Iconic motorcycle manufacturer Harley-Davidson Inc. (NYSE: HOG) juiced up its stock with a new $1 billion stock buyback program following its Q2 earnings report. The company reported strong top and bottom line performance, but its 2024 outlook was expectedly weak. A tough macroeconomic climate and softening consumer spending have been looming concerns that continue to plague durable goods purchases. The company has been offering promotions and incentives to clear out inventories, which helped boost revenue numbers. However, this has also stunted demand for its 2024 models, which also lack promotions to incentivize dealers. This led to a lowering of its full-year 2024 outlook.
Harley-Davison operates in the auto/tires/trucks sector, competing with motorcycle, Powersports, and recreational vehicle manufacturers, including Honda Motor Co. Ltd. (NYSE: HMC), Polaris Inc. (NYSE: PII), and Thor Industries Inc. (NYSE: THO).
Harley-Davidson Investors Have a Piece of 3 Companies
Harley-Davison is the umbrella for the company's three divisions. The Harley-Davidson Motorcycle Company (HDMC) designs, manufactures, licenses, and services its motorcycles. It sells its bikes, apparel, and parts through a network of authorized dealers. Harley-Davison Financial Services (HDFS) provides financing options for wholesale and retail buyers and point-of-sale (POS) insurance and protection services. LiveWire Group Inc. (NYSE: LVWR) sells electric motorcycles and kids' balance bikes, as well as parts and apparel.
Investors in Harley-Davidson own a piece of all three companies. While LiveWire is a standalone publicly traded company, it is still considered a subsidiary of Harley-Davidson, which owns a controlling interest between 70% and 90%. Harley-Davidson includes LiveWire results in its earnings reports.
HOG Attempts an Ascending Triangle Breakout Pattern
The daily candlestick chart for HOG illustrates an ascending triangle breakout attempt pattern. This pattern is comprised of a rising lower trendline representing higher lows converging at the apex with the flat-top upper trendline at $36.97. As HOG gets closer to the apex point, the stock will either break out through the upper trendline or break down through the lower trendline. The Q2 earnings release gapped up the shares attempting to break but has so far closed back under the upper trendline. The daily relative strength index (RSI) is still rising through the 61-band. Pullback support levels are at $35.16, $33.41, $31.67, and $29.41.
Headline Results Look Strong But Reveal Weakness Under the Hood
Harley-Davidson reported Q2 EPS of $1.63, beating consensus estimates by 23 cents. Revenues rose 12% YoY to $1.62 billion, beating $1.29 billion consensus analyst estimates. North American retail performance was down 1%, but sales of its more expensive Touring and CVO motorcycles surged 12% YoY, causing the EPS beat. HDMC's revenues climbed 13%, driven by its global shipment increase of 16%. HDFS operating income rose 21%, and revenue grew 10% YoY.
The company had heavy promotions and incentives to clear out inventory, leaving buyers exhausted and demand soft for its 2024 models. Motorcycle sales rose 20%, but parts & accessories sales fell 10% along with apparel sales falling 4% YoY. As a result of the heavy promotions, the gross margin fell 270 bps to 32.1%. Its Touring market share rose 5.3% to 75% in the first half of 2024.
Harley-Davidson Lowers 2024 Guidance Metrics
The company lowered its 2024 revenue for HDMC to be down 5% to 9% YoY, from the flat to 9% previous forecast. HDFS operating income is expected to be flat to up 5% YoY. LiveWire electric motorcycle unit sales are expected to be between 1,000 and 1,500, with operating losses of $105 million to $115 million. Harley-Davidson's company-wide capital investments are expected to be between $225 million and $250 million. The operating margin was lowered from 10.6% to 11.6%, down from earlier forecasts for $12.6% to 13.6%.
CEO Remains Cautious But Optimistic
Harley-Davidson CEO Jochen Zeitz pointed out some YoY improvements in the quarter. Consolidated operating income rose 9% YoY to $241 million thanks to a 21% rise in HDFS, its financing division. HDFS's operating income grew 2% YoY, while LiveWire's operating loss was $4 million less than the year-ago period.
High interest rate impacts were felt, but U.S. motorcycle sales were slightly positive over the last year. Internationally, EMEA saw retail sales fall by 1%. Asia Pacific showed the most weakness, with sales plunging 16% YoY, primarily in China. In North America, including Canada, sales fell 1%, and in Latin America was flat. Zeitz pointed out that the average Harley-Davidson customer is 45, adding that they expect customers to age into their products while building brand awareness.
Harley-Davidson analyst ratings and price targets are at MarketBeat. There are seven analyst ratings on HOG stock, comprised of five Buys and two Holds. The stock has a 22.57% upside to the consensus price target of $45.14.
