This edition of AMD Magazine went to press the week before Harley's (and Polaris/Indian's) 2019 full year results were published, so whatever I say here on the subject of Harley's financial performance will likely have been superseded (good or bad) by its Q4 and Full Year 2019 numbers.
Although it had appeared that Harley's sales numbers (in particular) were starting to show somewhat of a rebound during March 2019, the subsequent performance through the second and third quarters didn't show that anything had sustained.
Apart, that is, from the fact that third quarter sales numbers were not, in fact, as bad as many had been expecting. Whether or not a 3.7% decline in domestic U.S. quarterly sales (compared to Q3 2018) will turn out to have been anything to hang the proverbial hat on will be seen soon enough.
That decline has to be set against a domestic U.S. industry decline of -1.7% for the period. However, statistically speaking, Harley's rate of decline has been slowing and at -1.7%, the overall motorcycle market in USA was as close to flat as it had been in years.
Reasons to be cheerful? Maybe not quite that, but the first stage in any kind of return to growth is for market decline to stop. Whatever Q3 presaged, it is unlikely to have been anything like dramatically good. Nothing can change the fact that Harley's Q3 profits saw a drop of over 24% compared to Q3 2018, with revenue falling by around -5 percent. However, Harley's -3.6% Q3 domestic sales decline can be set against growth of +2.7% internationally - hence my remarks last month about Harley's mid-decade objective of seeing at least half of sales happening in international markets appearing to be at least one 'More Roads' strategic objective that Harley can achieve.
Despite the fact that Harley's international sales have actually declined for eight out of the past twelve quarters, international sales are already at around 40% of production - so it looks like the decline of the domestic motorcycle market means that Harley is pushing against an open door with that objective.
11th consecutive quarterly decline
Though it should be noted that the objective has morphed since the original 'More Roads' iteration. Harley appears to be pointing to wanting to see 50 percent of revenue derive from international markets by 2027, rather than the originally stated 50 percent of volume. A small but nuanced change in strategic objectives given the likely price points for Harley's 338 cc Qianjiang/Geely produced lightweights for Asian markets.
Harley's Q3 shipments guidance maintained a 212,000 to 217,000 unit forecast for 2019 as a whole (which is greater than -5% down on 2018) while remaining pretty much non-committal over what the final quarter would look like.
The third quarter marked an 11th consecutive quarterly decline in U.S. sales, and the 19th in the last five years that have seen its domestic sales decline. Five years. As David Bowie once sang - "Five years, my brain hurts a lot." One thing we can all be certain about is that Harley doesn't have five more years in which to get it right, get it turned around.
So far Harley's shareholders have been remarkably patient. Harley has been 'Shark Bait' for a long time already, and as has been famously observed - "money never sleeps." As Rich Duprey (Motley Fool) said of its Q3 results: "Net profits tumbled to $86.6 million, or $0.55 per share versus the $0.68 it reported a year ago. Even adjusting for one-off events like the impact of tariffs and costs of its restructuring plan, earnings still fell from $0.82 per share to $0.70" - a -15% decline. The Wall Street algorithms won't be liking that!
At the time of writing (January 13), the Harley share price was trading at $35.37, having opened at around $37.00 in January 2019 and hit a 12-month high of just $41.00 in April, and low of just over $30.00 in September, and that in one of the Bullish of Bull markets on record. On a brain-hurting five-year view, Harley's share value has nearly halved from $65.00 in January 2015.
Having badly stubbed its toe with its doomed efforts to appoint a 'Brand Supremo', having achieved considerably less traction for the $30k 'LiveWire' than had been hoped for, and a lot of work still to be done before the new 60-degree V-twin 'Revolution Max' engine Pan America ADV (1,250 cc) and Bronx streetfighter (975 cc) are anywhere near 'in shape' to go eyeball-to-eyeball with its rivals (and limited time left to finesse the launch iterations before final product design lock-down will be needed), it looks like Harley will be getting a roasting from a so far surprisingly supine investor and analyst community when CEO Matt Levatich and CFO John Olin have to face the music on January 28th.
For me, personally, it is the 'LiveWire' miscalculation that has been the most egregious - but then again this is a subject on which my European perspective makes the project look like a triumph of marketing vanity over Powered Two-Wheeler (PTW) industry best practice.
Had Harley's new-look downtown metro-chic dealer network been in play, then sure, it would have been exactly the kind of zeitgeist play that would have had the doors swinging. However, since, realistically speaking, price-point and range speak to neither Harley's traditional core base or much sought after new Millennial base, it is no surprise that there are just as many dealers starting to come over all negative about the machine's prospects as there are those whose Kool Aid drip stands have not yet been unplugged.