A new report issued by Zack’s Equity Research shows Harley-Davidson has outperformed expectations for earnings in each of the last four quarters of the year, but also raises concerns about factors that could affect long-term growth.
The report explains that despite a 5.5-percent drop in earnings in the third quarter of 2014 compared to the same quarter a year ago, earnings were still about 10-percent above Zack’s Consensus Estimate. In addition, consolidated revenue was $1.3 billion in the quarter, higher than Zack’s estimate of $1.14 billion.
The report explains that the decline in revenue is the result of somewhat lower shipments of bikes compared to a year ago — and that was part of H-D’s plan. Despite that, H-D expects to finish 2014 having shipped 270,000 to 275,000 units, an overall increase over 2013.
The report raised some concerns about Harley-Davidson’s losses in its “financial services segment, aging customer base, expensive products and intense competition.”
We’re not financial experts, so we can’t really say too much about the concerns over the financial services sector — except that it’s probably difficult to post really strong earnings on that part of the business with consumer interest rates being relatively low.
On the other parts of the report, we may have some relevant insight. The aging customer base is something Harley-Davidson has clearly been addressing for a number of years, going all the way back to 2002 with the introduction of the V-Rod. The V-Rod is about as far removed from Grandpa’s Harley as a bike can get. Both its look and performance credentials have proven appealing to younger riders.
On the flip side, H-D has continued to improve its classic V-twin bikes with ever more sophisticated technology and improved reliability, handling, brakes and comfort features each year.
The 2014 Project Rushmore load of upgrades and the 2009 return of factory-built Harley trikes are just the most recent evidence of H-D’s awareness of the need to not only keep the product line dynamic, but to hang on to those riders who have bought Harley after Harley over the years.
The ability to attract younger riders has a financial component, too. The V-Rod, while appealing to high-performance minded younger riders has a fairly high base price at $16,149.
That may keep younger riders with limited disposable income away from the brand, particularly if the Sportster is still too high priced (MSRP $8,249 for a Vivid Black 883 Super Low) or is just too old school for some newer riders. Enter the new 500 and 750 Street models.
The 2015 Harley Street 500 (XG500) can let that newer rider put a Harley under him or herself for an MSRP starting at $6,700; nearly $10K less than that V-Rod, and it’s equipped with a SOHC liquid-cooled V-twin with four valves per cylinder.
For the new rider looking for a little added punch, the Street 750 (XG750) has a similar Revolution X liquid cooled V-twin and retails for an MSRP starting at $7499.
For those who may have the impression that the XG500 Street is just a mild-mannered pretender, Clayton Gatewood of Hoosier Daddy Racing set an AMA National Speed Record on one at the Bonneville Motorcycle Speed Trials this past August in the 500 P-AF class of 92.427 mph.
So, all these strategies address the issues of aging customer base, expensive products by creating new, lower-price point products with state-of-the-art designs that make the H-D brand more attractive and affordable for younger and entry-level riders.
With its shocking (pardon the pun) roll-out of its Project Livewire e-bike, the Motor Company has served notice that it is also going to be a player in the market even as that market makes some potentially radical changes in the future.
With expansions of its own into pan-Asian markets like India and China, H-D is turning the tables on imports that took up market share in the U.S. in the sixties, seventies and eighties.
As Harley-Davidson leans forward into its 112th year in 2015, the final question raised was about intense competition—and indeed, with re-emerging brands like Brough-Superior, Norton, Indian and others that Harley-Davidson has already outlasted once, new domestic competition from Motus and unrelenting pressure from Japan’s Honda, Suzuki, Yamaha, Kawasaki, trans-Atlantic competition from Triumph, BMW, Moto-Guzzi, new brands from China and Korea and many more, competition is perhaps more intense than it has been in H-D’s long history.
With all that competition, it is a fair question to ask: Will the Bar and Shield brand hold its own? When it comes to a company that has survived two World Wars, the Great Depression and too many recessions to count, one would have to hesitate to bet against it