Well, today Harley Davidson reported on its first quarter financials for 2024. I suppose the best thing one can say about Q1 was that there was a 6% increase in sales in North America.
But, when you look more deeply into the financials, it’s easy to see that Harley Davidson continues to lose market share. Essentially, the good news is that Harley’s losses aren’t as high as forecast.
There are several elements of the results that require some clarification, or at least, emphasis. First, motorcycle sales in the first quarter are likely to be more positive as ‘new product’ arrives in showrooms, yet for HD, the first quarter of 2024 sold 7% fewer bikes than in 2023, which was already a dismal year for Harley Davidson.
Every financial category for Harley Davidson Motor Company (HDMC) 2024 shows a decline from 2023 as does operating income. The reason why Harley Davidson Financial Services (HDFS) shows an increase in revenue is due to the increases in price for Harley motorcycles, not something generally thought to be helpful about selling HDs in the future. Also, more buyers financed those motorcycles through HDFS, which increased financing revenue. One of the problems associated with this, as discussed in an earlier post, is that Harley also has a large number of motorcycle repossessions due to HD owners failing to pay for their financed Harley Davidson motorcycle. To help the bottom, HD also bought back another 98 million dollars worth of its shares as a means to defray further reductions in the value of its stock.
As for sales, there was no increase in HD sales globally. Sales in Europe and Asia decreased by 11% and 12% respectively, meaning that total Harley-Davidson sales saw a 0% increase. As stated in prnewswire.com, “Consolidated operating income in the first quarter was down 29%, resulting from declines of 29% at HDMC and 8% at HDFS respectively, and an operating loss of $29 million in the LiveWire segment. The consolidated operating income margin in the first quarter was 15% relative to 21% in the first quarter a year ago.
As for LiveWire and its electric motorcycles, so far in 2024, only 117 units (motorcycles) have been sold. While this was an increase over 2023 when only 63 units were sold, obviously this isn’t promising.
According to StockStory in the Globe and Mail, the “Key Takeaways from Harley Davidson Q1 Results” are:
“Operating profit missed and both gross and operating margins in the core segment that sells motorcycles and parts declined meaningfully year over year. The results could have been better. The stock is down after reporting and currently trades at $39.11 per share.”
What this portends for HD isn’t stellar. At some point, HD may have to reappraise its market and seriously consider whether electric Harley-Davidsons will ever have enough market penetration to justify their continuance.
However, it may well be the Investors in Harley-Davidson who will ultimately have the final say. Unless profitability increases and cash revenues improve appreciably, Harley’s investors may dump the stock, which will then fall further in value. I’ll leave the final comment to StockStory,
“Over the last two years, Harley-Davidson has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.5%, subpar for a consumer discretionary business.”
This year will be a bellwether for Harley-Davidson. Either Harley’s customers will buy into HD’s new line of electric motorcycles, or Harley will be faced with some tough choices. New competition in North America from Chinese and Indian motorcycle companies will cut further in HD’s traditional market as several of these manufacturers intend to bring heavy bagger and touring motorcycles to the market in 2024-2025, at prices significantly cheaper than those motorcycles being manufactured by Harley Davidson.
Lastly, Hero Motors of India is making Harley-Davidson’s smaller displacement motorcycles in India, (see my earlier post). Most of the profit associated with the sale of a smaller Harley Davidson, will be earned, not by Harley, but by Hero Motors. This is a trend that doesn’t work in Harley Davidson’s best long-term financial or production interests, especially when one considers that many Harley Davidson replacement parts for its larger motorcycles already are made in China.
Ciao…
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