Iconic motorcycle manufacturer Harley-Davidson (NYSE: HOG) was a pariah in 2018 as then-president Donald Trump villainized the Company for moving some production overseas to mitigate trade tariffs. While profits sank during the 2020 pandemic, the Company has been profitable for the past five years. Harley Davison is the second largest motorcycle manufacturer in the U.S. behind Polaris (NYSE: PII). However, Polaris is not a pureplay in motorcycles as it also makes recreational vehicles (RVs) marine products competing with Thor Industries (NYSE: THO), Camping World (NYSE: CWH), and Winnebago (NYSE: WGO). To this day, all Harley motorcycles sold in the U.S. are assembled in the U.S. at one of its four domestic plants. However, this doesn’t mean the parts are all made in the U.S.A. About 70% to 80% of the parts are from the U.S. while other components are outsourced from other countries including Italy, Taiwan, Austria, Japan, Mexico, and China. Harleys sold overseas are made overseas at plants in Brazil, India, and Thailand.
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Strong Demand But Low Inventory
Demand was very strong, but dealer supply inventories were low stemming from production suspension in the prior quarter due to faulty third-party production issues. The Company was able to resume normal inventory flow towards the end of the quarter and expects the robust demand to continue moving forward. The Hardwire strategy the Company implemented in 2020 is showing results. The focus on Apparel & Licensing has been a key driver for the Harley Davidson lifestyle brand as apparel sales rose 41% and licensing rose 26% in the latest quarter. The brand is so uniquely American that it appeals to both motorcycle riders and non-riders. It’s Hardwire five-year plan is starting to bear fruit.
This Breakout Lacks the Volume
The weekly candlesticks for HOG were making higher lows since the swing low at $29.90 heading into the earnings report. The weekly MSL trigger breakout through $36.67 launched shares back up to retest the $42.75 range resistance. While the single weekly candle breakout looks robust, the volume behind the move is very lacking at just 12.5 million shares. Compare that volume to the volume of the last five attempts (that failed) to break the $42.75 level. These volume levels ranged from 15.2 million shares up to 35.2 million shares, which were still not enough to sustain the bounce. The light volume on the latest candlestick breakout attempt suggests the breakout may not hold. A pullback towards the new supports should be observed if looking for an entry as the fundamentals have materially improved. The $39.30 is the gap fill level, $36.67 is the weekly MSL trigger, $35.44 rising trendline support, $34.01 and $32.13 support levels and the $29.80 swing low support.
The Turnaround Accelerates
On Oct. 26, 2022, Harley-Davidson released its fiscal third-quarter 2022 results for the quarter ending September 2022. The Company reported an earnings-per-share (EPS) profit of $1.78 excluding non-recurring items versus consensus analyst estimates of $1.40, a $0.38 beat. Revenues grew 23.8% year-over-year (YoY) to $1.44 billion beating analyst estimates of $1.36 billion. Global motorcycle shipments rose 19% YoY as production recovered from previously announced suspension in Q2 2022. North American sales fell (-5%) mostly due to dealer inventory constraints, but inventories improved by the end of the quarter. The H-D 1 marketplace is the one-year old online platform for used bikes that hosts more than 30,000 motorcycle listings with include over 2,000 Harley-Davison certified bikes. The site has gotten nearly three million visits since its launch.
Reconfirmed Full-Year Guidance
Harley reaffirmed its full-year guidance with revenue growth expected from 5% to 10% with an operating margin of 11% to 12%. Capital investments will be from $170 million to $190 million, down from the previous estimate of $190 million to $220 million.
LiveWire Spin-Off
On Sept. 27, 2022, LiveWire (NYSE: LVWR) began trading on the New York Stock Exchange. LiveWire is an electric motorcycle spin-off of its previous Harley-Davidson electric motorcycle division that completed its business combination with AEA-Bridges Impact Corp in a SPAC reverse merger. Harley-Davison owns 89.4% of the Company. Its first electric motorcycle LiveWire ONE is able to get 150 miles on a single charge, which can take 11 hours max 100% charging through a 110 volt wall outlet. A DC fast charger can get the full charge done in an hour using a J1772 charging connector. Harley-Davidson CEO, Jochen Zeitz commented, “Closing this transaction with the listing represents a proud and exciting milestone towards our ambition for LiveWire to become the most desirable electric motorcycle brand in the world. We believe LiveWire is well positioned to define the two-wheel EV market and we are excited about the future.” More details will come in Q4 with LiveWire President Ryan Morrisey.
