Dreadful quarter - read and explain why
#1
10-20-2015, 11:58 AM
Dreadful quarter - read and explain why
Harley-Davidson to Ramp Up Marketing as Sales Skid -- Update
BY Dow Jones & Company, Inc.
— 11:39 AM ET 10/20/2015
Harley-Davidson Inc. ( HOG
Loading... ) hopes increased marketing and more new products will help pull it out of a persistent sales skid that hurt profit in the third quarter and sent the share price into a tailspin.
Harley shares were down about 14% late Tuesday morning after the Milwaukee-based motorcycle maker announced a 6.5% drop in quarterly earnings and a decline in market share. The company said it would eliminate 250 jobs, or about 4% of the total workforce. Savings on labor costs will be applied to the budget for marketing, due to rise 65% next year, while product-development spending will grow 35%.
"Our performance didn't meet our expectations," Matt Levatich, Harley's chief executive, told analysts. "We know we can do better, and we will." Though Harley is one of the world's best-known brands, Harley executives said they would need to "dial up" marketing because rivals such as Honda Motor Co. and Polaris Industries Inc. are grabbing attention with price cuts and new models.
Harley has been sideswiped by the strong dollar, which hurts sales outside the U.S., and the aging of its core baby boomer customer base at home. But Mr. Levatich also cited "headwinds of our own making," including quality problems that have led to a recent surge in recalls.
Recall expenses in this year's first nine months totaled $32 million. That compares with a combined $30 million for the three full years ended last Dec. 31. One of the recent recalls was for faulty fuel pumps on Street models, aimed at younger and urban riders, a big part of Harley's effort to rely less on boomers. In the wake of that recall, Harley ran short of fuel pumps and couldn't meet demand for Street models in the latest quarter, hurting sales of a product that is particularly popular in Asia.
Calling the recalls "very disappointing," Mr. Levatich said Harley has brought in outside experts to advise on ways to avoid quality lapses.
Among other marketing initiatives, Harley is offering free motorcycle riding lessons to U.S. military people and veterans as a way to encourage more young adults to try its premium-priced bikes. Harley also promised to add 150 to 200 new dealerships outside the U.S. by 2020, increasing the total by 20% to 25%.
Dealer sales of new Harley motorcycles declined 2.5% in the U.S. in the latest quarter and were up just 0.9% elsewhere. Harley's share of the U.S. market for motorcycles with engines of 601 cubic centimeters or greater slipped to 50% in first nine months of this year from 53.7% a year earlier.
Harley forecast that motorcycle shipments to dealers this year will total between 265,000 and 270,000, little changed from 2014. That's down from an earlier forecast of 276,000 to 281,000.
Profit in the latest quarter was $140.3 million, down from $150.1 million a year earlier. Earnings per share were flat at 69 cents as stock repurchases reduced shares outstanding. Wall Street had expected earnings of about 78 cents a share, according to FactSet. Revenue, including motorcycle sales and financial services, totaled $1.32 billion, up 1.2%.
Dealer sales were up 5.1% in Asia and 2.4% in Europe, the Middle East and Africa but fell 12% in Latin America and 1.7% in Canada.
BY Dow Jones & Company, Inc.
— 11:39 AM ET 10/20/2015
Harley-Davidson Inc. ( HOG
Loading...Harley shares were down about 14% late Tuesday morning after the Milwaukee-based motorcycle maker announced a 6.5% drop in quarterly earnings and a decline in market share. The company said it would eliminate 250 jobs, or about 4% of the total workforce. Savings on labor costs will be applied to the budget for marketing, due to rise 65% next year, while product-development spending will grow 35%.
"Our performance didn't meet our expectations," Matt Levatich, Harley's chief executive, told analysts. "We know we can do better, and we will." Though Harley is one of the world's best-known brands, Harley executives said they would need to "dial up" marketing because rivals such as Honda Motor Co. and Polaris Industries Inc. are grabbing attention with price cuts and new models.
Harley has been sideswiped by the strong dollar, which hurts sales outside the U.S., and the aging of its core baby boomer customer base at home. But Mr. Levatich also cited "headwinds of our own making," including quality problems that have led to a recent surge in recalls.
Recall expenses in this year's first nine months totaled $32 million. That compares with a combined $30 million for the three full years ended last Dec. 31. One of the recent recalls was for faulty fuel pumps on Street models, aimed at younger and urban riders, a big part of Harley's effort to rely less on boomers. In the wake of that recall, Harley ran short of fuel pumps and couldn't meet demand for Street models in the latest quarter, hurting sales of a product that is particularly popular in Asia.
Calling the recalls "very disappointing," Mr. Levatich said Harley has brought in outside experts to advise on ways to avoid quality lapses.
Among other marketing initiatives, Harley is offering free motorcycle riding lessons to U.S. military people and veterans as a way to encourage more young adults to try its premium-priced bikes. Harley also promised to add 150 to 200 new dealerships outside the U.S. by 2020, increasing the total by 20% to 25%.
