June 3, 2023


Automotive to Us

Why Harley-Davidson Shares Were Revved Up This Week

What happened

Shares of Harley-Davidson (NYSE:HOG) roared to life this week after the motorcycle maker reported a surprise fourth-quarter profit that saw motorcycle revenue surge 54% as U.S. demand for big bikes returned.

Harley’s stock jumped 16.7% on the results, according to data by S&P Global Market Intelligence, accelerating a turnaround for the shares that began last month.

Harley-Davidson Pan America 1250 motorcycle.

Image source: Harley-Davidson.

So what

Demand for big bore motorcycles like the ones Harley-Davidson makes has been on a years-long slide, which is still apparent in its results. 

Although Harley enjoyed a 9% increase in U.S. sales in the fourth quarter — the first time it has increased sales in the period in five years — the 18,855 bikes it sold is still one of the lowest numbers it has sold for the three-month period.

This could be the start of a turnaround, and is a welcome relief from the inexorable decline sales had been on, but one quarter doesn’t make a recovery. Harley needs to now back this up with consecutive quarters of growth.

Now what

Under the leadership of CEO Jochen Zeitz, Harley has renewed its focus on the U.S. market while curtailing its expansion in the rest of the world to just the most profitable. It’s still probably part of the reason sales in every other market fell during the quarter.

The U.S. is, of course, Harley’s biggest, most important market, which is why it made little sense to many that the bike maker’s prior management team had chosen to largely ignore it and focus on international growth instead. Last year was the first year of implementation of Harley’s five-year roadmap under Zeitz, called The Hardwire, and it seems to be bearing fruit, at least domestically. 

However, it’s important to point out that while Harley-Davidson reported a $0.15 per share adjusted profit for the fourth quarter, handily beating analyst forecasts of a $0.38 per share loss and a complete reversal of the $0.68 per share loss it recorded a year ago, its motorcycle business is still operating at a loss of $102 million. 

The bike maker’s quarterly profit came mostly from its financial services division ($95 million operating income) and a benefit from income taxes ($16 million). The business of selling motorcycles is still a loss generator for Harley.

Harley also announced during the quarter it would be spinning off its LiveWire all-electric motorcycle business into a stand-alone publicly traded company through a reverse merger with special purpose acquisition company (SPAC) AEA-Bridges Impact. Harley will still own 74% of the new company.

Previously Harley had separated out Livewire from the traditional motorcycle business, but now it would be the first publicly traded EV motorcycle company in the U.S. It was that announcement last month that was the catalyst for the start of Harley’s stock price turnaround.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.