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    Harley-Davidson Inc (HOG)

    Q3 2024 Earnings Summary

    Reported on Jan 16, 2025 (Before Market Open)
    Pre-Earnings Price$34.13Last close (Oct 23, 2024)
    Post-Earnings Price$34.76Open (Oct 24, 2024)
    Price Change
    $0.63(+1.85%)

    What went well

    • Harley-Davidson has gained significant market share in the touring segment, outperforming the industry. Their new product lineup has led to an increase in market share, particularly in touring motorcycles.
    • The company is committed to achieving a 15% operating income margin by the end of 2025, supported by cost productivity initiatives, operational discipline, and strategic pricing actions. Harley-Davidson has identified significant cost savings and is confident in its ability to improve margins.
    • LiveWire, Harley-Davidson's electric motorcycle segment, maintains leadership in the U.S. on-road electric motorcycle market with a 69% market share year-to-date. LiveWire plans to expand its addressable market by announcing a new product segment, which could bring additional revenue streams and drive future growth.

    What went wrong

    • Weakening retail sales and declining wholesale shipments indicate a challenging market environment for Harley-Davidson, with Q3 retail sales down 13% and wholesale units shipped down 39%, ending the quarter weaker than expected.
    • Potential inventory overhang may pressure future sales, as analysts question whether flat inventory levels are appropriate given declining retail demand, raising concerns about inventory reductions and possible impact on next year's performance.
    • The LiveWire electric motorcycle segment is underperforming, with revised full-year guidance lowering expected units sold to 600-1,000 units, leading to measures such as a 30% headcount reduction and expected 40% reduction in cash burn next year, which may continue to weigh on the company's profitability.

    Q&A Summary

    1. Inventory Alignment and 2025 Outlook
      Q: With retail weakness, why keep retail in line with wholesale?
      A: Harley-Davidson plans to align retail and wholesale by reducing dealer inventory levels. Dealer inventory at the end of Q3 was down by 13% from Q2, and they aim to reduce it by another 20% in Q4, bringing inventory back to last year's levels. They are confident these adjustments address inventory concerns and set up for a solid 2025, despite not providing specific expectations for next year.

    2. Operating Margin Targets and Cost Productivity
      Q: How will you achieve mid-teens operating margin targets?
      A: The company focuses on aligning production, wholesale, and retail to benefit from leverage. They are committed to achieving $400 million in cost productivity gains, excluding leverage effects, through operating discipline and cost control measures. This includes optimizing manufacturing and maintaining tight operating expenses.

    3. LiveWire's Future and Cash Burn Reduction
      Q: Will you reassess LiveWire if losses continue?
      A: LiveWire is taking significant actions to reduce cash burn by 40% next year. They've relocated operations from California to Milwaukee and reduced their workforce by 30%. These steps are expected to significantly reduce operating losses in 2025. They believe it's important to continue investing prudently in EV technology while monitoring business developments annually.

    4. Gross Margins and Promotions Impact
      Q: How will Q4 gross margins be affected by promotions?
      A: Q4 margins will be challenged due to a sizable reduction in wholesale shipments. The company is offering selective promotional support, mainly through interest rate assistance, to drive retail sales while remaining less promotional than competitors. They focus on rate promotions, which consumers are more responsive to.

    5. HDFS Outlook and Consumer Health
      Q: What's the outlook for HDFS amid rate changes?
      A: HDFS is performing well, managing losses with reserves virtually flat. Consumer health is good, but they expect 2025 may not be as strong as 2024 due to the debt portfolio resetting before the retail portfolio. They anticipate some challenges next year but are not ready to provide detailed guidance.

    6. Market Share and Future Expectations
      Q: How are you thinking about market share in 2025?
      A: Harley-Davidson has been gaining market share in the Touring segment, outperforming the industry significantly each quarter. They have a strong product lineup for next year and believe they are well-positioned to defend or possibly gain market share, especially in core segments, though they are not providing specific forecasts yet.

    7. Dealer Support and Profitability Measures
      Q: What are you doing to support dealers?
      A: The company is taking multiple measures to support dealers, including significant marketing investments through a marketing development fund. Other initiatives involve enhancing digital strategies to drive traffic and leads, facility upgrades, and setting achievable retail targets for next year. They aim to improve dealer profitability in 2025.

    8. Introducing More Affordable Bikes
      Q: Any plans for more affordable bikes under $10,000?
      A: While not discussing specific pricing, the company is addressing entry-level products with their RevMax platform going into 2025. Pricing details will be shared in the new year.

    9. Weather Impact on Retail Sales
      Q: How did weather affect Q3 retail numbers?
      A: Weather events, notably Hurricane Helene on the East Coast in late September, led to a tougher retail environment. Dealers had to close to prepare and couldn't reopen immediately, impacting sales toward the end of the quarter.

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