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Monday 8 November 2021

Comment by Editor-in-Chief, Robin Bradley

Economists Were Invented to Make Weather Forecasters Look Good

It's happened again. I find myself needing to write this piece and send it to press the week before both Polaris and Harley are due to unveil their quarterly results (Q2) and trying to figure if I dare to speculate on what you'll likely already know by the time you read this.

The digital edition of AMD will have gone 'live' a couple of days before they report, but even so, moments such as these are a high wire act for magazine folk - with no safety!
If I were a betting man (which, stocks and shares aside, by and large I am not), then my money would be on both manufacturers having had pretty good second quarters. In the case of Harley, I'd expect to be seeing more evidence that CEO Jochen Zeitz' Hardwire corporate strategy (son of Rewire, first of its name) continues to produce results, and in the case of Polaris, its strong position in the still burgeoning Off-Road market (SxS/UTV especially) should inject some excitement into the performance of its shares.
Harley should also see some Wall Street bounce. At the time of writing (Mid October), Harley (HOG) is trading at around the $36.90 mark, having been as low as $32 YTD in early February and as high as $52 in mid-May 2021.
Polaris Industries (PII) is trading at the $130 mark, having come into 2021 at $95 in early January, peaking at around $146 in late April.

Hubris or Sage?

Volatility in the Harley share price is something we have come to expect these past five years, but Polaris seemed to be a lot more stable. But with analysts having not liked Polaris' broader powersports portfolio in the context of tariffs (which is a paradox, if you ask me), or appreciating being blindsided by long-term (and very successful) former CEO Scott Wine's decision to slide up the greasy pole a few notches to the CEO job at Case New Holland.
Having guided Polaris' turnover from the $2bn mark when he took over - just as the 2007-2009 financial crisis wrecked both Polaris' and Harley's balance sheets and share prices - to $9bn at the time of his decision to move on, CNH marked a considerable leap up that pole. CNH is a $28bn turnover conglomerate, though is itself only one wheel on the juggernaut that is Fiat Chrysler, which in turn is just one part of the Agnelli family's Fiat Industrial Group.
In terms of Jochen Zeitz, his Puma sneakers to major fashion label and luxury goods brand background saw his greasy pole performance play out in Germany (at Puma) and then at parent company Kering in France (owner of Puma, Gucci, Yves Saint Laurent etc).
So, Scott Wine has taken his formative experience in the powersports industry to try to apply it to altogether bigger boys (and girls) toys. Zeitz has gone from the large to the smaller in turnover terms - from the overpriced luxury goods market to the urm, well - you know what I'm saying!
Even though it is still only 18 months or so since Zeitz stepped into the CEO chair at Harley, he had been a non-executive director since 2007 and, as a very wealthy man in his own right, he has very quickly been able to bring some of his experience in expensive products and lifestyle brands to Harley.
The maintenance of MSRP, the restoration of scarcity and, above all, the rebuilding of brand desirability have his career hallmarks stamped all over his Rewire/Hardwire process. Sooner or later, analysts will like enough of what they are seeing to reboot Harley's share price. Then, there is no reason why Harley should not enter a new era of convincingly strong Wall Street performance.
It may take some years before Harley is able to restore the S&P 500 upper quartile status that Zeitz' predecessor Matt Levatich was so concerned to try to protect. In the meantime, dividends should continue to remain strong, and, for now at least, the spectre of hostile take-over that had haunted Harley for much of the past decade does seem to have receded (how's that for a hostage to fortune!).
The Rewire/Hardwire process has seen some brutal housekeeping implemented at Harley - though nothing compared to the severe haircut that Keith Wandell inflicted back in 2009. The consensus is that while that worked - adios Buell and MV Agusta - it had long-term impact. The trimming of those other brands and product lines, and the thousand other cuts, did protect the balance sheet, but also resulted in the death of ambition; it bought the company time, but it was not used well.
In Zeitz' case though, there have been no big slices of low hanging fruit to be cut away. Instead, his approach has been more subtly strategic. Despite the effects on the dealer network, the mid-stream new model development course changes and the terminated careers, it is one that has made sense.
The Hardwire strategy is allowing Harley to bring a renewed sense of brand status and integrity along for the ride, and, so far, the model range buttons that his management team have pushed, and the management structure rebuild itself, already has started to yield results.
Personally, I particularly like what Harley has done with its LiveWire conundrum, and with Serial 1, even if Stacyc appears vulnerable. As regular readers will know, I had long been an advocate of taking the Bar 'n Shield back to its real roots, indeed to the real roots of 'American Motorcycling' in general and getting jiggy in the ADV space, and bowing out of so-called entry level pricing, but making sure that the new products (Sportster 1200 Custom, LiveWire One and the Pan America) had profitable but still competitive MRSPs is a great deal more logical than anything that was in the 'More Roads to Oblivion' plan.
Indeed, sustaining a better and more profitable pricing and ROI profile, in reasonable volume opportunity developed markets, and doing so while also Chasing Down the Dragon in China (without compromising either brand values or American and European price-points), is 'all good' as far as I can tell.