Harley need weapons of mass seductionTHIS edition of AMD Magazine was timed to include Harley-Davidson's second quarter financial news - the details were posted at the SEC (Securities & Exchange Commission) the day before we sent this edition to press.
Therefore it is difficult to be too judgemental about the investor community's' reaction to the numbers in terms of how the share price reacted, however, on the initial announcement Harley shares jumped a couple of Dollars or so from around $55.00 to the $57.00/$58.00 region.
A modestly positive response despite the trailed poor news simply because in April Harley-Davidson had taken the precaution of already revising down their original 2015 forecasts after just one quarter.
This meant that analysts weren't scrambling to explain to their investors why the company did worse than they had been predicting; instead they could approach the numbers with a certain sangfroid because with results that were "within guidance", their own investor guidance survived the trauma of bad numbers, appearing sage rather than ill-informed.
Such is the dance that new Harley-Davidson President and CEO Matt Levatich is now engaged in. Welcome to the unwelcome realities and unrealities of your new world Matt! In a classic case of unfortunate timing, Matt's well deserved elevation to the top job sees him inherit a post Wandell malaise that is going to take quite some sorting out.
It could have been worse of course. To give Keith Wandell his due, as I tried to do repeatedly throughout his tenure, without some kind of matrix of drastic action Harley-Davidson could indeed have seen all achievements since 1984 come completely unravelled.
'a cycle appears to be established'
They didn't, and for that Wandell is to be respected. He is to be given credit for securing Harley's transition through the downturn regardless of what many think about some of the decisions taken to secure survival; regardless of what many now think about the shortcomings of the plan and the effectiveness of its implementation.
There is no question that Matt Levatich is inheriting a company with as many weaknesses as strengths and as many battles still to be fought as have already been won.
One such is how to keep the investor community on side. A group of people known to take their money and invest it elsewhere in a heartbeat (I know I would) if the ROI prospects were faltering - certainly in the medium to long-term.
Which brings that share buy-back plan back into sharp focus. The $2.00 to $3.00 share price uptick in reaction to Harley's second quarter fiscals already appeared to be running out of steam a mere 24 hours after their release, just as the initially positive reaction to the share buy-back plan had done when first announced in January, and again when confirmed as being debt-based in June.
A cycle appears to be established, a pattern emerging. Harley manage to create a circumstance in which the share price gains ground, but the reaction doesn't sustain - in the medium term the share price remains moribund in the mid fifties to low sixties region each time, well south of its early 2014 post-recessionary peak in the upper sixties and low seventies, and well south of where investors will be wanting to see it.
And why exactly does this need to matter to Matt Levatich? Because the last thing the company needs right now is for the first 24 months of his watch to be plagued by the unwelcome advances of predators - at a time when instead it needs the strengths Levatich brings to the table as a motorcycle and manufacturing man, so it can build on Wandell's survival mode of management with a stage two plan that takes Harley to a next level in product offer terms.
Harley's EPS is still reasonable, of itself, but not exactly competitive (check out what has been happening with Polaris investor ROI for example). The prospects of share buy-back "without Dollar limit" will certainly have gotten the attention of those looking for short-term shareholder value, and encumbering the balance sheet with the $750 million of long-term debt the company has committed itself to in funding this latest stage in its ongoing share buy-back strategy does have the advantage of making Harley's balance sheet a tad less attractive to raiders.
However, if investor reaction to this year's new model introductions is as short-term, lukewarm and unsustained as it was to last year's, then coming as it will a month or so before a 3rd quarter fiscal announcement, there could be implications for Harley as early as this fall/winter.
That Harley is betting the farm on third quarter and full year motorcycle sales and unit shipment guidance being met is nothing short of a dice-roll.
Either Harley already have some very cool news in the locker with which to seduce the masses, or Levatich could find himself engaged in a war for which Harley's arsenal is ill equipped.