By Rick Barrett
Harley-Davidson stock was sinking Tuesday after the company posted a fourth-quarter loss and said it was committed to setting “realistic expectations” after years of not meeting its goals.
Harley also revealed a five-year turnaround plan that includes $190 million to $250 million a year in capital investments and a focus on touring, cruiser, and trike markets to achieve higher growth in motorcycle revenue. The company said its bike shipments to dealers for 2020 fell 32% to about 145,000 units, one of the lowest levels since the late 1990s. Tightening inventories has been part of the company’s plan to address an over-supplied market, along with eliminating discounted pricing to shore up the value of the brand.
“We will not chase volume for volume’s sake,” Jochen Zeitz, chairman, president and CEO said in a conference call with analysts. Harley posted a fourth-quarter loss of $96 million, or 63 cents per share, compared with a profit of $13 million, or 9 cents per share, a year earlier. Analysts had expected a profit of around 14 cents a share. The company said its North American motorcycle sales were down 15% in the quarter and 18% for the full year. Worldwide, it exited 39 markets in 2020, and its bike sales were down 17% for the year. Going forward, Harley has set goals of low double-digit earnings per share growth through 2025 as it comes off years of disappointing results.
“In the past, we have over-committed and under-delivered,” Zeitz said. Highlights of the five-year turnaround plan, named The Hardwire, include launching a used bike program called Harley-Davidson Certified, creating a separate division for electric motorcycle development, and extending employee ownership to all 4,500 employees through an equity grant. “We launch The Hardwire with capabilities, assets, and a legacy unmatched by any competitor,” Zeitz said.
Still, it’s going to be a hard road back for the world’s largest manufacturer of heavyweight motorcycles as its baby-boomer customer base ages out of riding, and not enough young people have embraced the big cruiser and touring bikes. Following the earnings announcement and conference call with analysts, Harley shares tumbled nearly 19% as investors showed skepticism.
“Obviously the earnings were a big disappointment. Until they can prove Wall Street wrong, I think the stock is going to continue to be volatile,” said analyst Brian Yarbrough with Edward Jones Co.
“They are doing the right thing by trying to correct the supply and demand problem. There has been way too much supply in the market and not enough demand,” Yarbrough said. “I just don’t know that shrinking your way to profitability works.” “The biggest cloud that hangs over Harley is the cloud of aging demographics and younger customers not being interested in their bikes. Whether that is the truth or not, it’s the cloud that hangs over them from an investor standpoint,” Yarbrough said. A year ago, then-CEO Matt Levatich said 2020 would be a pivotal year as the company focused on attracting new customers through smaller, more versatile bikes and electric motorcycles. Shortly after, Levatich left the company after 26 years. Under Zeitz’s leadership, Harley-Davidson has focused on big bikes that are more popular with older, more wealthy, and more experienced riders.
The company has taken strong measures over the last 12 months such as exiting international markets where sales were flat or nonexistent to focus on North America, Europe, and portions of the Asia-Pacific region. “We are now committed to setting realistic expectations, and we know that execution is everything,” Zeitz said. But until the company shows consistent growth, Yarbrough said, investors are going to have doubts about the turnaround plan. “I think there are a lot of questions around that… I’m just not sure they can recreate the kind of demand they had back in the heyday of bike sales. That’s the million-dollar question.