Harley Davidson (HOG) will start production on electric motorcycles in 2019. Dubbed “Project Live Wire”, the e-motorcycle is expected to resemble a concept bike the company introduced back in 2014. While HOG’s 2017 revenue declined 60.2% YOY (to $2.4 billion), the one segment of the motorcycle business that has been growing is the female demographic (according to Motorcycle Industry Council); so, it makes sense to invest ($25-50 million/year) in the development of lighter bikes (with smaller engines) and EVs, preferred by women. HOG will have little competition in the U.S electric street bike market, none of their big-name competitors (Honda, Kawasaki, Suzuki, BMW & KTM) offer a comparable product.
Howie Long-Short: The big-name competitors referenced (HMC, KWHIY, SZKMF, BAMXF and VIE: TKMI) don’t offer 2 wheel EVs, but HOG will have competition in the U.S. market from a series of smaller companies. Energica (BIT: EMC), publicly traded on the Borsa Italiana, Alta Motors and Zero Motorcycles, are all playing in the space. Alta Motors is privately held, but Telsa (TLSA) participated in the company’s $27 million Series B round (June ’17). Zero Motorcycles appears to have raised over $85 million, but all of it is private money.
Fan Marino: The Trump administration is causing headaches for HOG shareholders as recommended quotas on imported foreign metals has the EU prepared to retaliate; with tariffs on U.S. products sold in Europe. Should the recommendation pass, the European Commission has said it would take “measures to defend EU industry”; including the implementation of tariffs on U.S. agriculture products, bourbon and HOG bikes. Why HOG? The European Commission is looking to hurt House Speaker Paul Ryan, who hails from Wisconsin; the location of HOG headquarters.
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Harley-Davidson (HOG) sales declined 6.7% YOY in 2017, including 8.5% in the U.S. market; so, the company will proceed with plans to close its Kansas-City, MO based final assembly plant. The consolidation, which will cost 800 employees jobs, will save the company $170 million to $200 million over the next 2 years; with an on-going annual savings of $65 million to $75 million, by 2020. The company did not comment on the status of its Wisconsin based manufacturing facilities (Menomonee Falls & Tomahawk). While aging baby boomers and difficult economic conditions, in pockets of the country, are contributing to HOG’s sales struggles; a strong U.S. dollar has enabled foreign manufacturers with overseas facilities to sell bikes in the country at lower prices (up to $3,000 less/bike) with greater profitability.
Howie Long-Short: Net income declined a staggering 82% YOY in Q4 ’17 (to $8.3 million), as a one-time charge associated with President Trump’s tax cut and a $29.4 million expenditure on a voluntary product recall more than off-set the quarterly revenue growth (+11% to $1.23 billion). Moving forward, HOG’s plans to reduce inventory volume and tightly managing costs are sensible; but, how long does it take to develop a new generation of riders capable of turning around the company’s fortunes? Cruiser and touring motorcycle sales have been on a steady decline since 2006 (when HOG generated $252.4 million in profits).
Fan Marino: Harley put forward a strong effort to reach the younger demographic, debuting the Harley-Davidson Snow Hill Climb at X Games Aspen 2018 (occurred 1/25-1/28). The medaled event placed riders on modified H-D Sportsters, with the goal to reach the top of the SuperPipe course first. Travis Whitlock was your Gold medal winner. Harley isn’t the first motorcycle company to look to X Games for future riders, in ’17 Indian Motorcycle (PII) debuted its Scout Bobber bike at the summer X games. While still in Harley’s rear-view mirror, Indian is coming on strong. The company increased U.S. sales 17% in Q4 2017 and “continued to gain significant market share for the 2017 fourth quarter and full year on a YOY basis”
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Harley Davidson, Inc. (HOG) is investing a record $562,500 in contingency program funding for the 2018 American Flat Track race schedule, after rival Indian Wrecking Crew riders took the Top 3 spots in the 2017 AFT Twins class; the brands’ first championship after a 60-year absence from the sport. The contingency program money serves as an incentive for unaffiliated riders to race specific bike models; with riders receiving payouts for winning (and placing in) the 18 circuit races. Flat Track, where competitors race on a 1.5-mile-long tracks at over 140 MPH, is valued by motorcycle manufacturers; seen as an entry point to the valuable 18-24-year-old demographic, riders who choose their allegiance and remain loyal as they age.
Howie Long-Short: Indian Motorcycle Co. was acquired by Polaris Industries (PII) in 2011; relaunching its racing team for the 2014 season. PII had a great Q3’ 17, increasing revenue 25% YOY to a record $1.479 billion; with a net income, up 153.6% YOY to $81.9 million. Indian Motorcycle retail sales (up 16% YOY) helped to drive the growth; with the brand’s market share exceeded 10% in September.
