What Happened?
Shares of american motorcycle manufacturing company Harley-Davidson (NYSE: HOG) jumped 19.8% in the morning session after the company announced a strategic partnership for its financial services arm that overshadowed disappointing second-quarter results. The motorcycle maker announced a strategic partnership with KKR and PIMCO for its financing arm, Harley-Davidson Financial Services (HDFS). This deal was set to unlock approximately $1.25 billion to $1.5 billion in cash, which the company planned to use to reduce debt by $450 million and accelerate a $1 billion share buyback program. This major strategic shift helped investors look past a challenging quarter where profit fell by nearly half. The company's revenue declined 19% to $1.31 billion, driven by a 27% drop in motorcycle sales and a 28% decrease in global shipments amid soft consumer demand. The positive reaction indicated investors prioritized the company's move to lighten its balance sheet and return capital to shareholders over the weak underlying performance.
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What Is The Market Telling Us
Harley-Davidson’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. But moves this big are rare even for Harley-Davidson and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was about 23 hours ago when the stock dropped 3% on the news that the latest U.S. consumer confidence report revealed underlying weakness despite a headline increase, raising concerns about future spending. While the Conference Board's headline Consumer Confidence Index rose to 97.2 in July, the details painted a more cautious picture for investors. The Present Situation Index, a measure of consumers' assessment of current business and labor market conditions, actually fell. More telling for the sector, the report showed a decline in buying intentions for major discretionary items such as homes, cars, and most appliances. This combination of factors signals potential weakness in future consumer spending, casting a shadow over companies that rely on non-essential purchases.
Harley-Davidson is down 8.9% since the beginning of the year, and at $26.81 per share, it is trading 32.2% below its 52-week high of $39.53 from September 2024. Investors who bought $1,000 worth of Harley-Davidson’s shares 5 years ago would now be looking at an investment worth $1,007.
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