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Why Is Harley-Davidson (HOG) Up 6.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Harley-Davidson (HOG - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Harley-Davidson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Harley-Davidson Q3 Earnings Beat Estimates, Up Y/Y

Harley-Davidson reported adjusted earnings of 68 cents per share in third-quarter 2018, beating the Zacks Consensus Estimate of 47 cents. In the prior-year quarter, the figure was 40 cents.

Net income augmented to $113.9 million from $68.2 million registered a year ago.

Revenues from the Motorcycle and Related Products segment increased to $1.12 billion in the reported quarter, which was almost in line with the Zacks Consensus Estimate of $1.1 billion. In the prior-year quarter, the figure was $962 million. The company also reported consolidated revenues of $1.32 billion, marking an increase from the prior-year figure of $1.15 billion. Harley-Davidson witnessed improved international retail sales growth.

Motorcycles and Related Products

Operating income from the Motorcycles and Related Products segment rose to $65.7 million from $17.4 million recorded a year ago. Further, operating margin was 5.8% compared with 1.8% recorded in the year-ago quarter. This rise was primarily due to higher gross margin and lower SG&A as a percent of revenues compared with the prior-year quarter.

For the quarter ending on Sep 30, the company shipped 48,639 motorcycles compared with 41,662 in third-quarter 2017.

Harley-Davidson’s retail motorcycle sales in the United States declined 13.3% to 36,220 units. International sales gained 2.6% to 23,006 motorcycles from 22,416 in the prior-year quarter. During the reported quarter, sales in Latin America, and the Middle East and Africa (EMEA) region gained 11.8% and 4.6%, respectively. However, sales in the Asia-Pacific and Canada reduced by 0.3% and 4.7%, respectively.

Harley-Davidson’s worldwide retail motorcycle sales fell 7.8% to 59,226 units from 64,209 in the year-ago quarter.

Revenues from the Parts and Accessories segment decreased 7.2% to $212.4 million. Moreover, the metric for General Merchandise — including MotorClothes apparel and accessories — lost 19.8% to $58.3 million.

Harley-Davidson Financial Services

Revenues in Harley-Davidson Financial Services (“HDFS”) were $191.7 million compared with $189.1 million recorded in the prior-year quarter. Operating income gained 8.7% to $83.8 million from $77.1 million in the year-ago quarter.

Financial Position

Harley-Davidson had cash and cash equivalents of $927 million as of Sep 30, 2018, compared with $683.1 million as of Sep 24, 2017. Net long-term debt slumped to $4.2 billion from $4.6 billion as of Sep 24, 2017.

For nine months — ending on Sep 30, 2018 — Harley-Davidson’s operating cash inflow rose to $1.12 billion from $949 million a year ago. Capital expenditure was $119.8 million compared with $114 million in the preceding year period.

Share Repurchase

During third-quarter 2018, the company repurchased 1.9 million common shares for $84.5 million. At the quarter end, 21.3 million shares remained under board-approved share repurchase authorizations.

Looking Forward

For 2018, Harley-Davidson reaffirmed its full-year motorcycle shipments of 231,000-236,000 units. Further, for fourth-quarter 2018, it expects motorcycle shipments to be approximately 45,800-50,800 units.

For 2018, the company reduced its capital expenditure to $230-$250 million from $250-$270 million stated earlier. It includes roughly $50 million to support manufacturing optimization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -27.74% due to these changes.

VGM Scores

Currently, Harley-Davidson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Harley-Davidson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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