Fan Marino: HOG is serious about taking back the title in 2018, offering $35,250 per race (winners take home $10,000) to “privateers” riding XG750R or XR750 models. To put that amount in perspective, HOG’s entire 2015 program cost just $96,000! For those wondering, Indian riders won the ’17 Championship racing Scout FTR750s. Indian isn’t just handing the ’18 Championship to HOG though, PII is offering $350,000 in performance bonuses ($18,500 per race) for “privateers” who prefer their bikes.
Harley-Davidson Is Spending a Half-Million Dollars to Win the Racing Crown Back From Indian
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Harley Davidson (HOG) reported Q3 earnings that beat analyst predictions and the company announced it will meet full year shipment forecasts, despite lagging sales and net income that declined from $114.1 million to $68.2 million YOY. HOG reported U.S. retail sales declined 8.1% for the quarter, with total global sales down 6.9% from Q3 ‘16. Moving forward the company hopes that a price increase on some of their bikes, favorable foreign exchange rates and more models to choose from, will lead to improved profits.
Howie Long-Short: Harley’s core audience is aging. They’re not buying new bikes and they’re flooding the resale market with used ones. The younger demographic is scooping up bargains on the resale market or opting for lower-margin models. Harley can’t solve those problems and they have no control over exchange rates, but they are doing a good job controlling what they can. The company is introducing 17 new models in 2018, 9 of which are under $12,000. They’re giving the consumer what they want!
Fan Marino: Millennial motorcycle enthusiasts aren’t the only ones opting to save where they can. NBA star LeBron James readily admits to being thrifty. Despite an estimated net worth of $400 million, James was recently quoted as saying “I’m not turning on data roaming, I’m not buying no apps, I still got Pandora with commercials.” With that attitude, James is certain to avoid lists like Time Inc.’s “10 Insanely Rich Athletes Humbled By Financial Ruin”.
Harley-Davidson beats profit estimates, backs full-year forecast
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Harley-Davidson (HOG) reported retail sales were down 9.3% YOY in Q2 ’17 amidst an industry wide slowdown; as baby boomers, historically the company’s biggest customers, aren’t buying new bikes. To exacerbate the issue, boomers are selling their old HOG bikes, which is driving prices down within the used market. As a result, the used Harley market is booming, with pre-owned HOGs selling at 2.5x the rate of new ones. The growth within the used market reflects the strength of the Harley-Davidson brand, but those sales obviously don’t impact the company’s bottom line.
Howie Long-Short: Harley is rolling out 17 new models in 2018, 9 of which are under $12,000. Smart. Millennials want to ride HOGs, they just want cheaper ones.
Fan Marino: Harley envisions adding 2 million new riders in the U.S., by 2027. Their riding schools turn out 65,000 new riders/year. Howie is the mathematician, but 65,000/year over 10 years is only 650,000. Where are the other 1.35 million people coming from?
How Used Bike Growth Is Impacting Harley-Davidson
Harley-Davidson (HOG) announced 17 new bike models that will hit the streets in 2018, the 115 year anniversary of the company. The motorcycle manufacturer announced the upcoming releases of 12 new softails that will include the most powerful engine ever offered on a HOG cruiser, and 5 new touring bikes, each with 3 custom vehicle operations options. The release is the company’s largest product development project ever and part of CEO Matt Levatich’s plan to add 100 new models over the next 10 years.
Harley-Davidson Rolls Out 17 Stunning New Models
Howie Long-Short: Q2 sales were down 6.7% YOY, but that figure only tells part of the story. While the remainder of the industry is slashing prices to account for the industry-wide retail slowdown, HOG prices (and margins) remain at a premium. IF the company chose to discount, it would likely show growth. Oh, and even with the drop in sales, they still own 50% of the U.S. motorcycle market.
Fan Marino: The concern for HOG has been that as baby boomers continue to age, they’ll buy motorcycles less frequently. Recent reports indicate that motorcycle rider demographics are getting younger, more urban and more female, which would bode well for the industry; but as a 30-something who lives in NYC, that is certainly news to me.
The Milwaukee Bucks have announced a partnership with long-time sponsor, Harley Davidson (HOG), that will enable the motorcycle brand to place their logo on the team’s jersey beginning next season. The patch has the potential to receive 2 billion+ impressions across Bucks local & national broadcasts, video and digital platforms. HOG was founded in Milwaukee and maintains their corporate headquarters in the city. It should be noted that NBA contracts prohibit players from riding motorcycles.
Bucks sign jersey patch deal with Harley-Davidson
Howie Long-Short: Certainly some synergy between Bucks and Harley fans, but as a long-time sponsor, this move is about reaching the fans of the other 29 teams.
Fan Marino: You have to wonder if Bobby Hurley & Jay Williams read the terms of their contracts, before purchasing their bikes.