Harley-Davidson earnings: US growth is key

The company has to adjust to the changing domestic demographics, which doesn't offer the same opportunity as it once did.

By Trefis Jul 24, 2013 10:21AM
Highway through prairie (© Comstock Images/Jupiterimages)Harley-Davidson (HOG) is scheduled to announce its second quarter earnings on July 25. Shares of the company have traded in a narrow range in the last few months, mainly because Harley has been reporting numbers close to its guidance. Besides selling the iconic motorcycles, the company also offers its brand merchandise and provides wholesale/retail financing and insurance programs to dealers and customers.

The U.S. accounts for about two-thirds of its total motorcycle sales. Harley predicts its sales volume to grow 10%-18% in the first half of 2013, helped by the new surge in manufacturing capability at its York facility, launched at the start of the year. Harley's American numbers have rebounded post the 2008 crash, but it will be difficult for the company to clock the kind of numbers it once boasted. This is mainly because of changing demographics, which don't suit the company. Most of Harley's customers are men in their 40s and 50s, a segment of the population that is declining.

Harley has been trying to target other demographic groups such as women and men outside the aforementioned age bracket, but with mixed success. Despite selling 5% more motorcycles in 2012, the company sold only 160,000 bikes in the U.S. compared to more than 273,000 back in 2006. The disparity in the two numbers suggests that there is a potential to grow in the U.S. from here on, but also that the current demographics don't offer the same opportunity as it once existed.

Harley Davidson US Heavyweight Motorcycle Market SizeTherefore, it doesn't surprise us to see the company pouring in investments in the emerging markets for further growth. International markets offer tremendous potential; however, growth will be slow and steady. Setting up plants to manufacture products locally and building new motorcycles to cater to the needs of the local population takes a significant amount of time. Moreover, for a company like Harley Davidson to post significant volumes in emerging markets requires a good proportion of population with high disposable incomes. Countries like India and the Philippines offer significant upside, but the volumes will remain a tiny fraction of the American sales for the foreseeable future.

The company is doing well though. For instance, Asia Pacific and Latin America combined accounted for 13.8% of total shipment volumes in 2012, up from 12.2% in 2011. It rose further to 15.3% in the first quarter of 2013.

Harley Davidson Non US and Europe Heavyweight Motorcycle SalesBack in 2009, the company had set a goal of adding 100 to 150 new international dealerships within the next five years. By the end of 2012, it had opened 93 new dealerships. As the proportion of sales from the developing markets increases, their contribution on the income statement will be more evident. In total, Harley estimates it will sell 259,000 to 264,000 motorcycles in 2013.

Stable margins

Gross margins have been improving consistently thanks to the company's ongoing restructuring process. They widened 80 basis points to 36.7% in the first quarter. The company expects gross margins of 35.25% to 36.25% for the full year.

Harley Davidson Gross Profit MarginHarley is nearing the end of a comprehensive five-year long restructuring process and will hope to see substantial cost savings from its efforts going forward. The restructuring process began in 2009, and is expected to reduce manufacturing costs, improve efficiencies and facilitate far more flexibility in labor requirements. Back in 2009, the gross margins were in the region of 32%-33%, now they are consistently exceeding 35%.

We have a $60 price estimate for Harley-Davidson, which is about 5% above the current market price.

Tags: HOG
Jul 24, 2013 2:09PM
Best riding 115 hp leather sofa on two wheels you can buy.  Also the best clothing you can find in a 3x, coats, pants ,jackets, and t shirts consistent high quality wash well wear well and last for years, keep up the good work.   Seeya at Sturgis!!!!!!!!
Jul 24, 2013 1:04PM

Overpriced bike and stock. The quality is way up from when  I was young.


 I bought a 7 year old bike this year with low mileage as the resale value is not that great.  Having a lot of fun with it and it has the Harley look.  If I decide to sell I won't get burned. Everyone thinks it is cool !  Young and old.          ;-)

Jul 24, 2013 11:24AM
Much cheaper to buy a Honda or Suzuki.. less maintenance.. etc
Jul 24, 2013 2:15PM
I bought the stock at 36 and rode it to 56.39 nice little 56.5% run.   I buy American  stock and cars and toys nearly all the time, I believe in this country and everything we do good or bad so kiss my **** with your rice rickets and cheap cars.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124 rated 1
266 rated 2
452 rated 3
702 rated 4
671 rated 5
604 rated 6
640 rated 7
495 rated 8
267 rated 9
158 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.