Dealer sales of new Harley motorcycles declined 2.5% in the U.S. in the latest quarter and were up just 0.9% elsewhere. Harley's share of the U.S. market for motorcycles with engines of 601 cubic centimeters or greater slipped to 50% in first nine months of this year from 53.7% a year earlier.
Harley forecast that motorcycle shipments to dealers this year will total between 265,000 and 270,000, little changed from 2014. That's down from an earlier forecast of 276,000 to 281,000.
Profit in the latest quarter was $140.3 million, down from $150.1 million a year earlier. Earnings per share were flat at 69 cents as stock repurchases reduced shares outstanding. Wall Street had expected earnings of about 78 cents a share, according to FactSet. Revenue, including motorcycle sales and financial services, totaled $1.32 billion, up 1.2%.
Dealer sales were up 5.1% in Asia and 2.4% in Europe, the Middle East and Africa but fell 12% in Latin America and 1.7% in Canada.
#2
10-20-2015, 12:06 PM
Stellar HDF Member
Here's a reason:
The only bike I would move up to is an Ultra Limited. Last year I bought a new car $10k less than an UL. Last month I bought a new SUV $5k less than an UL.
Let me add, my wife and I were at a local dealer last month. A hoodie and a top for her. $210 Otd. We left them
The only bike I would move up to is an Ultra Limited. Last year I bought a new car $10k less than an UL. Last month I bought a new SUV $5k less than an UL.
Let me add, my wife and I were at a local dealer last month. A hoodie and a top for her. $210 Otd. We left them
Last edited by Markymannn; 10-20-2015 at 12:08 PM.
#3
10-20-2015, 12:12 PM
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I would site the aging demographic as the MoCo's largest concern. Plus, the Street 500 & 750 may work overseas, but there's so many better motorcycles in that price range that they will never meet expectations here in the US. I'm not sure the younger group buys into the Harley culture, which make selling them expensive big twins a real challenge.
#4
10-20-2015, 12:14 PM
Here's a reason:
The only bike I would move up to is an Ultra Limited. Last year I bought a new car $10k less than an UL. Last month I bought a new SUV $5k less than an UL.
Let me add, my wife and I were at a local dealer last month. A hoodie and a top for her. $210 Otd. We left them
The only bike I would move up to is an Ultra Limited. Last year I bought a new car $10k less than an UL. Last month I bought a new SUV $5k less than an UL.
Let me add, my wife and I were at a local dealer last month. A hoodie and a top for her. $210 Otd. We left them
#5
10-20-2015, 12:18 PM
Too many bikes
I agree with both of you.
They can't be everything to everyone. Make the BEST bike in two or three categories.
Reading some of their objectives:
These investments will be focused in four primary areas:
Where is "make a better product that customers don't have to change every part on to get what they want?" Start with good handlebars and shocks and seats etc. Keep them customizable, but start with a product worth the price you're asking.
They can't be everything to everyone. Make the BEST bike in two or three categories.
Reading some of their objectives:
These investments will be focused in four primary areas:
- Increasing product and brand awareness
- Growing new ridership in the U.S.
- Increasing and enhancing brand access
- Accelerating the cadence and impact of new product
- Lead in every market.
- Grow the sport of motorcycling in the U.S., in part by growing the number of U.S. core customers and growing the number of U.S. outreach customers at a faster rate.
- Grow U.S. retail sales and grow international retail sales at a faster rate. In support of this objective, the company has a target to grow its international dealer network by 150 to 200 new dealerships by 2020.
- Grow revenue and grow earnings faster than revenue through 2020.
- Outperform the S&P 500.
Where is "make a better product that customers don't have to change every part on to get what they want?" Start with good handlebars and shocks and seats etc. Keep them customizable, but start with a product worth the price you're asking.
#7
10-20-2015, 01:12 PM
Outstanding HDF Member
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#8
10-20-2015, 01:17 PM
Elite HDF Member
No surprise here. Public perception is everything especially if you are trying to win over a new demographic and young millennials like myself. With all their recalls and quality issues Harley is proving the perception that the Japanese motorcycles are far superior in quality, reliability, performance, and technology at a much lower price. Young people don't care about brand names (we like grew up on Japanese everything) or looking like a biker. It is all about price, technology, performance, and reliability. I love Harley and I've owned at least one of every air cooled model but Harley has take a big step backwards in quality, reliability, and new model offering. I personally have no interest in buying another Harley.
#9
10-20-2015, 01:22 PM
HD certainly needs a better "intro" bike that would attract a younger audience. It'll have to look right for the youngsters, be priced right, and perform well. The Street twins just won't cut it in the US market.
I also agree about the prices of the touring bikes - getting way too high. When I replace my Goldwing, I would consider one of the Harley touring bikes (just spent a week on a rental EGC), but $25,000 or so..... just can't justify the cost. (Not that a new Goldwing would be any better in price (also $24,000 to $30,500).) Thank you, but I'll look to the used market.
I also agree about the prices of the touring bikes - getting way too high. When I replace my Goldwing, I would consider one of the Harley touring bikes (just spent a week on a rental EGC), but $25,000 or so..... just can't justify the cost. (Not that a new Goldwing would be any better in price (also $24,000 to $30,500).) Thank you, but I'll look to the used market.
