% year on year. The company shipped 20,921 motorcycles worldwide, significantly down 48.3% year over year.

For the October-December quarter, Harley-Davidson retailed 33,925 motorcycle units globally, down 14.1% year over year. The company’s retail motorcycle units sold in the United States slid 14.5% from the year-ago quarter to 17,274. Sales in the Middle East and Africa, Asia Pacific, Canada and Latin America declined 2.2%, 9.6%, 30.2% and 50.9%, respectively, from the year-ago period.

Nonetheless, revenues for Parts & Accessories (P&A) were up 13.3% from the prior year to $146.4 million. However, revenues for General Merchandise (GM) — including Motor Clothes apparel and accessories — dropped 13% from the prior-year quarter to $49.7 million.

Financial Services: Revenues for Harley-Davidson Financial Services decreased to $194 million, down 2% year on year. The reported figure is, nonetheless, in line with the Zacks Consensus Estimate. Operating income jumped 31% year on year to $77 million on lower provisions, aided by reduced actual losses at the end of the fourth quarter.

Financial Position

During the December-end quarter, selling, general and administrative expenses (SG&A) increased to $276.4 million from the $266.4 million witnessed in fourth-quarter 2019.

Harley-Davidson had cash and cash equivalents of $3,257.2 million as of Dec 31, 2020, compared with the $833.9 million recorded at the end of 2019. Net long-term debt increased to $5,932.9 million from the year-ago period’s $5,124.8 million.

The firm generated $1,177.9 million of cash from operating activities during 2020 compared with the prior year’s $868.3 million. Capital expenditure during the year totaled $131 million compared with the $181.4 million recorded in 2019. The company also paid dividends of 44 cents per share for full-year 2020.

Full-Year 2020 Highlights

Consolidated revenues for 2020 came in at $4,054 million, declining 24% from the prior year’s $5,362 million. Moreover, the company’s adjusted earnings per share for the year came in at 77 cents, tanking 77% from the $3.36 per share reported in 2019.

‘Rewire’ Drives Company in 2020

Harley-Davidson’s full-year 2020 results benefited from the successful completion of ‘The Rewire’ turnaround plan. The plan restructured the company’s operating model, reducing complexity and improving efficiency across all functions. The plan also streamlined the motorcycle manufacturer’s product portfolio, reducing the planned number of models by almost 30%.  Under the plan, it also exited 39 loss-making markets to focus more on the 50 highest-potential markets. The plan also reset the motorcycle model year launch timing to align with seasonality. In fact, the plan overhauled and reset the cost structure of the business, lowering the cost base by approximately $115 million.

Harley-Davidson continues to bank on its H-D#1 culture evolution to register growth guided by the company’s vision and mission. Also, the Rewire and H-D#1 efforts provide a solid foundation to execute the company’s long-term strategic plan for the next five years — The Hardwire.

Harley-Davidson Unveils The Hardwire Plan

Along with the fourth-quarter and full-year 2020 results, Harley-Davidson also laid out the details for The Hardwire, which targets long-term profitability and growth through refreshed product offerings. The plan is also aimed at enhancing the company’s position as the most coveted motorcycle brand in the world.  

Key highlights of The Hardwire include investing in the Touring and heavyweight Cruiser segment, expanding into fresh untapped segments of Adventure Touring and creating a new division dedicated to electric motorcycles. The Hardwire puts customers at the forefront of Harley-Davidson's products, and plans to create a meaningful, unique and personalized experience for them with the company’s products. In its approach to enhance long-term value for all stakeholders, Harley-Davidson views inclusive stakeholder management in the context of people, planet and profit, as all three are deeply embedded in the past and future success of the company.

The Hardwire’s financial goals from 2021 to 2025 include mid single-digit annual growth in revenues and a steady improvement in the operating margin from motorcycle sales as well as double-digit growth in Financial Services segment. Capital spending will range between $190 million and 250 million annually, including expanding Harley-Davidson’s digital ecosystem and establishing the new electric vehicles division. Harley-Davidson also targets low double-digit growth in earnings per share through 2025.

Nevertheless, shares of the company depreciated more than 17% on Tuesday after it unexpectedly swung to a quarterly loss, overshadowing the Hardwire plan. 

Zacks Rank & Key Picks

Harley-Davidson currently carries a Zacks Rank #3 (Hold. Shares of the company have declined 2.5% in the past year, underperforming the industry’s rally of 241.5%.

Some better-ranked stocks in the same industry are Ford F, Fox Factory Holding FOXF and Polaris Inc. PII. Ford currently flaunts a Zacks Rank of 1 (Strong Buy, while Fox Factory and Polaris carry a Zacks Rank of 2 (Buy, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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